Budget, on the whole, is a balanced one. However, ONGC does
take a net marginal hit of around Rs 50 crore, mainly on account
of dividend tax, since we are the highest dividend-paying
company in the country"
Chairman and Managing Director/ONGC
Accelerated M&A activity,
growing demand, an evolving regulatory environment, and competition
for access to new hydrocarbon reserves-2006-07 was an eventful
year for the Indian oil and gas sector. The New Exploration and
Licensing Policy VI (NELP VI) and Coal Bed Methane III (CBM III)
licensing rounds witnessed record participation; and OVL acquired
interests in nine overseas blocks during the year. Inbound investments
also increased; significant among them were Chevron's acquisition
of a 5 per cent stake in Reliance's new refinery at Jamnagar,
L.N. Mittal's purchase of a 49 per cent stake in HPCL's Bhatinda
refinery, and ENI's upstream asset swap agreement with ONGC. Meanwhile,
India's gas market is coming of age. Reliance, GSPC and ONGC have
struck significant reserves in the kg basin; additional capacities
are being built by Petronet LNG at Dahej and Kochi; and there
has been a revival of interest in the Iran-Pakistan-India (IPI)
pipeline project. All of these are likely to result in an increase
in supply of gas from 90 MMSCMD at present to 200 MMSCMD by 2009.
» The proposal
to extend service tax to services rendered for mining of oil and
gas will impact the upstream industry, though the proposed reduction
in excise duty on petrol and diesel from 8 to 6 per cent will
benefit oil marketing companies.
in line with the recent gas discoveries in India, tax concessions
offered to cross-country natural gas distribution networks will
provide a much-needed impetus to the pipeline sector.
» The proposal
exempting bio-diesel from excise duty will spur demand for it
and reduce India's dependence on fossil fuels. Over time, this
will also pare India's oil import bill.
Oil Corporation: India's largest company will gain Rs 1,250
crore from the lower excise duty on petrol and diesel.
Industries: The company will benefit from the infrastructure
status granted to gas pipelines and also gain from the cut in
excise duties on petrol and diesel.
This Navratna will take a marginal net hit of around Rs 50
crore after netting out its gains and losses on account of dividend
distribution tax, education cess, customs duty reduction and CST.
The company will suffer a small dent in its bottom line due to
the increase in the dividend tax rate. But the grant of infrastructure
status to the pipeline sector will reduce costs.
Focus on Rural Markets
are a few positives but there's nothing in terms of bold moves
that will change the industry's growth trajectory or decisively
impact public health. It is an opportunity lost to provide
a major thrust to the sector"
MD & COO/ Dr Reddy's Laboratories
The Indian pharmaceutical industry
is ranked as fourth by volume and thirteenth by value in the world
and the country is among the top 5 manufacturers of bulk drugs.
India is now a destination of choice for international companies
for outsourcing their R&D and manufacturing requirements. Contract
Research and Manufacturing Services (crams) has become a major
revenue driver for many Indian pharmaceutical companies. A majority
of the deals in this sector is driven by the crams model (for
example, Dishman's acquisition of Carbogen and Roche's acquisition
of DRL's API business). Meanwhile, Indian pharma majors have made
some large acquisitions to gain entry into new markets. These
include Dr Reddy's buyout of betapharm, Germany, for $500 million
(Rs 2,250 crore) and Ranbaxy's acquisition of Terapia for $250
million (Rs 1,125 crore). The domestic market is expected to grow
at 14-15 per cent over the next 5 years. Within this, companies
are expected to continue their focus on rural India which is growing
at almost 40 per cent.
» 150 per
cent weighted deduction on R&D expenditure extended by 5 years
up to March 31, 2012.
customs duty rate of 5 per cent and nil excise duty on specified
items such as scientific and technical instruments extended to
all registered research institutions.
trials of new drugs by Clinical Research Organizations approved
by Drug Controller General of India exempt from service tax.
» Basic customs
duty on general medical equipment and certain chemicals (including
active pharmaceutical ingredients) reduced from 12.5 per cent
to 7.5 per cent.
Laboratories: It will benefit from the exemption of clinical
trials from the service tax net, though the extension of FBT to
ESOPs will hit it, and others, hard.
The increased focus on immunisation programmes will help the company.
It will gain from extension of the weighted average deduction
of R&D expenditure but, like others, could be hurt by ESOPs being
brought under the fringe benefit tax (FBT) net.
Hospitals: Will, like most other leading hospital chains,
gain from the reduction in import duties on medical equipment
as it is expanding quite rapidly. Also, the provisions on health
insurance could generate greater business for it.
Lighting For Tomorrow
Budget proposals will benefit us marginally. We will gain
on the reduction in peak rate of customs duty from 12.5 per
cent to 10 per cent as this will translate into a saving of
Rs 25 crore for a 1,000 MW plant"
Chairman and Managing Director/ NTPC
The year 2006 saw a major thrust
on large transmission and mega power projects; additional capacity
of 5,093 mw was created and power generation grew 7.2 per cent
during the year. Increased private sector participation in coal
mining and a thrust on imported coal-based power is expected to
provide a further fillip to power generation. Major initiatives
in line with the government's policy to accelerate capacity additions
in power generation included the two Ultra Mega Power Projects
of 4,000 mw each in Mundra and Sasan. These projects, entailing
an investment of $8 billion (Rs 35,200 crore), were awarded to
Tata Power and Lanco Power, respectively. Improvements in the
distribution business through schemes like Accelerated Power Development
and Reform Programme (APDRP) and strengthening the inter-regional
grid were some of the key initiatives undertaken during the year
under review. The Budget proposals will come as a shot in the
arm for this sector.
of Power has awarded two Ultra Mega Power Projects (UMPP) in Sasan
and Mundra and two more UMPP will be awarded by July, 2007.
support for Accelerated Power Development and Reforms Programme
increased from Rs 650 crore to Rs 800 crore.
to Rajiv Gandhi Grameen Vidyutikaran Yojana increased from Rs
3,000 crore to Rs 3,983 crore.
» All coking
coal, irrespective of ash content, to be fully exempt from customs
» Tax holiday
under Section 80 IA shall be available to all industrial undertakings,
including power projects, which commence operations on or before
March 31, 2008.
The reduction in CST will swell its kitty, but this will be
partially offset by the increase in the education cess rate. Lower
peak customs duty will lower the costs of its upcoming power plants
at Farakka, Korba and Dadri.
Energy: The company will be impacted by the increase in dividend
distribution tax and the increase in the education cess rate.
Finance Corporation: There will only be a marginal impact
of Rs 10-15 crore on its bottom line due to the higher dividend
Trading Corporation: The Budget will have a negligible impact
on the company. The hike in the dividend distribution tax will
cost it only around Rs 2 crore.
Wanted, More Transparency
introduction of service tax on office space rentals and contract
works, the increase in cement prices and removal of income
tax deductions for qualified projects will hit the profitability
of real estate companies"
The year 2006-07 has seen a surge
in development and funding activity in the real estate sector.
Various companies have accessed both private equity and public
markets to meet their needs for growth capital. A number of regional
players have also scaled up their growth plans to increase their
footprints in different parts of the country. Meanwhile, foreign
inflows into the sector increased dramatically during the year.
Industry estimates indicate that the share of real estate in FDI
will be 26 per cent in 2006-07 compared to 10 per cent in the
previous financial year. Further, more than $20 billion (Rs 88,000
crore) of capital (in the form of dedicated refs, IPOs, QIPs,
private placements and FCCBs) has been raised and deployed in
the Indian real estate market over the last 18 months. Real Estate
Mutual Funds (REMFs), which are on the anvil, are expected to
widen and deepen the market further. All this flow of institutional
capital should act as a catalyst for increasing transparency,
professionalism and corporatisation of the sector.
Housing Bank to introduce reverse mortgage; this product will
provide liquidity to senior citizens.
are being put in place for creation of mortgage guarantee companies.
» No extension
of tax holiday under section 80-IB(10) for small housing projects;
this will negatively impact developers and state housing boards.
Also, service tax on rented properties will make malls and office
spaces more expensive.
» Tax holiday
benefits to industrial parks and SEZs under 80-IA will not be
available upon amalgamation or demerger after March 31, 2007.
It will be one of the biggest losers as rentals account for
a major chunk of its income. The levy of service tax and removal
of Sec 80-IB will also have an adverse impact.
Real Estate: Thelevy of service tax on office space will have
a negative impact on the company. And higher excise duty on cement
will increase costs.
Like other real estate developers, the company will have to
bear the brunt of rising excise duties on cement as its costs
API: The Budget will result in costs increasing by 1 per cent
that it may not be able to pass on to customers. The service tax
to be paid on work contracts will also impact its bottom line.
In High Gear
Budget proposals on infrastructure are cursory and inadequate.
Increased excise duty on cement will eventually be passed
on to the consumer. The result will be higher and unpredictable
Chief Financial Officer/L&T
The roads privatisation programme
has entered a new phase of maturity. There has been a number of
encouraging developments, including significant updations in the
Model Concession Agreement used by the National Highways Authority
of India (NHAI), a move towards six-laning of the Golden Quadrilateral
(eight sizeable GG projects are currently being tendered out),
significant interest for the first time from highway developers
in western Europe and South East Asia in BOT highway projects
in India and the large-scale entry of international equity funds
in BOT projects. While national and state highways have benefitted
from the increased focus on roadways, expenditure on urban roads
remains inadequate. The central government will do well to consider
developing model projects with private participation in the urban
road sector. There were expectations that companies implementing
projects under BOT would be exempted from mat, but this hasn't
window under Rural Infrastructure Development Fund will augment
funds for the programme by Rs 4,000 crore a year.
bridges in Bihar and Assam to be taken up as national projects;
they will, hence, receive priority funding.
for National Highway Development Programme (NHDP) increased from
Rs 9,945 crore to Rs 10,667 crore. This will allow the private
sector to bid for larger contracts.
» India Infrastructure
Finance Company (IIFCL) allowed to access/borrow funds from National
Small Savings Fund.
tax of 2 per cent on total value of works contract on services
involved in the execution of a works contract to increase total
& Toubro: The company is likely to gain from the increased
allocation for National Highways Development Programme as it is
expected to bid for and bag significant business in the next round
Lloyd: The company is expected to bag more contracts to build
National Highways and rural roads.
The company is likely to gain from increased allocation for
the National Highway Development Programme. Its power distribution
business will also gain from higher spends on the Rajiv Gandhi
Grameen Vidyutikaran Yojana.
Associates: The company will gain from increased allocations
for roads, rural irrigation and power projects.
Metals on the Move
Budget is more focussed on bringing the under-performing sectors
to perform, without jeopardising the growth trajectory of
the overall economy. The Budget, as such, is neutral towards
the steel sector"
Managing Director/Tata Steel
Steel production in India grew at
a CAGR of 8.2 per cent from 2001-02 to 2005-06. During this period,
aluminium production increased at a CAGR of 11.9 per cent; the
automobile, construction and consumer durables sectors were the
key growth drivers. The growth rate in other metals was also equally
strong. Greenfield and brownfield expansions (steel production
is expected to increase from 38 mmtpa in 2005 to 110 mmtpa by
2012) and landmark M&A transactions (example: Tata Steel's acquisition
of Corus for $12.1 billion or Rs 54,450 crore, and Hindalco's
acquisition of Novelis for $6 billion or Rs 26,400 crore) have
been on an upswing. India is fortunate to have large reserves
of iron ore and bauxite which will drive large investments in
this sector. The government now needs to focus on reducing the
time required for regulatory clearances, improve transparency
and increase expenditure on infrastructure. Meanwhile, the export
tax on iron and chrome ores may affect the enthusiasm of some
players, like South Korea's Posco, which is in the process of
setting up a steel plant in Orissa, subject to it being allowed
to export ore.
of underground coal gasification and coal liquefaction as "specified
end use" for allotment of coal blocks will result in enhanced
coal mining activities.
introduced for gems and jewellery industry; these include reduced
(3 per cent) customs duty rates for cut and polished diamonds.
tax on outsourced services for mining of minerals, oil or gas
will increase the cost of mining activities.
» Export duty
of Rs 300 per tonne of iron ore and Rs 2,000 per tonne of chrome
ores to adversely impact exports.
Steel: Exemption of customs duty on all coking-coal imports
is a positive for a large player like Tata Steel. Introduction
of export duty on iron ore also augurs well for it as more ore
is likely to become available to domestic players.
The Budget is neutral on the aluminium sector. For Hindalco, it
appears as if the impact in the short-term to medium-term will
not be anything significant.
Focus on the development of infrastructure is a positive.
Given that the steel sector is on a roll now, this could be a
If the infrastructure story continues, the metals story, too,
will look good. Overall, the Budget is quite neutral for the non-ferrous
are encouraged by the formation of a committee that will work
on the introduction of a single levy for telecom services.
Today, there are as many as eight to nine levies, accounting
for over a third of the customer's bill. This high level of
taxation has retarded the expansion of services to unserved
Managing Director/Idea Cellular
The Indian telecom industry witnessed
mobile subscriber growth of 54 per cent in the first 9 months
of the current financial year, taking the subscriber base to 142
million. The country's teledensity touched 18 per cent in December
2006, up from 13 per cent a year ago and total industry revenues
are likely to cross Rs 60,000 crore by the end of 2006-07, compared
to Rs 38,000 crore in the last financial year. Increasing per-capita
GDP, improving demographics, falling tariffs, lower handset prices,
aggressive expansion by operators, infrastructure sharing and
lower regulatory levies have been key growth drivers. But Average
Revenues Per User (ARPUS) are likely to remain under pressure
due to the growth in the subscriber base in B and C circles and
falling tariffs. WiMax and 3g are expected to grow significantly
over the next two years. Multiple levies and taxes, interconnection
delays (resulting in congestion and poor services) and spectrum
constraints are some of the key challenges facing the sector.
of the tax holiday for telecom services upon amalgamation or demerger
after March 31, 2007.
» The Finance
Minister has proposed to set up a committee to simplify the tax
structure for the telecom sector; the idea is to move away from
the current regime of multiple taxes to a single levy. This will
reduce end-user charges and boost demand.
of telecom services for levy of service tax has been widened to
cover all services provided by a telecom operator.
and supply of content, including mobile value-added services,
ringtones, games, wallpapers, etc., have been brought within the
service tax net.
Airtel: The constitution of a committee to study a single
levy for the industry is a positive for the company, which is
the largest mobile phone player in the country.
Communications: The company's focus has been on getting into
areas where telecom services have low levels of penetration. The
elimination of excise duty on bio-fuels will allow it to provide
telecom services in areas where electricity services are not dependable.
The Budget will have little impact on it.
» Idea Cellular:
The elimination of excise duty on bio-fuels augurs well for it.
At a time when the company is looking to expand its presence to
more circles, this is a welcome development.
Back in Action
The Indian textiles sector saw rapid
capacity expansion in spite of a pressure on margins due to the
abolition of quotas. During the first half of 2006-07, more than
Rs 3,000 crore was sanctioned under Technology Upgradation Funds
Scheme (TUFS). This scheme, which was due to be phased out by
the end of this financial year, has now been extended to the 11th
Plan period. During the first 9 months of the current financial
year, textile exports grew 23.9 per cent to $10.8 billion (Rs
47,520 crore). The exports of readymade garment outpaced other
segments, growing 34 per cent to $5.9 billion (Rs 25,960 crore).
The sector seems to be on track for rapid capacity expansion.
There has been a spurt in fund raising through equity as well
as debt. The industry is also expected to get into consolidation
mode; the resulting economies of scale will enable it to take
on increased global competition. The reduction in excise duty
on man-made fibres and yarns and the reduction in customs duty
on import of textile machinery will provide the ballast to sustain
outlay on flagship initiatives. Integrated Textile Parks to get
Rs 425 crore and the Technology Upgradation Fund Scheme to be
continued during 11th plan with an outlay of Rs 911 crore.
approach for development of handloom sector, introduced in financial
year 2005-06, to be expanded. Social benefits by way of health
insurance scheme will be extended to cover additional weavers
and ancillary workers.
» Sector to
benefit from reduction in customs duties on certain textile garments
like polyester staple fibre, etc. However, removal of excise duty
exemption for specified textile machinery could potentially increase
It will gain from the extension of the TUF Scheme and the
other incentives given to the textile industry as a whole. The
extension of service tax to cover rentals of commercial properties
will increase the operating costs of its retail venture, though.
Rayon: The extension of the TUF Scheme will help the company's
expansion plans and allow it to enhance its competitive edge.
Industries: Extension of the TUF Scheme will allow it to increase
capacities and improve cash flows.
Dyeing: Continuation of TUF Scheme will help this one-time
blue-chip carry out its ongoing modernisation and retail expansion
plans with greater ease.