minister P. Chidambaram actually said it in so many words. He
mentioned the time (15-20 minutes) he spent announcing proposals
meant for the agricultural sector. Nothing wrong with that; but
industry is disappointed that he, largely, chose to maintain status
quo on other sectors of the economy. But some sectors, like textiles,
will benefit. Says Gautam Hari Singhania, Chairman and Managing
Director, Raymond: "The Budget has generally been positive
for the textile industry. The extension of the TUF Scheme will
expedite the release of subsidies. And increased allocations for
textile parks is very welcome as it will boost the setting up
of additional capacities."
Banking, steel, oil and gas and the roads
sectors have also emerged as winners in this Budget. "Budget
2007-08 will play an important part in maintaining India's economic
momentum," says K.V. Kamath, Managing Director and CEO of
ICICI Bank, India's largest private sector bank. "It is a
fine balance of resource allocation across various sectors of
the economy and focusses on growth," he adds. Ravi Uppal,
Vice Chairman and Managing Director, ABB India echoes these thoughts.
"Bringing down the peak customs duty to 10 per cent, the
renewed commitment to phasing out CST and the success of vat are
positive indicators that the government remains committed to the
reforms process," he says.
But large sections of India Inc. feel let
down. The pharmaceuticals and healthcare sector, which was hoping
for a leg up in this Budget, makes no bones about its unhappiness.
"The pharmaceuticals industry was completely off the Finance
Minister's radar last year. So, we were hoping to be compensated
with a 'Dream Pharma Budget' this year. But, alas, that was not
to be," moans Ranjit Shahani, President, Organization of
Pharmaceutical Producers of India and Vice Chairman and Managing
Direcot, Novartis India. The hospitality industry is also upset-at
the fact that only hotels in the National Capital Region have
been given tax incentives.
But, to be perfectly fair to Chidambaram,
it must be admitted that there's little in this Budget that can
actually be termed as negative or uncalled for. Here, we look
at what the Budget holds for 15 important sectors.
& AUTO COMPONENTS
Finance Minister's focus on inclusive growth, particularly
the thrust on the rural sector, will be good for the farm
equipment business, including tractors"
President, Farm Equipment Sector/Mahindra &
The automobile industry continued
to remain in the limelight in 2006-07. The momentum was provided
by Budget 2006, which slashed the excise duty on small cars by
8 per cent. For the first time in history, domestic vehicle production
crossed the 10-million-mark in a calendar year (2006). Passenger
vehicles, two- and three-wheelers recorded double digit growth
while the CV segment registered the highest growth of 37.15 per
cent during April-December 2006. The auto ancillary industry recorded
a 17 per cent y-o-y growth in sales and 45 per cent y-o-y growth
in profits for the first nine months of FY 2007. The industry
also witnessed big ticket transactions, such as M&M's acquisition
of a stake in Jeco Holding and Warburg Pincus' acquisition of
9 per cent stake in Amtek Auto. Robust sectoral performance and
outlook has resulted in both domestic and global companies announcing
significant investment plans. The Government's draft Auto Mission
Plan (AMP) aims at doubling the contribution of the automotive
sector to GDP to 10 per cent (i.e. a turnover of $145 billion)
by 2016. Double-digit growth rates are expected across all segments
of the industry.
duty cut will help reduce costs of imported inputs. This will
increase demand for cars in the domestic market.
in valuation rules for job-work will make life less attractive
for units engaged in contract work for other manufacturers and
also increase input costs.
in excise duty on petrol and diesel to have an impact on consumer
sentiment (this, though, has not resulted in any immediate reduction
in petrol and diesel prices).
» 1 per cent
cut in CST will improve margins, reduce prices and spur demand.
Auto: There is no direct impact, but the slight reduction
in peak customs duty may benefit the company since it imports
certain components (like alloy wheels).
Honda: The increased focus on the rural sector could result
in higher rural sales (Bajaj Auto will also benefit).
Motors: The continuing focus on developing world class highways
is likely to result in an uptick in the sales of Tata Motors'
commercial vehicles, particularly those with large tonnages.
Udyog: There is no direct impact on the country's largest
automaker. The high levels of localisation it has achieved means
it will get few benefits from the reduction in peak customs duty.
& FINANCIAL SERVICES
The Going Gets Better
financial sector policies announced in the Budget are in consonance
with the current supportive environment. In particular, the
decision to use the PAN number as the sole identification
number in capital markets transactions is a welcome move"
MD & CEO/ICICI Bank
The banking and financial services
sector has grown remarkably during the current financial year.
Demand for credit, both from corporate and retail customers, has
grown 31 per cent. However, the country's leading banks have also
increased both their lending and deposit rates. Despite this,
there is little evidence of the burgeoning credit demand tapering
off. The key challenge for the sector will be to raise sufficient
resources to meet the growing credit demand, while retaining a
reasonable spread. There were widespread expectations that the
Budget would exempt income from interest on bank deposits from
income tax; this would have improved deposit mobilisation by making
FDI as attrative as other products. This expectation, however,
was belied. The Insurance Bill, which proposes to increase the
FDI cap in the insurance sector from the current level of 26 per
cent to 49 per cent, is expected to be tabled in the ongoing Budget
session of Parliament.
status to venture capital funds limited to only income earned
from investments in specified industries.
» DDT on income
distributed by money market and liquid fund MF schemes raised
to 25 per cent. This is likely to result in huge outflows from
liquid funds owing to reduced tax arbitrage.
to acquire RBI equity in SBI for Rs 40,000 crore.
Rural Banks asked to undertake significant branch expansion.
» NABARD to
be permitted to issue tax-exempt bonds up to Rs 5,000 crore guaranteed
by the Government.
allowed to short sell and undertake securities lending and borrowing
to facilitate delivery.
Bank of India: It will benefit from the 25 per cent dividend
distribution tax levied on money market and liquid MFs as bank
FDs will become more attractive and allow it to mobilise larger
amounts of money.
National Bank: It will benefit from the increased rural thrust
as it owns over a dozen of the largest regional rural banks.
Bank: Its innovative rural delivery channel (read: franchisee
model) is ideally placed to tap the rural opportunities thrown
up by this Budget.
Bank: It has one of the largest SME portfolios in the banking
sector; so an increased focus on this segment, as envisaged in
the Budget, will benefit the bank.
A Stellar Performance
increase in excise duty is not good news. There is a limit
of Rs 190 beyond which excise will be levied at Rs 600 per
metric tonne. Even if there is an increase in cost inputs
because of inflation, prices will rise beyond Rs 190. I do
not think the decision is good for the industry"
Whole Time Director & CFO/ Grasim Industries
India is the second-largest cement
producer in the world, with a capacity of approximately 160 million
tonnes (and 95 per cent capacity utilisation in 2006). The current
financial year, during which domestic consumption has grown more
than 10 per cent, has been one of the best for the industry. A
reduction in customs duties on limestone and gypsum, increased
allocation of coal blocks to cement companies and an increased
thrust on infrastructure development are some of the key growth
drivers. Cement prices rose 32 per cent during the year due to
the robust demand and limited capacity additions. The industry
witnessed consolidation activity-such as the acquisition of a
18.4 per cent stake in Gujarat Ambuja by Holcim for $618 million
(Rs 2,785 crore) and the buyout of a 51 per cent stake in Mysore
Cement by Heidelberg for $94 million (Rs 423 crore). Major capacity
additions are planned over the next 3 years to meet the burgeoning
domestic demand. A ban on the export of cement is also on cards.
» The 31.6
per cent increase in allocation towards Bharat Nirman and increase
in outlay for the National Highway Development Programme to Rs
10,667 crore augurs well for the industry.
» Excise duty
on cement reduced from Rs 400 per tonne to Rs 350 per tonne if
the retail sales price is Rs 190 per 50 kg bag or below. But this
may not benefit the cement industry, as it will have to take a
substantial hit on the bottom line at this price level. Excise
duty on cement costing more than Rs 190 per bag has been raised
to Rs 600 per tonne. This may affect demand.
GDP growth rate and continued focus on infrastructure will sustain
the cement consumption rate.
Ambuja: Being a large player, Gujarat Ambuja will be in a
position to pass on the higher excise duty on cement to the consumer,
so, there will not be much of an impact on its bottom line or
Like other large players, ACC, too, will not be much affected
by the higher excise duty on cement.
Cement: The decision to hike excise duties for cement bags
that are sold at more than Rs 190 per bag could affect the company,
though it is likely to pass it on to the consumer.
Cements: The higher excise duty will hit it hard. Being a
smaller player, it will not be easy for the company to pass on
the increased price burden to its customers.
Riding On A Bumpy Road
Budget will improve the quality of life at the bottom of the
pyramid. This will increase disposable income, consumption
and FMCG demand"
Chief Financial Officer/Marico
Stable growth was the mantra for
the FMCG sector, which recorded a revenue growth of 22 per cent
over the past year. But margins remained under pressure due to
an increase in input costs on the back of higher crude prices;
this, however, was partly mitigated by an increase in the prices
in certain categories such as soaps and detergents (after years
of price wars). The industry is banking upon increased consumer
spending and greater penetration of organised retailers to provide
it with a growth impetus. The durables sector, meanwhile, recorded
a growth of about 10 per cent during 2006-07, which is consistent
with past trends. As in FMCG, margins continued to remain under
pressure on account of higher input prices, greater advertising
costs and the threat of cheaper imports (especially from FTA jurisdictions).
However, industry players remain optimistic on the prospects of
consumers "up-trading" to higher-end products; they are also hoping
that specialised durable retail formats will provide a fillip
of excise on footwear parts, umbrellas, and exemption from excise
for certain packed biscuits, food mixes and water purification
devices will benefit many FMCG companies.
of customs duty on food processing machinery, non-agricultural
items, textiles, pet food, sunflower oil, umbrella parts and exemption
of additional duty of custom on edible oil will further help FMCG
» Fringe Benefit
Tax not to be levied on expenditure incurred towards display of
products and distribution of samples.
in excise levies on cigarettes, bidis and tobacco products is
unlikely to result in lower demand.
Unilever: Reduction of CST by 1 per cent will serve to bring
down costs and provide some respite to its margins. Also, the
removal of additional CVD on edible oils will result in savings.
The reduction in CVD on imports will have only a marginally favourable
impact. But the service tax on rents will shave off a couple of
crore from its bottom line.
Industries: It will benefit from the reduction in excise duty
on biscuits. The increased dividend distribution tax will affect
it only marginally.
Exclusion of expenditure on free samples and displays from the
scope of FBT will help the company. Incentives on Ayurvedic products
will drive top line growth.
a favourable Budget, but nothing spectacular. Singling out
2-, 3- and 4-star hotels for incentives, though, is unfair;
he should have extended the tax holiday to all hotels"
CAPT C.P. KRISHNAN NAIR
Chairman/ The Leela Group
The hospitality sector continued
its strong growth in 2006-07. In the premium category, Revpars
(revenues per available room) grew 15-57 per cent (y-o-y) across
10 major cities (April-December, 2006). Foreign tourist arrivals
surged 14 per cent during this period and the domestic travel
segment also showed an uptrend. Given this buoyancy, hospitality
industry players are expanding in order to acquire a pan-India
footprint and new players are entering the market. Huge concessions
have also been announced for 2-, 3- and 4-star hotels in the National
Capital Region. This will increase the supply of rooms in the
NCR and correct hotel tariffs in the medium term. The flip side
of the boom is that land prices have gone up, straining the viability
of all hotels in general and budget hotels in particular. The
issue of high land prices is being addressed by developers through
mixed use developments. To boost the development of budget hotels,
additional initiatives such as public-private partnerships, cost-effective
availability of land and pan-India tax incentives are required.
The Budget is silent on all these counts.
» 100 per
cent tax holiday for five years provided to companies engaged
in the business of hotels (2-, 3- and 4-star categories) and convention
centres (details to be prescribed) in specified areas (Delhi,
Gurgaon, Faridabad, Gautam Budh Nagar and Ghaziabad), if construction
and operation starts between April 1, 2007 and March 31, 2010.
This is expected to provide a fillip to the hospitality industry
in the NCR
» Total outlay
for tourism infrastructure increased from Rs 423 crore in 2006-07
to Rs 520 crore.
Welcomgroup: The Budget will fuel the growth of the chain's
budget brand, Fortune Park Hotels. And though it already has a
presence in the NCR, it is reportedly looking for more properties
Hotels: The Budget will hasten its entry in the budget hotel
segment in the NCR.
India Hotels: There is no impact on the Group's flagship 5-star
chain, but the incentives granted to 2-, 3- and 4-star hotels
will come in handy for its lower-end Trident brand.
» The Grand
Bharat Hotels: Again, its five-star properties will not be
impacted. But the group is actively eyeing an entry into the budget
segment within the next one year; so, the Budget proposals will
come as a shot in the arm for it.
Grappling with the Talent Crunch
Budget is disappointing. We believe that the introduction
of MAT will negatively impact most companies. It seems as
if the government feels that the IT industry is now a mature
one and so does not require further benefits. But this is
a wrong impression"
B. RAMALINGA RAJU
Chairman/ Nasscom and Satyam Computer
The Indian IT-ITEs sector continues
to chart double-digit (over 28 per cent) growth, and is expected
to close 2006-07 with revenues in excess of $39 billion (Rs 1,71,600
crore). The engineering, R&D services and domestic markets, besides,
of course, the traditional software and it services, have been
the key contributors to this growth. In line with global trends,
the Indian it sector has seen significant outbound and domestic
M&A activity. Large players like TCS have acquired Pearl and Wipro
has bought out New Logics. Within the country, the Essar Group
has acquired Global Vantage and EXL has taken over Inductis. Despite
robust growth, the sector faces some key challenges-like availability
of skilled manpower, appreciation of the Indian rupee and availability
of appropriate infrastructure to support future growth. The immediate
concern is the continuation of the STPI Tax benefits after 2009
and its possible impact on the attractiveness of India as an offshoring
» No reference
to extension of tax holidays to STP/EOU units beyond March 2009.
MAT (11.33 per cent) now levied on STP/EOU units (but not SEZ
» ESOPs are
subject to FBT, burdening employers with a tax cost of 33.99 per
cent on the difference between fair market value on the date of
exercise of options and price paid.
» Test of
export made simple: a service will be considered to be exported
if it has been "provided from India and used outside India". This
brings clarity to a vexed issue.
» Income earned
by venture capital funds will be exempted from tax only if the
income has been earned from IT hardware and software development.
ITES/BPO segments not covered.
Technologies: The imposition of MAT means Infosys' net margins
will be hit by 1.5 per cent. The imposition of FBT on ESOPS will
take its toll.
The company is yet to calculate the precise impact of the Budget
on its margins, but it's certain that MAT and the tax on ESOPS
will shave quite a few crore from its bottom line.
» 3i Infotech:
Increased government spends on e-governance will benefit the
company. The impact of the imposition of FBT on ESOPS and MAT,
though, is not yet clear.
Since it pays tax in other countries, it remains to be seen whether
the MAT burden can be off set to some extent. Impact on margine
yet to be calculated.
is nothing in the Budget for the media, though we were looking
for some parity between the print media and the electronic
media. Also, the introduction of service tax on content needs
to be studied in detail"
The Indian media and entertainment
(M&E) sector continued to grow at 14 per cent. The television
segment witnessed maximum activity last year-the Conditional Access
System (CAS) was finally implemented in three metros with effect
from January 1, 2007. In television broadcasting, new channels
continued to be launched in the news and sports genres. The film
segment embraced corporatisation, attracting, in the process,
private equity and institutional financing. The ad spend in 2006
was about 0.34 per cent of GDP (Rs 14,500 crore), an increase
of 10 per cent over the previous year. New distribution platforms
and digital technology created new revenue streams for the segment.
There has been a second coming for the print segment; this was
driven by rising literacy levels, launch of new brands and a favourable
regulatory environment. The inefficiencies in distribution that
have existed in films, television broadcasting or publishing,
are gradually easing out, thereby making the entire industry more
transparent and profitable. The launch of DTH will further revolutionise
» Air space
above Indian territory to be brought under the tax net with retrospective
effect. This may impact foreign satellite companies and channel
operators, depending on how the law is framed.
» Rate of
TDS on commissions, brokerage and professional service charges
increased to 10 per cent. This could impact the cash flows of
Indian content producers commissioned by non-resident companies
to produce television content.
tax to be levied on sale of space in Yellow Pages and commercial
catalogues. However, sale of space in newspapers continues to
Telefilms: The Budget will not have a major impact on the
» PVR Cinemas:
The imposition of Service Tax on commercial property rents will
affect the company-as its business is based on the rental model-and
impact its margins to that extent.
Focus: Neutral impact. The company has already factored in
the import duties that it pays currently and then projected the
future earnings. Therefore, its projections will not be affected.
Films: Neutral impact on the film segment. However, there
could have been some savings for Adlabs Radio as imported hardware
will now become cheaper.