UNION BUDGET 2013-14 ANALYSIS

Betting on Growth

February 28, 2013

Destimoney Research

Budget 2013-14: Targeting growth with lower fiscal deficit while maintaining
high inflation...

19.1% rise in tax revenue for FY14BE over the FY13RE.

Non-tax revenue receipts estimated at `1,722.52 bn a jump of 32.8% mainly on the back of


33% rise in Dividend and Profits income from PSUs and

45% rise in other non-tax receipts (mainly comprising surpluses from public enterprise).

The government could only mop up `1,297 bn in FY13RE a growth of 6.6% against the budgeted
target of 32% in FY13BE.

16.4% rise in total expenditure for FY14BE over the FY13RE which assumes 10.3% drop in annual
subsidies contributed by 32.9% drop in fuel subsidy.

Allocation for food security bill is increased by `100 bn vs street expectation of `250bn

Fiscal deficit for 2013-14 pegged at 4.8%, compared to 5.2% for 2012-13.

Government plans to raise a large part of `558 bn non-debt receipts through disinvestments in FY14. It
raised `240 bn under the same head in FY13.

Net market borrowing of the Government through dated securities in 2013-14 would be `4.84 trillion as
against `4.67 trillion in 2012-13.

February 28, 2013

but lacking clarity on roadmap to achieve the targets

The budget lacked concrete roadmap to remove structural bottlenecks which could have acted as a
confidence booster for investments. The governments move like financial restructuring of DISCOMS is a
one time fix rather than a permanent solution. Similarly, reiterating the importance of coal price pooling
doesnt seem to give confidence to power generating companies, which continue to suffer because of
non-availability of coal.

Removed the ambiguity that prevails on FDI and FII definition, with FIIs having more than 10% stake in a
single company to automatically be treated as FDI. However, attracting new bulk FDI flows remains
challenging.

No change in direct tax rates; however surcharges increased for one year targeting rich individuals as well
as companies

GST and DTC implementation has been delayed.

Excise Duty rate and Service tax rate has been maintained at 12%

Budget announcements are

Positive for Textile, Infrastructure, Public Sector Bank, Education and Healthcare
Negative for Auto, Cigarettes, Restaurants, Capital Goods, Consumer, MNCs

February 28, 2013

Fiscal Snapshot
Budgeted reduction in subsidy burden

0%

Net Tax Revenues

Non-Tax Revenues

Non-plan expenditure (in Rs. Bn) - LHS

Non-Debt Capital Receipts

Improvement in deficit situation is targeted

Plan expenditure (in Rs. Bn) - LHS

Subsidies (%of Total Expenditure) - RHS

Falling trend of household saving in financial

instruments

2.5%
0.0%
-2.5%
-5.0%

40%

120%

30%

90%

20%

60%

10%

30%

0%

0%
FY06

Fiscal Deficit

Revenue Deficit

Source: Economic Survey 2013, Ministry of Finance

February 28, 2013

FY14

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

-7.5%

FY03

FY14BE

FY13RE

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY14

5%
FY13

5,000

3,250

FY12

10%

FY11

10,000

6,500

FY10

15%

FY09

15,000

FY08

9,750

FY07

20%

FY06

20,000

FY05

13,000

FY04

(in `Bn)

Budgeted Sharp Growth in Revenue Generation

Primary Deficit

FY07

FY08

FY09

FY10

FY11

FY12

Household Saving via Financial Instruments (% GDP) - LHS

Household Saving in Physical Assets (% GDP) - LHS
Gross Domestic Saving (% GDP) - LHS
Financial Vs Overall Household Saving - RHS

Budget at a Glance

` bn

Actuals

Actual

Actual

Actual

Revised

Budgeted

%YoY

%YoY

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

FY13BE

FY14BE

Revenue
Net Tax Revenues

4,433

4,565

5,699

6,298

7,421

8,841

17.8%

19.1%

Non-Tax Revenues

969

1,163

2,186

1,217

1,297

1,723

6.6%

32.8%

5,403

5,728

7,885

7,514

8,718

10,563

16.0%

21.2%

67

332

353

369

381

665

3.1%

74.6%

5,470

6,060

8,237

7,884

9,099

11,228

15.4%

23.4%

Non-plan expenditure

6,087

7,211

8,183

8,920

10,016

11,100

12.3%

10.8%

Plan expenditure

2,752

3,034

3,790

4,124

4,292

5,553

4.1%

29.4%

Total Expenditure

8,840

10,245

11,973

13,044

14,308

16,653

9.7%

16.4%

On Revenue account

7,938

9,118

10,407

11,458

12,631

14,362

10.2%

13.7%

902

1,127

1,566

1,586

1,678

2,291

5.8%

36.6%

3,370

4,185

3,736

5,160

5,209

5,425

1.0%

4.1%

Revenue Deficit

2,535

3,390

2,523

3,943

3,912

3,798

-0.8%

-2.9%

Primary Deficit

1,448

2,054

1,396

2,428

2,043

1,718

-15.9%

-15.9%

Fiscal Deficit

6.0%

6.5%

4.8%

5.7%

5.2%

4.8%

Revenue Deficit

4.5%

5.2%

3.2%

4.4%

3.9%

3.3%

2.6%
1,922
56,301
12.9%

3.2%
2,131
64,778
15.1%

1.8%
2,340
77,953
20.3%

2.7%
2,732
89,749
15.1%

2.0%
3,167
100,281
11.7%

1.5%
3,707
113,719
13.4%

Net Revenue Receipts

Non-Debt Capital Receipts
Total Revenue
Expenditure

On Capital account
Key indicators
Fiscal Deficit

Indicators (as % of GDP)

Primary Deficit
Interest Payment
GDP at market prices
Nominal GDP Growth (%)

Source: Ministry of Finance

February 28, 2013

Lower than budgeted tax collection in FY13 mainly on account of lower

corporate tax and indirect taxes
Net Tax Revenue Breakup
` bn

Actuals

Budgeted

Revised

Budgeted

%YoY

%YoY

%YoY

2011-2012

2012-2013

2012-2013

2013-2014

FY13BE

FY13RE

FY14BE

Tax Revenue
Corporation Tax

3,228

3,732

3,589

4,195

15.6%

11.2%

16.9%

Taxes on Income

1,703

1,958

2,061

2,476

14.9%

21.0%

20.2%

12

10

57.9%

9.9%

9.7%

Customs

1,493

1,867

1,649

1,873

25.0%

10.4%

13.6%

Union Excise Duties

1,456

1,944

1,720

1,976

33.5%

18.1%

14.9%

975

1,240

1,327

1,801

27.2%

36.1%

35.8%

Taxes on Union Territories

28

23

27

28

-17.1%

-4.6%

3.8%

Less - NCCD transferred to the National

Calamity Contigency Fund/National
Disaster Response Fund

40

46

44

48

Less - State's share

2,554

3,019

2,915

3,470

Centre's Net Tax Revenue

6,298

7,711

7,421

8,841

22.4%

17.8%

19.1%

Wealth Tax

Service Tax

Source: Ministry of Finance

Finance ministry has budgeted 19.1% rise in tax revenue for FY14BE over the FY13RE driven by higher
growth in corporate tax, robust service tax and union excise & custom duties, whereas it assumes 16.4%
growth in total expenditure for the same period factoring lower subsidies and 17% growth in interest
payments.

February 28, 2013

DIRECT TAX : No change in tax rates, however increased surcharges for a year

No change in tax slabs. For tax payers in the first bracket of `2lakh to `5lakh, a tax credit of `2000 to every person
with total income upto `5 lakh

Rajiv Gandhi Equity Savings Scheme liberalized to enable first time investor to invest in mutual funds as well as
listed shares in three consecutive years. The Income limit is raised from `10lakh to `12 lakh

Additional deduction of interest upto `1lakh for a person taking first home loan upto `25 lakh during period 1
April 2013 to 31 March 2014. the unexhausted limit for the next fiscal could also be carried forward in the
following fiscal.

Additional surcharges for only one year :

 Surcharge of 10% on persons (other than companies) whose taxable income exceed `1crore to augment
revenues.
 Increase in surcharge from 5% to 10% on domestic companies whose taxable income exceed `10 crore.
 In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2% to 5%, if
the taxable income exceeds `10 crore
 In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from
5% to 10%

Donations made to National Children Fund eligible for 100% deduction.

A final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through
buyback of shares.

Proposal to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents
from 10% to 25%

February 28, 2013

Central plan outlay Sector wise

Amount in `bn

Growth YOY (%)

FY12

FY13BE

FY13RE

FY14BE

FY13BE

FY13RE

FY14BE

Agriculture and Allied Activities

162

177

160

188

9%

-1%

18%

Rural Development*

475

507

437

564

7%

-8%

29%

13

12

152%

-15%

180%

1,219

1,548

1,482

1,583

27%

22%

7%

362

572

392

480

58%

8%

22%

1,075

1,254

1,030

1,335

17%

-4%

30%

66

154

83

124

134%

25%

50%

Science Technology & Environment

117

166

121

176

41%

3%

45%

General Economic Services

197

248

210

316

26%

7%

50%

1,355

1,789

1,583

1,930

32%

17%

22%

General Services

53

87

59

93

64%

10%

59%

GRAND TOTAL

5,086

6,515

5,562

6,801

28%

9%

22%

Irrigation and Flood Control

Energy
Industry and Minerals
Transport^
Communications

Social Services+

* Includes the provision for rural housing but excludes provision for rural roads
^ Includes the provision for rural roads
+ Excludes provision for rural housing

February 28, 2013

FY14 target of 4.8% fiscal deficit seem optimistic

Fiscal Deficit Trend as % of GDP

8.0%
6.0%

6.0%

6.5%
5.7%
5.2%

4.8%
4.0%

4.8%

4.0%
3.3%
2.5%

2.0%

0.0%
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13RE

FY14BE

Source: Bloomberg, Ministry of Finance

Fiscal Deficit estimated for FY14BE is at 4.8%.

Disinvestment planned for FY13BE is `558 bn, an increase of 132.5% over FY13RE of `300 bn.

February 28, 2013

due to sharp understatement in subsidies

Petroleum subsidy seem to be again understated

Actuals
2011-2012

Budgeted
2012-2013

Revised
2012-2013

Budgeted
2013-2014

%YoY
FY13BE

%YoY
FY13RE

%YoY
FY14BE

Fertiliser Subsidy

700

610

660

660

-12.9%

-5.8%

0.0%

Food Subsidy

728

750

850

900

3.0%

16.7%

5.9%

Petroleum Subsidy

685

436

969

650

-36.4%

41.5%

-32.9%

Interest Subsidy

50

80

74

81

Other Subsidy
Total Subsidy

16
2,179

25
1,900

24
2,577

21
2,311

` bn
Subsidies

Source: Ministry of Finance

We estimate that the subsidies are understated especially the petroleum and the food subsidies. We
believe the overall subsidy for FY14 could be near to `3,000 bn

Given the global macroeconomic situation the slippages could become worse and the fiscal deficit for FY14
could turn out to be about 5.3%.

10

February 28, 2013

GDP growth has been budgeted at 6.1% in real terms and 13.4% in nominal
terms for 2013-14
Trends in GDP (%)
12.0
9.5

9.7

9.2
8.4

9.0

8.4
6.9

6.7

6.1

6.0

5.0

3.0

0.0
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14E

Source: CSO, Bloomberg, Economic Survey

Economy is expected to grow at 5.0% in 2012-13 with agricultural growth seen at 2.5%, industry at 3.1%
and services at 6.6%. In the next fiscal, economic growth is expected to be between 6.1%-6.7%.

GDP growth for quarter ended Dec2012 came in at a disappointing 4.5%.

11

February 28, 2013

SECTORAL IMPACT

February 28, 2013

AUTO

Key Proposals

Impact

Companies Impacted

Increased allocation to JNNURM scheme, mainly for purchase of upto 10,000

buses, especially by hill states

Positive

Tata Motors, Ashok Leyland

Increase in excise duty for non-taxi SUVs from 27% to 30%

Negative

Tata Motors, Mahindra & Mahindra

Extension of period of concession for parts of hybrid and electric vehicle

manufacturers upto 31 Mar 2015 (6% excise duty)

Positive

Mahindra & Mahindra

Increase in import duty on

 motor vehicles with 3000 cc (petrol)/ 2500 cc (diesel) and CIF more than
US$40,000from 75%to 100%
 motorcycles with engine capacity of 800cc or more from 60 %to 75%
 yachts and similar vessels from 10%to 25%

Negative

Minor impact on Tata Motors,Bajaj Auto

Decrease in excise duty on truck chassis (8706 00 42) from 14% to 13%.

Positive

Tata Motors, Ashok Leyland

Positive

Tata Motors, Ashok Leyland, Hero MotoCorp, Bajaj

Auto

Positive

Bosch

Full exemption from excise duty is being provided to intermediate goods

manufactured and consumed captively by exempted units under Area Based
Exemption Scheme in Himachal Pradesh and Uttarakhand
Decrease in customs duty 10% to 5% on stainless steel wire cloth stripe and from
7.5% to 5% on wash coat for use in the manufacture of catalytic convertors and
their parts

13

February 28, 2013

BANKING & FINANCIAL SERVICES

Key Proposals

Impact

Companies Impacted

` 125.14 bn. to be provided to Public Sector Banks before the end of March 2013
and ` 140 bn during 2013-14 to meet the Basel III regulations

Positive

Public Sector Banks

Interest subvention scheme for short term crop loans is extended to private sector
banks and scheduled commercial banks

Negative

Private Sector Banks and scheduled commercial banks

Insurance companies to open branches in Tier II cities and below without prior
approval of IRDA. Banks are permitted to act as insurance brokers in order to
increase the penetration

Positive

LIC

Mutual fund distributors allowed to become members in

the Mutual Fund segment of stock exchanges.

Positive

Edelweiss , Motilal Oswal, Emkay, IIFL, J M Financial

Pension Funds and Provident Funds may invest will be enlarged to include
exchange traded funds, debt mutual funds

Positive

Edelweiss , Motilal Oswal, IIFL, J M Financial

Reduction in Service Transaction Tax ( STT)

Equity Futures from 0.017% to 0.01%
MF/ETF redemptions from 0.25% to 0.001%
MF/ETF purchases from 0.1% to 0.001%, only on seller

Positive

Edelweiss , Motilal Oswal, Emkay, IIFL, J M Financial.

Commodities Transaction Tax on non agricultural commodities futures at 0.01%

Negative

Edelweiss , Motilal Oswal, Emkay, IIFL, J M Financial.

Provisions under Rural Housing fund enhanced from ` 40 bn. to ` 60. bn.

Positive

LIC Housing Finance, Dewan Housing, HDFC Ltd., GIC

Housing

FIIs allowed to participate in exchange traded currency derivative segment to the

extent of Indian rupee exposure

Positive

Edelweiss , Motilal Oswal, Emkay, IIFL, J M Financial

14

February 28, 2013

CONSUMER

Key Proposals

Impact

Companies Impacted

Basic customs duty on de-hulled oat grain is being reduced from 30% to 15%

Positive

Marico, GSK Consumer

Export duty of 10% on de-oiled rice bran oil cake is being withdrawn

Positive

Ruchi Soya Industries

Decrease in customs duty from 7.5% to 5% on 20 specified machinery for use in

leather and footwear industry

Positive

Bata India, Relaxo Footwear,

Increase in excise duty on Cigars, cigarillos and cigarettes by about 18% on all
cigarettes except cigarettes of length not exceeding 65mm.

Negative

ITC, Godfrey Phillips, GTC, VST Industries

Decrease in customs duty from 10% to 2% on pre-forms of precious and semiprecious stones.

Positive

Gitanjali Gems, TBZ, PC Jewelers

Increase the rate of tax on payments by way of royalty and fees for
technical services to non-residents from 10 percent to 25 percent

Negative

All MNCs

Investment allowance at the rate of 15 percent to manufacturing companies that

invest more than `1bn in plant and machinery during the period 1.4.2013 to
31.3.2015

Positive

All companies with large capex plans e.g. Maruti

Suzuki, Nestle Industries, GSK Consumer Healthcare

Proposal to levy service tax on all air conditioned restaurants

Negative

Specialty Restaurants, Jubilant Foodworks

15

February 28, 2013

EDUCATION

Key Proposals

Impact

Companies Impacted

Education allocation under Right to Education increased to `272.58bn, from `

255.55bn

Positive

Positive for the whole sector

` 10 bn allocated for skill development program and ` 16.5bn allocated to AIIMSlike institutions

Positive

Education allocation under Rashtriya Madhyamik Shiksha Abhiyan increased to

`39.83bn,increase of 25.6%

Positive

16

February 28, 2013

Positive for the whole sector

Positive for the whole sector

HEALTH CARE

Key Proposals

Impact

Companies Impacted

National Health Mission that combines the rural mission and the proposed urban
mission will get `212.39 bn, an increase of 24.3% over the RE.

Positive

All healthcare companies

Proposal to provide `47.27 bn for medical education, training and research.

Positive

For medical equipments companies,

institutes, CRAMs companies.

Branded Ayurvedic medicaments and medicaments of Unani, Siddha,

Homeopathic or bio-chemic system are being brought
under MRP based assessment with abatement of 35% from MRP.

Negative

Dabur India Ltd.

17

February 28, 2013

education

INFRASTRUCTURE

Key Proposals

Impact

Companies Impacted

`152.6 bn allocated to Ministry of Drinking Water and Sanitation.

Positive

Capital Goods companies like, Thermax, VA-Tech

Wabag, Ion-Exchange.

`14 bn provided for setting-up of water purification plants in 2000 arsenic and
12000 fluoride-affected rural habitations.

Positive

Capital Goods companies like, Thermax,, VA-Tech

Wabag, Ion-Exchange.

Allocation of ` 801.94 bn in 2013-14 for Ministry of Rural development marking

an increase of 46% over RE 2012-13.

Positive

Construction Sector Companies.

Proposal to carve out PMGSY-II and allocate a portion of the funds to the new
programme that will benefit States such as Andhra Pradesh, Haryana, Karnataka,
Maharashtra, Punjab and Rajasthan.

Positive

Infrastructure Sector, Companies primarily into

construction of roads.

To construct a transmission system from Srinagar to Leh at a cost of

`18.4 bn

Positive

ABB, Siemens, Crompton Greaves, Alstom T&D,

Alstom Projects

Ships and vessels exempted from excise duty. No CVD on imported ships and
vessels.

Positive

Ship building companies

Two new major ports will be established in Sagar, West Bengal and in Andhra
Pradesh to add 100 million tonnes of capacity. A new outer harbour to be
developed in the VOC port at Thoothukkudi,
Tamil Nadu through PPP at an estimated cost of ` 7,500 crore.

Positive

Related infrastructure companies

A bill to declare the Lakhipur-Bhanga stretch of river Barak in Assam as the sixth
national waterway to be moved in Parliament. Preparatory work underway to
build a grid connecting waterways, roads and ports.

18

February 28, 2013

Positive

Related infrastructure companies

METAL

Key Proposals

Impact

Companies Impacted

Export duty is being levied on ilmenite unprocessed at 10% and on ilmenite,

upgraded at 5%.

Positive

Paint companies like Asian Paints, Berger Paints, Akzo

Nobel, Kansai Nerolac
Paper companies like J K Paper, TNPL, Ballarpur
Industries

Levy of 10% export duty on bauxite

Negative

Hindalco, Nalco, Sterlite Industries

Full exemption from export duty is being provided to galvanized steel sheets falling
under certain sub-headings, retrospectively w.e.f. 01.03.2011

Positive

JSW Steel

Levy of 4% excise duty on silver manufactured from zinc/lead smelting

Negative

Hindustan Zinc

Increase in compounded levy on stainless steel "Patta Patti from `30,000 per
machine per month to `40,000 per machine per month.

Negative

All steel manufacturers

19

February 28, 2013

OIL & GAS

Key Proposals

Impact

Companies Impacted

Exploration policy will be reviewed to move from profit sharing to revenue sharing
contracts.

Volatile

All Oil & Gas exploration companies

The natural gas pricing policy will be reviewed and uncertainties regarding pricing
will be removed.

Positive

All Oil & Gas refining and conversion companies.

NELP blocks that were awarded but are stalled will be cleared

Positive

ONGC, Reliance Industries, OIL, Cairn India

The 5 MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in

2013-14.

Positive

All Oil & Gas exploration companies

20

February 28, 2013

POWER

Key Proposals

Impact

Companies Impacted

Guidelines regarding financial restructuring of DISCOMS have been announced.

State Government urged to prepare the financial restructuring plan, quickly sign
MoU and take advantage of the scheme

Positive

DISCOMS, Power finance companies

80 IA benefit for power plants extended

Negative

Power Generators

21

February 28, 2013

TEXTILE

Key Proposals

Impact

Companies Impacted

Technology Upgradation Fund Scheme (TUFS) to continue in 12th Plan with an

investment target of `1,510 bn

Positive

All textile companies availing the facility

Working capital and term loans at a concessional interest of 6% to handloom

sector.

Positive

Handloom Companies

Increase in customs duty on raw silk (not thrown), of all grades from 5% to 15%.

Negative

Himatsingka Seide

Decrease in customs duty from 7.5% to 5% on textile machinery & parts.

Positive

All Textile Mills

Zero duty at the fibre stage for cotton and, in the case of spun yarn of man made
fibres, there will be a duty of 12% at the fibre stage for ready made garments

Positive

Arvind Mills

22

February 28, 2013

Destimoney Securities Private Limited

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February 28, 2013