union budget 2014-15: impact on sectors
TRANSCRIPT
Union Budget 2014-15:
Impact on Sectors
Introduction
• The Union Budget, presented by finance minister Arun Jaitley on 10th
July 2014, had much to offer to sectors across board.
• Here’s a look at the impact on different industries:
Real Estate
What has changed?
• The housing and real estate sector is the biggest beneficiary of the
budget.
• The budget announced multiple measures like development of 100
smart cities, foreign direct investment in realty – especially in
low-cost housing, tax concessions for Real Estate Investment
Trusts (REITs), increase in allocation for the National Housing
Bank, and allowing slum development as one of the activities under
Corporate Social Responsibility.
• These will directly affect the real estate and construction sector
positively.
What will be the impact?
• In addition, higher tax-exemption on
home loan interest could also help
increase demand for houses.
• These are much-required measures to
the sector, which has been affected by
poor demand and high costs.
Financial
Sector
What has changed?
• Banks are the second-biggest beneficiary after real estate,
especially public-sector banks.
• The budget allowed for banks to raise capital by selling
government stake and hiked the foreign direct investment limit
in the insurance sector to 49%.
• It also allowed banks to raise long-term funds for lending to the
infrastructure sector with minimum regulatory obligations such as
CRR, SLR and PSL.
What will be the impact?
• This will help banks raise funds more easily for infrastructure
projects and reduce financial burden.
• Increase in tax exemptions on investments too could see funds
flowing to the financial sector through increased savings.
• However, the hike in the target of credit flow to the farmers from
Rs 7.0 trillion in FY14 to Rs 8.0 trillion in FY15 could have a
negative impact on PSU banks as they may be forced to lend
more.
Auto Sector
What has changed?
• The finance minister had already extended excise duty
concessions to the auto sector before the budget.
• There were no direct measures for the sector in the speech.
What will be the impact?
• However, measures like investment allowance benefit to the small
and medium enterprises, reduction in basic custom duty on
battery scrap, and reduction in excise duty on LED raw
materials, will positively affect auto ancillary companies and
suppliers.
• The budget’s concentration on improving agriculture too is positive
for the auto sector.
• This is because, a betterment in agriculture will improve rural
income, which could lead to an increase in demand for cars and
two-wheelers.
FMCG
What has changed?
• The biggest impact on FMCG companies will be because of
increased personal savings due to changes in income tax
exemptions.
What will be the impact?
• With more money in hand, demand is expected to be fuelled, which
will in turn lead to rise in sales for companies.
• Custom duty reductions on chemicals and petrochemicals could
also benefit soap companies as costs would fall.
• The hike in excise duties on cigarettes could hamper ITC.
• However the impact is expected to be marginal as demand usually
remains largely unaffected by price changes.
Information
Technology
What has changed?
• The government has set aside
Rs 10,000 crore to fund start-ups
and entrepreneurs.
• It has also concentrated on improving
technology in governance.
What will be the impact?
• This is a big positive for the
sector as it will lead to increase
in the usage of technology,
thus providing more business to
Indian companies.
Metals &
Mining
What has changed?
• Many measures were announced that would
positively impact the metals & mining sector.
• These include sustained infrastructure thrust
to stimulate steel demand; promotion of
housing for low-medium income groups;
reviving road sector by setting a target of
constructing 8,500kms in FY15; and
emphasis on setting up of 16 new ports.
These will lead to additional demand for
metals.
What will be the impact?
• The changes in indirect taxes like increase in export duty on
bauxite from 10% to 20%, reduction in import duty on dolomite
from 5% to 2.5%, and increase in custom duty on imported flat-
rolled products of stainless steel from 5% to 7.5% have positive
implications for the sector as they discourage imports and
encourage domestic companies.
• The increase in custom duty on coking coal from nil to 2.5%,
however, could negatively impact major steel producers like JSW
Steel, Tata Steel and Sail, which are dependent on imports.
Power
What has changed?
• The finance minister proposed an extension of the sunset date for
power sector undertakings to on or before March 31, 2014 for
claiming 100 per cent deduction of profits for 10 years.
• This move is a positive move but was largely expected.
What will be the impact?
• The budget also proposed an
increase in import duty on coal to
fuel domestic coal supply.
• However, this could negatively
impact power producers largely
dependent on coal imports.
• Wind power developers would be
positively impacted by the move to
reduce duties on wind power
components to 5% from 10% earlier.
Capital
Goods
• Companies engineering equipment and machinery would be
largely benefited by the budget.
• It announced an extension of investment allowance on new plant
and machinery.
• The government also extended the 10-year tax holiday to power
utilities. This could fuel demand for machinery and equipment.
What has changed?
What will be the impact?
• The increase in the government’s defence spending, as well as the
hike in foreign direct investment (FDI) in the sector to 49%, will
have positive implications.
• The increase in infrastructure focus could also be good news for
the capital goods sector.
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