UNION BUDGET 2014-15 : Analysis July 10, 2014 Fiscal Prudence 1. Tax arithmetic: Overall tax collections are down ~Rs10,000cr, but overall expenditure levels have been maintained, with a marginal raise over the interim budget of 2%. Importantly, the interim fiscal deficit estimate of 4.1% has been met, with an assurance from the FM about meeting FRBM (Fiscal Responsibility and Management) guidelines, i.e., taking the fiscal to 3% of GDP by FY17. We see the first-order condition on the budget being met. 2. Subsidy rationalization: subsidies have been relatively flat at Rs2.6trn. While these might change depending on crude prices, right noises have been made about getting subsidies in line going forward. 3. Disinvestment target has been raised marginally by Rs6000cr to Rs634bn. Just that the maximum ever raised by the Govt. has been Rs380bn in FY08. 4. Borrowing target has been kept largely unchanged, so there s comfort on yields. Fiscal Strategy Execution Machinery: A number of steps have proposed towards getting an effective tax administration. These include the GST, advance ruling and the Tax Settlement commission. Long-term savings (Tax-free bonds, 80C exemption limit, infra-specific savings): The retail investor saw higher disposable income with higher tax exemption, improved 80C spending, and higher deduction on housing loans. What could have helped here was more details on how bank capitalization would be met through retail investment. Allow foreign capital (FDI policy): FDI would allowed on a composite basis (FDI/FII) up to 49% in the insurance and defense sectors, another positive. In this space, there was no change on the Govt. s stance on GAAR, a key expectation. On specific sectors, we see the increased allocation to NHAI as a key positive towards reviving growth in the economy. Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 2
(Rs Crore) 2012-2013 2013-2014 2013-2014 Actuals Revised Interim budget estimates 2014-2015 % change NDA vs. UPA %YoY (Interim) Revenue Receipts 879,232 1,056,331 1,029,252 1,167,131 1,189,763 1.9% 13.4% 15.6% 2 Tax Revenue (net to centre) 741,877 884,078 836,026 986,417 977,258-0.9% 18.0% 16.9% 3 Non-Tax Revenue 137,355 172,252 193,226 180,714 212,505 17.6% -6.5% 10.0% Capital Receipts (5+6+7) 531,140 608,967 561,182 596,083 605,129 1.5% 6.2% 7.8% 5 Recoveries of Loans 15,060 10,654 10,802 10,527 10,527 0.0% -2.5% -2.5% 6 Other Receipts 25,890 55,814 25,841 56,925 63,425 11.4% 120.3% 145.4% 7 Borrowings and other 490,190 542,499 524,539 528,631 531,177 0.5% 0.8% 1.3% Total Receipts (1+4)$ liabilities 1,410,372 1,665,297 1,590,434 1,763,214 1,794,892 1.8% 10.9% 12.9% Non-Plan Expenditure 996,747 1,109,975 1,114,902 1,207,892 1,219,892 1.0% 8.3% 9.4% 10 On Revenue Account 914,306 992,908 1,027,689 1,107,781 1,114,609 0.6% 7.8% 8.5% of which, at a Glance 11 Interest Payments 313,170 370,684 380,066 427,011 427,011 0.0% 12.4% 12.4% 12 On Capital Account 82,441 117,067 87,214 100,111 105,283 5.2% 14.8% 20.7% Plan Expenditure 413,625 555,322 475,532 555,322 575,000 3.5% 16.8% 20.9% 14 On Revenue Account 329,208 443,260 371,851 442,273 453,503 2.5% 18.9% 22.0% 15 On Capital Account 84,417 112,062 103,681 113,049 121,497 7.5% 9.0% 17.2% Total Expenditure (9+13) 1,410,372 1,665,297 1,590,434 1,763,214 1,794,892 1.8% 10.9% 12.9% 17 Revenue Expenditure (10+14) 1,243,514 1,436,169 1,399,540 1,550,054 1,568,111 1.2% 10.8% 12.0% 18 Of Which, Grants for creation of 115,710 174,633 138,228 146,581 168,104 Capital Assets 14.7% 6.0% 21.6% 19 Capital Expenditure (12+15) 166,858 229,129 190,894 213,160 226,781 6.4% 11.7% 18.8% Revenue Deficit (17-1) 364,282 379,838 370,288 382,923 378,348-1.2% 3.4% 2.2% (3.6) (3.3) (3.3) (3.0) (2.9) UPA %YoY Final NDA Effective Revenue Deficit (20-18) 248,572 205,205 232,060 236,342 210,244-11.0% 1.8% -9.4% (2.5) (1.8) (2.0) (1.8) (1.6) Fiscal Deficit {16-(1+5+6)} 490,190 542,499 524,539 528,631 531,177 0.5% 0.8% 1.3% (4.8) (4.8) (4.6) (4.1) (4.1) Primary Deficit (22-11) 177,020 171,814 144,473 101,620 104,166 2.5% -29.7% -27.9% (1.8) (1.5) (1.3) (0.8) (0.8) Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 3
(Rs Crore) REVENUE RECEIPTS 1. Tax Revenue 2012-2013 Actuals Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 4 2013-2014 2013-2014 Revised Interim budget estimates 2014-2015 % change NDA vs. UPA %YoY (Interim) Gross Tax Revenue 1,036,235 1,235,870 1,158,906 1,379,199 1,364,524-1.1% 19.0% 17.7% Corporation Tax 356,326 419,520 393,677 451,005 451,005 0.0% 14.6% 14.6% Taxes on Income 201,487 247,639 241,691 306,466 284,266-7.2% 26.8% 17.6% Wealth Tax 846 950 950 950 950 0.0% 0.0% 0.0% Customs 165,346 187,308 175,056 201,314 201,819 0.3% 15.0% 15.3% Union Excise Duties 176,535 197,554 179,538 200,585 207,110 3.3% 11.7% 15.4% Service Tax 132,601 180,141 164,927 215,478 215,973 0.2% 30.7% 31.0% Taxes on Union Territories 3,094 2,758 3,067 3,401 3,401 0.0% 10.9% 10.9% Less - NCCD transferred to the National Calamity 2,810 4,800 4,650 5,050 5,050 Contigency Fund/National Disaster Response Fund 0.0% 8.6% 8.6% Less - State's share 291,547 346,992 318,230 387,732 382,216-1.4% 21.8% 20.1% Centre's Net Tax Revenue 741,877 884,078 836,026 986,417 977,258-0.9% 18.0% 16.9% 2. Non-Tax Revenue Interest receipts 20,761 17,764 21,018 19,729 19,751 0.1% -6.1% -6.0% Dividend and Profits 53,761 73,866 88,188 77,229 90,229 16.8% -12.4% 2.3% External Grants 2,311 1,456 3,135 2,405 2,405 0.0% -23.3% -23.3% Other Non Tax Revenue 59,405 78,000 79,788 80,240 99,009 23.4% 0.6% 24.1% Receipts of Union Territories 1,117 1,166 1,097 1,111 1,111 0.0% 1.3% 1.3% Total Non Tax Revenue 137,355 172,252 193,226 180,714 212,505 17.6% -6.5% 10.0% Total Revenue Receipts 879,232 1,056,331 1,029,252 1,167,131 1,189,763 1.9% 13.4% 15.6% 3. Capital Receipts A. Non-debt Receipts 1. Recoveries of loans and advances@ 15,060 10,654 10,803 10,527 10,527 0.0% -2.6% -2.6% 2. Miscellaneous Capital Receipts 25,890 55,814 25,841 56,925 63,425 11.4% 120.3% 145.4% Total 40,950 66,468 36,643 67,452 73,952 9.6% 84.1% 101.8% B. Debt Receipts RECEIPTS 3. Market Loans 467,356 484,000 453,902 457,321 461,205 0.8% 0.8% 1.6% 4. Short term borrowings 53,350 19,844 22,678 34,554 34,553 0.0% 52.4% 52.4% 5. External Assistance (Net) 7,201 10,560 5,440 5,734 5,734 0.0% 5.4% 5.4% 6. Securities issued against Small Savings 8,626 5,798 11,605 8,229 8,229 0.0% -29.1% -29.1% 7. State Provident Fund (Net) 10,920 10,000 10,000 12,000 12,000 0.0% 20.0% 20.0% 8. Other Receipts (Net) -6,252 12,297 5,914 10,793-7,704-171.4% 82.5% -230.3% Total 541,202 542,499 509,539 528,631 514,017-2.8% 3.7% 0.9% Total Capital Receipts (A+B) 582,152 608,967 546,182 596,083 587,969-1.4% 9.1% 7.7% 4. DRAW-DOWN OF CASH BALANCE -51,012... 15,000 0 17,160-100.0% 14.4% Total Receipts (1+2+3+4) 1,410,372 1,665,297 1,590,434 1,763,214 1,794,892 1.8% 10.9% 12.9% Financing of Fiscal Deficit (3B+4) 490,190 542,499 524,539 528,631 531,177 0.5% 0.8% 1.3% Receipts under MSS (Net)... 20,000... 20,000 20,000 0.0% UPA %YoY Final NDA
(Rs Crore) 1. NON-PLAN EXPENDITURE A. Revenue Expenditure EXPENDITURE 2012-2013 2013-2014 2013-2014 Interim budget 2014-2015 % change Actuals estimates Revised 1 Interest Payments and Prepayment Premium 313,170 370,684 380,066 427,011 427,011 0.0% 2 Defence Services 111,277 116,931 124,800 134,412 134,412 0.0% 3 Subsidies 257,079 231,084 255,516 255,708 260,658 1.9% 4 Grants to State and U.T. Governments 47,996 76,981 61,617 69,436 69,936 0.7% 5 Pensions 69,479 70,726 74,076 80,983 81,983 1.2% 6 Police 37,285 40,895 43,148 46,427 46,390-0.1% 7 Assistance to States from National Calamity Contigency 2,810 4,800 4,650 5,050 5,050 Fund/ National Disaster Response Fund (NDRF) 0.0% 8 Other General Services (Organs of State, tax collection, 21,759 22,903 23,058 26,824 26,401 external affairs etc.) -1.6% 9 Social Services (Education, Health, Broadcasting etc.) 21,168 23,114 25,438 24,819 25,324 2.0% 10 Economic Services (Agriculture,Industry, Power, Transport, 22,210 24,334 25,459 26,464 26,797 Communications, Science & Technology, etc.) 1.3% 11 Postal Deficit 5,386 6,717 5,880 6,908 6,908 0.0% 12 Expenditure of Union Territories without Legislature 4,269 4,395 4,442 4,468 4,468 0.0% 13 Amount met from National Calamity Contigency Fund/ -2,810-4,800-4,650-5,050-5,050 Contribution to National Disaster Response Fund (NDRF) 0.0% 14 Grants to Foreign Governments 3,228 4,144 4,188 4,321 4,321 0.0% Total Revenue Non-Plan Expenditure 914,306 992,908 1,027,688 1,107,781 1,114,609 0.6% B. Capital Expenditure 1 Defence Services 70,499 86,741 78,872 89,588 94,588 5.6% 2 Other Non-Plan Capital Outlay 7,643 30,131 7,804 9,998 10,039 0.4% 3 Loans to Public Enterprises 435 417 559 522 653 25.1% 4 Loans to State and U.T. Governments 3,406 80 83 83 83 0.0% 5 Loans to Foreign Governments 700... 158 158 158 0.0% 6 Others -242-302 -262-238 -238 0.0% Total Capital Non-Plan Expenditure 82,441 117,067 87,214 100,111 105,283 5.2% Total Non-Plan Expenditure 996,747 1,109,975 1,114,902 1,207,892 1,219,892 1.0% 2. PLAN EXPENDITURE A. Revenue Expenditure 1 Central Plan 232,353 320,038 265,186 116,641 128,867 10.5% 2 Central Assistance for 96,855 123,222 106,665 325,632 324,636-0.3% State & Union Territory Plans State Plans 93,492 118,873 102,545 319,534 318,712-0.3% Union Territory Plans 3,363 4,349 4,120 6,098 5,924-2.9% Total Revenue Plan Expenditure 329,208 443,260 371,851 442,273 453,503 2.5% B. Capital Expenditure 1 Central Plan 72,387 99,030 91,307 100,118 107,724 7.6% 2 Central Assistance for 12,031 13,032 12,374 12,930 13,773 6.5% State & Union Territory Plans State Plans 10,706 11,057 11,027 11,210 12,052 7.5% Union Territory Plans 1,325 1,975 1,347 1,720 1,721 0.1% Total Capital Plan Expenditure 84,417 112,062 103,681 113,048 121,497 7.5% Total - Plan Expenditure 413,625 555,322 475,532 555,321 575,000 3.5% Total Support for Central Plan 304,739 419,068 356,493 216,760 236,592 9.1% Total Central Assistance for State & UT Plans 108,886 136,254 119,039 338,562 338,408 0.0% TOTAL EXPENDITURE 1,410,372 1,665,297 1,590,434 1,763,213 1,794,892 1.8% Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 5
DIRECT TAXES Personal Income-tax exemption limit raised by Rs 50,000/- that is, from Rs 2 lakh to Rs 2.5 lakh in case of individual taxpayers and raised from Rs 2.5 lakh to Rs 3 lakh for senior citizens. Investment limit under section 80C of the Income-tax Act raised from Rs 1 lakh to Rs 1.5 lakh. The education cess to continue at 3 percent. (Contrary to the Economic survey recommendations). Deduction limit on account of interest on loan in respect of self occupied house property raised from Rs 1.5 lakh to Rs 2 lakh, this will have a positive impact on consumption. Marginally positive for Real Estate, particularly for low-cost housing. Investment allowance at the rate of 15 % to a manufacturing company that invests more than Rs 25 crore in any year in new plant and machinery. The benefit to be available for investments up to FY2017. 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by March 2017, Positive for UMPPs. Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains. Long-term capital gains tax on transfer of mutual fund units to be raised to 20% (from 10%) and time period raised from 12months to 36months. Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes. Direct taxes results in revenue loss of Rs 22,200 crore. DTC to be considered. Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 6
INDIRECT TAXES Custom duty reduced on certain items in the chemical and petrochemical sector, negative for domestic petrochem manufacturer like RIL and GAIL. Custom duty on LCD and LED TV panels of below 19 inches reduced from 10 % to Nil. Basic customs duty on imported flat-rolled products of stainless steel increased from 5 % to 7.5 %, positive for domestic steel manufactures. Basic customs duty of 5 % extended to machinery and equipment required for setting up of a project for solar energy production. Excise duty reduced from 12 % to 6 % on footwear of retail price exceeding Rs 500 per pair but not exceeding Rs 1,000 per pair, positive for BATA, Relaxo and Liberty. Reduction in basic customs duty from 10 % to 5 % on forged steel rings used in the manufacture of bearings of wind operated electricity generators. Basic customs duty on metallurgical coke increased from Nil to 2.5 % in line with the duty on coking coal. Specific rates of excise duty increased on cigarettes in the range of 11%to 72%, Primarily looks negative if wtd. Avg. more than 30% hike. Service tax extended to digital advertising; newspapers will remain exempted. Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 7
ECONOMIC INITIATIVES Foreign Direct Investment (FDI) Government to promote FDI in selected sectors. The composite cap of foreign investment to be raised to 49% in Defense and insurance sector, positive for Max India and Reliance Capital. Low-cost affordable housing to see FDI with relaxed regulations, positive for Real estate and cement. The manufacturing units to be allowed to sell its products through retail including e-commerce platforms. Bank Capitalization Disinvestment through share sale to Retail investors, positive for PSU Banks. Irrigation Rs 1000 crore provided for Pradhan Mantri Krishi Sinchayee Yojna (PMKSY) for assured irrigation, positive for Jain Irrigation, Finolex Industries. Rural Development Rural Infrastructure to be improved through Shyama Prasad Mukherji Rurban Mission (SPMY), positive for Repco. Initial sum of Rs 100 crore for Start Up Village Entrepreneurship Programme for encouraging rural youth to take up local entrepreneurship programs. Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 8
OTHER HIGHLIGHTS New urea policy to be formulated, positive for Chambal, FACT and Tata Chemicals. Investment trust structure to be introduced for real estate and infrastructure sectors, would help in reducing pressure on banks and provide equity infusion. Pension Scheme for senior citizens to be revived for another year, good for garnering savings. Real Estate Investment Trusts (REITS): complete pass through for the purpose of taxation, positive for Phoenix Mills, DLF, Prestige Estates and Brigade Enterprises. Health Four more AIIMS like institutions and Twelve new government medical colleges to be set up. New drug testing laboratories will be set up, positive for all domestic focused Pharma companies. Urban & Digital Development Rs 100 crore allocated for 600 new and existing Community Radio Stations. Rs 100 crore provided for Metro Projects in Lucknow and Ahmedabad. Rs4000cr to be allocated for low cost affordable Housing, positive for Repco, Puravankara and Ashiana Housing. Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 9
OTHER HIGHLIGHTS Shipping and ports: Allocation of Rs110bn, positive for shipping sector. Road Sector: Investment of Rs 37,880 cr in NHAI and State Roads is proposed, positive for IRB Infra., Sadbhav Engineering and Cement companies. Petroleum and Natural Gas: Gas pipelines to be extended from Rs15k to Rs30k km through PPP models, positive for GAIL, PLNG and IGL Royalty on Minerals to be raised, negative for NMDC if it can t pass through. Also negative for ONGC, OINL. Ganga cleanup project: Rs 2037cr provided, positive for VaTech Wabag. Monetary policy framework to be built in consultation with the RBI. Withholding tax of 5% for all corporate bonds issues outside. Liberalize ADR/GDR issuance. IDR issuance to be simplified. Long-term funding to the infrastructure. Banks to be allowed to raise long-term funds without pre-exemptions (CRR/SLR), positive for IDFC in particular upon conversion to bank. Mild positive for other banks as the overall amount garnered as these bonds will be a small relative to overall liabilities. Will aid address ALM issues to an extent. Analysts: Swati Saxena Ajay Kumar Srivastava swati.saxena@religare.com ajaykumar.s@religare.com Disclaimer: http://www.religareonline.com/research/disclaimer/disclaimer_rsl.html 10