Interim Budget 2014 15

8/12/2019 Interim Budget 2014 15

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Interim Budget2014-15

Credit Rating, Research & Information Services


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Table of Contents

Macro economy................................................................ 2-4

Sectors

Automobile .......................................................................... 5

Banking ................................................................................ 6

Capital Goods and Power Equipments ................................ 7

Construc on / Real Estate ................................................... 8

Consumer Durables ............................................................. 9

Industry General ............................................................... 10


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Macro economyThe interim budget 2014-15 laid emphasis on scal consolida on and the need for India to focus on manufacturing

to steer the economys growth. The budget did not announce any major new expenditure for the coming scal and

sought to con nue with the expenditure levels of the previous scal. Similarly no new sources of revenue too have

been outlined for FY15.

Noteworthy has been the containment of the scal de cit to below the target levels and the reduc on in the current

account de cit. The countrys economy although on a decline is seen as more stable than two years ago going by

the decline in in a on, increase in exports, stability in exchange rate and modera on in scal and current account

de cit. All this is largely a ributed to the concerted e orts by the government and the monetary authority (RBI).

Summarized below is the current state of the economy and key highlights of the interim budget.

Overview of Economy

GDP growth es mated at 4.9% for FY14

Agri sector growth impressive at 4.6% in FY14

Decelera on in manufacturing growth owing to lower investments

In a on on a decline - WPI from 7.3% in Jan13 to 5% in Jan14 and Core in a on from 4.9% in Jan13 to 3%.

Food in a on down from 13.8% to 6.2%

Fiscal de cit has been contained at 4.6% of GDP for FY14, below the target 4.8% for the year

Revenue de cit at 3.3% (FY14)

Current account de cit is es mated to decrease to $45 bn in FY14 from $88 bn in FY13

Recovery in exports. Exports are es mated to have increased to $326 bn in FY14 from $304 bn in FY13 (growth

of 6.3%)

Foreign exchange reserve to grow by $ 15 bn in this Financial Year

Food grain produc on has increased to 263 mn tonnes in FY14 from 255 mn tonnes in FY13

In FY13, savings rate was 30.1% (30.8% in FY12) and investment rate was 34.8% (35% in FY12)

Infrastructure created in the 9 months period of FY14 - 29, 350 MW of power capacity, 3, 928 kms of na onal

highways, 39, 144 kms of rural roads, 3,343 kms of new railway track and 217.5 mn tonnes of port capacityper annum

Interim Budget FY15

Fiscal

Fiscal de cit is budgeted to decline to 4.1% of GDP in FY15

Revenue de cit to decline to 3% in FY15 (from 3.3% in FY14)

Plan expenditure to be retained at the budgeted level of FY14 i.e. Rs. 5,55,324 crs

Non-plan expenditure is es mated at Rs. 12,07,892 crs in FY15


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Gross Market Borrowings in FY15 are es mated to be Rs. 5,97,000 crs , 5.9% higher than the revised es mates

of FY14

Disinvestment proceeds are budgeted to be Rs. 56,925 crs in FY15. In FY14 the revised es mates put the

disinvestment proceeds at Rs. 25,841 crs (the budget es mate for FY14 was Rs. 55,814 crs)

Tax Proposals

No change in the rate of personal income tax and the rate of tax for the domes c and foreign companies for

income earned in FY14. The surcharge on personal income tax and corpora on tax to con nue

No major changes are proposed in the duty structure or rate for indirect taxes

Reduc on in excise and customs du es across segments to boost domes c manufacturing & produc on

(details in later sec on)

Policies and Reforms

ADR/ GDR scheme to be revamped with scope of depository receipts to be increased

Capital infusion of Rs.11,300 crs to Public Sector Banks

Liberaliza on of rupee denominated corporate bond market

Strengthening of currency deriva ves market to help corporates forex risks

Proposal to amend the Forward Contracts (Regula on) Act

Agriculture

Farm loans interest subven on scheme which is to con nue i.e. e ec ve rate of interest on farm loans to be

4 percent including subven on of 2 percent and incen ve of 3 percent for prompt payment.

Agriculture credit by Banks for FY15 is Rs.8,00,000 crs (target for FY14 was Rs.700,000 crs)

Subsidies

Marginal increase in amount of subsidies (for food, fer lizers & fuel) from the revised es mate of Rs. 245,453

crore in FY14 to Rs. 246,472crs in FY15

Subsidy bill for FY15 is expected to be 2% of GDP, lower than the 2.3% of FY14

Petroleum subsidy for FY15 has been lowered by 25%.

Fer lizer subsidy has almost been retained at previous levels while food subsidy has been increased by 25%

to Rs.1,15,000 crore in FY15

Rscrore FY13 (A) FY14 (RE) FY15 (BE)

Subsidies 2,57,079 2,55,516 2,55,708

Fer lizers 65,613 67,972 67,970

Food 85,000 92,000 1,15,000

Petroleum 96,880 85,480 63,427Source: Ministry of Finance


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Alloca ons

10% increase in alloca on towards Defence (compared to budget alloca on in FY14)

Moratorium on educa onal loans taken upto 31 March09 and outstanding on 31 Dec13. The government to

bear the interest burden as on 31 Dec13. Rs. 2600 crs provided for this in FY14.

Snapshot: Interim Budget 2014-15

Rscrore FY13 (A) FY14 (RE) FY15 (BE)

Revenue Receipts 8,77,613 10,29,252 11,67,131

Tax Revenue 7,40,256 8,36,026 9,86,417

Non Tax Revenue 1,37,357 1,93,226 1,80,714

Capital Receipts 5,32,754 5,61,182 5,96,083

Borrowings 4,90,597 5,24,539 5,28,631Total Receipts 14,10,367 15,90,434 17,63,214

Non Plan Expenditure 9,96,742 11,14,902 12,07,892

On Revenue Account 9,14,301 10,27,689 11,07,781

Interest Payments 3,13,169 3,80,066 4,27,011

On Capital Account 82,441 87,214 1,00,111

Plan Expenditure 4,13,625 4,75,532 5,55,322

On Revenue Account 3,29,208 3,71,851 4,42,273

On Capital Account 84,417 1,03,681 1,13,049

Total Expenditure 14,10,367 15,90,434 17,63,214

Revenue De cit 3,65,896 3,70,288 3,82,923

% of GDP -3.6 -3.3 -3.0

Fiscal De cit 4,90,597 5,24,539 5,28,631

% of GDP -4.9 -4.6 -4.1Source: Ministry of Finance

Impact Macro economy

The excise and custom duty cuts across sectors is a posi ve and could help boost/revive growth.

The government market borrowing programme (of Rs. 5,97,000 crs) can be absorbed by the system. G-secsyields are unlikely to be driven by this. Markets would be awai ng the main budget.

The capital infusion (Rs 11,300 crore) in PSU banks would add to theircapital base. Declining capital posi on

of the public sector banks has been a ma er of concern with the banks having to make higher provisioning

owing to increasing non-performing assets (NPAs). With the economy expected to revive in FY15, banks would

require funds to meet their lending requirements. Also, with new banks entering, compe on in the banking

sector would increase. Thus, this increased capital infusion by the government would help PSU banks build a

healthier balance sheet. The capital infusion would however need to be scaled up going forward.


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AutomobileIndustry Snapshot:

Indian automobile sector is amidst one of the most turbulent phases as the segments such as PV and CV are witnessingsigni cant decline in demand since second half of FY12. Moreover, TW industry demand has also moderated during

the men oned period, especially the voluminous motorcycles segment is the worst hit. Automobile demand has

been constrained on account of higher ownership cost of vehicles on account of high fuel and nancing costs coupled

with lower propensity to spend owing to lower job prospects, low growth in income levels and high in a on level.

Interim budget 2014-15 has provided the much needed impetus to automobile sector as excise rates have been

reduced notably which would in turn lower vehicle prices and thereby induce growth in demand.

Duty Structure

Excise Duty Before A er Impact

Small Cars* 12% 8% Posi ve

Mid-size Cars@ 24% 20% Posi ve

Large Cars# 27% 24% Posi ve

SUV 30% 24% Posi ve

Buses 12% 8% Posi ve

Trucks 12% 8% Posi ve

Two Wheeler 12% 8% Posi ve

Three Wheeler 12% 8% Posi ve

Note:

*Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length less than

4 meters.

@Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length more

than 4 meters.

#Indicates cars having engine capacity more than 1,500cc in case of diesel cars and 1,200cc in case of petrol and length

exceeding 4 meters.

De ni on of SUV as per central excise department is a vehicle with engine capacity greater than 1,500cc, length exceeding 4,000 mm and ground clearance 170 mm and above

All rates applicable up to 30th June, 2014


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BankingIndustry Snapshot:

The Indian Banking Industry has witnessed modera on in credit growth, even as deposit mobiliza on has outpacedexpecta ons; largely due to the factors of economic cyclicality. In addi on, the asset quality issues plaguing the

sector are a serious threat to future pro tability. The Interim Budget has laid out plans to infuse fresh liquidity into

the Public Sector Banks, and expressed hope of containing NPAs, improving recovery, and ensuring good health of

the advances. With requirements of Basel III regula ons coming into force in a staggered manner, future capital

infusions are likely to be determined by the twin-play of asset quality and minimum capital requirements as per the

guidelines.

Proposals and Impact

Budget Proposals Impact

Capital infusion in public sector banks proposed, amoun ng to Rs. 11,200 croresin 2014-15 (Rs. 14,000 crores in 2013-14, and Rs. 12,517 crores in 2012-13)

Posi ve. However, FY15 budgeted alloca onis lower than previous years.


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Capital Goods and Power EquipmentsIndustry Snapshot:

The Vote on Account for 2014-15, has reduced the excise duty on capital goods and related electrical machineries to10% from 12% earlier. This would provide relief to the domes c Industry players to become more compe ve in the

medium to longer term. The lack of clarity on tari hike proposal in case of imported coal and coal block alloca ons

have hurt the power equipment sector. Currently, the domes c power equipment sector is reeling under stress

due to waning demand from private IPPs. This excise duty cut is applicable ll 30th June, 2014 i.e. ll the me Final

Union Budget 2014-15 is presented.

Duty Structure


Capital Goods (Chapter 84) 12% 10% Posi ve


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Construc on/Real EstateIndustry Snapshot:

Construc on is an integral part to support the countrys growing need for infrastructure and industrial development.In the last six years, construc on as a percentage of GDP has been in the narrow range of 7.8-8.1%. In the last couple

of years, the economic slowdown coupled with the policy impediments, high interest rates and liquidity concerns etc.

hampered the investment climate. Amid the challenging economic environment, many manufacturing companies

had deferred their expansion plans and new project announcement across various infrastructure segments had also

slowed down. Consequently, the growth in construc on GDP declined to 4.3% in FY13 as compared to the growth

of 10.2% registered in FY11. Considering rst half of FY14, the construc on GDP grew by 3.5% on a y-o-y basis as

compared with the growth of 5.1% registered in the corresponding period of the previous year.



Alloca on of Rs.6,000 crore has been provided for the Rural Housing Fund. The con nued focus of the governmenton infrastructure development and rural& urban housing will prove bene cial forthe construc on and allied industries.

Alloca on towards urban housing has been set at Rs. 2,000 crore.

The alloca on towards drinking water and sanita on has been set at Rs.15,260crore.


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Consumer DurablesIndustry Snapshot:

Consumer durables industry, comprising electrical machinery and equipment and parts thereof, size was aboutRs 400 billion during FY13 and was essen ally at as compared to the FY12 level. In a view to boost the consumer

demand, the Interim Union Budget for 2014-15, has slashed excise duty across the consumer durable categories.

This excise duty cut is applicable ll 30th June, 2014.

Duty Structure


Electrical machinery and equipments and parts (Chapter 85) 12% 10% Posi ve


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Industry - GeneralIndustry Snapshot:

The Interim Budget has provided a few posi ve proposals for some segments of the industry.



Se ng up Research Funding Organiza on to fund projects selected oncompe ve basis

Posi ve from promo ng research &development ac vi es in the country

Restructuring of excise duty rates on mobile handsets to 6% (with CENVATcredit) or 1% (without CENVAT credit)

Posi ve for domes c manufacturing ofmobile handsets

Lowering of customs duty on non-edible grade industrial oils and its frac ons,fa y acids and fa y alcohols to 7.5 percent

Posi ve for domes c produc on of soapsand oleo chemicals

Exemp on of CVD on imported machinery for speci ed road construc on iswithdrawn

Posi ve for domes c manufacturers of thesespeci ed road construc on machinery

Exemp on of loading, unloading, packing, storage and warehousing of ricefrom service tax

Posi ve for rice processing companies

Exemp on to cord blood banks from service tax Posi ve for stem cells segmentsw

Alloca on of Rs. 2,600 Cr towards moratorium of all educa on loans taken upto March 2009 and outstanding as on December 2013. The Government willtake over the liability for outstanding interest as on 31st December 2013 butthe borrower would have to pay interest for the period a er 1st January 2014.

Posi ve for students

Alloca on of Rs. 1,000 Cr towards Na onal Skill Cer ca on and RewardScheme (NSDC)

Posi ve for students undertaking theprogramme

All rates applicable up to 30th June, 2014

DisclaimerThe Budget analysis is published by Credit Analysis & Research Ltd (CARE Ra ngs) for private circula on only. The analysispresented in the report cons tutes only a statement of opinion. CARE Ra ngs does not guarantee the accuracy, adequacyor completeness of the informa on and is not liable for any consequences that might arise from the use of this informa on.


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Interim Budget 2014 15