Table of Contents - CARE’s Ratings...Key expectations of IndustryCurrent rate Expectation CARE...

1Union Budget Expectations 2016-17

Table of ContentsForeword ........................................................................................................2

Macro economy.......................................................................................... 3-4

SectorsAirlines............................................................................................................5Automobiles ..................................................................................................5BFSI ................................................................................................................5Cement ...........................................................................................................6Chlor-Alkali ....................................................................................................6Coal.................................................................................................................7Construction ..................................................................................................7Education .......................................................................................................7Engineering & capital goods ..........................................................................8Fertilizers .......................................................................................................9FMCG & Consumer durables .........................................................................9Gems & Jewellery ........................................................................................10Hospitals & Healthcare ................................................................................10Hotels ..........................................................................................................11IT and ITES ...................................................................................................11Media & Entertainment ...............................................................................12Mining & Minerals .......................................................................................12Non-Ferrous Metals .....................................................................................13Oil and Gas ..................................................................................................14Paper ...........................................................................................................15Petrochemicals ............................................................................................16Pharmaceuticals ..........................................................................................16Power (including renewables) .....................................................................17Real estate ....................................................................................................17Retail.............................................................................................................18Roads and Highways ....................................................................................18SEZ ...............................................................................................................19Shipping .......................................................................................................19Steel ..............................................................................................................19Tea & Coffee ................................................................................................20Telecom .......................................................................................................20Textiles .........................................................................................................21

Warehouse/Logistics ...................................................................................21


Foreword

The Union Budget for 2016-17 would have to chart the course for the revival in investment

especially private investment. This would essentially involve the government undertaking

higher public investments that could stimulate private investments in turn. Challenging as

it maybe, at the same time, it cannot lose sight of its fiscal consolidation commitments.

Prioritization and better targeting of expenditure will be undertaken, with the subsidy bill

likely to be cut further.

The slackness in the global economy and volatility in financial markets notwithstanding,

the budget is likely to make policy announcements/changes covering the spectrum of

banking, financial markets, industry, external trade, taxation and rural economy. Also,

measures to attract foreign investors are expected along with measures that could provide

the necessary impetus for demand and growth.

Infrastructure focus is likely to be maintained in the 2016-17 budget and special attention

would be paid towards areas such as education, health, research & development and skill

development. Ease of doing business initiatives, revival of stalled projects and incentivizing

start-ups are other expected announcement.

D. R. Dogra

MD & CEO, CARE Ratings


Union Budget 2016-17 Expectations

General Economic and Fiscal Measures • Increased Public Investments/ Capital Expenditure - With economic growth being driven by public investments

and private consumption, and given the continued weakness in private investments, the government is likely to undertake higher public investment, chiefly towards building infrastructure (roads, power, irrigation and railways) in an attempt to spur private investments and demand.

• Incentives to stimulate Private Investment

• Further Rationalization of subsidies – Petroleum Subsidy, which was Rs.30,000 crore in the FY16 Budget (50% lower than the previous year), could be reduced further or done away with. Food and fertilizer subsidy is likely to be stable as in the last budget or could at the most see marginal increase.

• Relaxation in Fiscal consolidation roadmap – Although the government’s fiscal consolidation endeavors are to continue, the pace of fiscal consolidation would moderate, given the pressures on expenditure that is to be incurred to stimulate investment, demand and growth. Additionally, government expenditure could be further pressured with allocations towards OROP (one rank one pension for armed forces) and the implementation of the 7th Pay Commission recommendations. The government could thus deviate from its Fiscal deficit target of 3.5 % in 2016-17 and announce a new target of 3.7% for the fiscal.

• Stimulate financial savings – Measures and incentives to increase financial savings, viz, increase in limit for PPF investments from Rs.1.5 lakh to Rs.2 lakh.

• Increase tax exemption limits - Deduction on home loan interest could be increased from the current Rs.2 lakh.

• Lower personal income tax slabs, viz. for salaried class and senior citizens.

• Measures to boost rural demand.

• Measures to stimulate the manufacturing sector - to boost the domestic manufacturing sector and safeguard the sector from the global commodity price declines and currency devaluation, an increase in duties (anti-dumping) can be expected.

• Banking reforms and bank capitalization - addressing of stressed assets and issue in the banking sector. Lowering of government stake in PSUs, likely.

• Additional measures to tackle black money.

• Incentives and sops for start-ups

• Measures to improve ease of doing business and investor sentiments.

• Announce definitive steps to revive stalled projects and investments.

• Export promotion schemes and measures.

• Increase allocations towards health and education.

• Roadmap for lowering corporate tax rates and implementation of GST.

• Measures to develop the corporate bond markets.


Agriculture • Focus on investment and reforms.

• Loans at lower interest rates for distressed farmers.

• Allocations towards development and improvement in agri infrastructure (including marketing infrastructure and dissemination of timely market information).

• Direct transfer of fertilizer subsidy to farmers.

• Allocation to be made towards Research & Development, Technological advancements and improving productivity.


AirlinesKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

Rationalizations of VAT on jet fuel.

4%-30% 14%-16%

This is expected to reduce the cost of fuel for airlines and improve profitability. Also, partial pass-on of the same to the end user would result in growth of passenger traffic.

Positive

Automobiles/ Auto AncillariesKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

Early Implementation of GST / Phasing out CST

NA NA

This would help reduce the multiplicity and complexity of applicable taxes through early implementation.

Positive

Tax benefits to be made available for the adoption of hybrid/green technologies

NA NAThis would encourage investing in hybrid/green technologies.

Positive

BFSI sector

Key expectations of Industry

Current rate

Expectation CARE Ratings viewImpact on Industry

Capital infusion from the government in PSU banks

NA NA

In light of the asset quality deterioration in PSU banks and its impact on profitability and capital adequacy, equity capital infusion from the government is important.

Positive

Clarity on the proposed National Investment and Infrastructure Fund

NA NAThis will be a step in the revival of the infrastructure sector which contributes significantly towards the asset quality problems of banks.

Positive

Bankruptcy code NA NAThis will help in effective and speedy resolution of bad assets in the bank’s books and will be a positive development in improving the health of banks.

Positive

Restoration of tax-free status for securitization trusts

NA NA

This would bring more investors such as insurance, pension and provident funds in the securitization industry (participating through investments in Pass Through Certificates). This step is in line with the RBI’s ‘Report of the Committee on Medium-term Path on Financial Inclusion’.

Positive


CementKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

Increase in the allocation towards infrastructure projects and focus on housing

NA NA

Increase in investment towards infrastructure sector including roads, smart cities and affordable housing will provide impetus to cement demand.

Positive

Impose basic custom duty on import of cement

Nil 2.5%-5%

Major inputs for cement manufacturing like pet-coke, coal, gypsum, etc, attract import duty but the same is not applicable for import of cement. However, import accounts for very small share of total domestic cement consumption and is not a threat to the industry.

Positive

Clarification on the transfer of limestone reserves or mines in case of mergers and acquisitions under the Mines and Minerals (Development and Regulation) Act 2015

NA NARelaxation on transfer of limestone reserves will facilitate consolidation in the cement industry, thereby improving the price trends.

Positive

Chlor-AlkaliKey expectations of Industry

Current rate

Expectation CARE Ratings view Impact on Industry

Exempt custom duty on imports of membrane cell plant/membranes & their parts for manufacturingcaustic soda

2.5% 0%

More than 90% of caustic soda industry operates on membrane cell technology which is more efficient than mercury cell technology.Allowing free import of membrane cell technology will help the conversion of rest of the players towards energy-efficient and eco-friendly membrane cell technology faster.It will also help industry to reduce the cost of capacity expansion.

Positive for caustic soda manufacturers

Increase customs duties on imports of caustic soda and soda ash: Increase Basic customs duties (BCD)

7.5% 15%India is facing challenges due to cheap imports from low power cost countries in South, SE Asia & Middle East.

Positive for Soda Ash manufacturers


CoalKey expectations of Industry Current rate Expectation CARE Ratings view Impact on Industry

Increase in Clean Cess by ~ Rs.50-100/ tonne to finance clean environment initiatives

200/tonne 250-300

The increase in clean energy cess of Rs.50-100/tonne of coal is likely to garner Rs.30-60 billion yearly for the exchequer. The impact on the coal Industry remains neutral as cess increase is fully pass-through to end-consumers.

Neutral

ConstructionKey expectations of Industry Current rate Expectation CARE Ratings view Impact on IndustryIncrease in allocation towards critical infrastructure schemes/projects.

NA NAIndustry is going through a slowdown; thus, increased allocation will provide a much needed boost.

Positive

Exemption from MAT under 80IA for Infrastructure projects.

18.5% Nil

Companies need to pay MAT on book profit which to a great extent negates the tax benefit under section 80IA. This exemption will help in reducing the cash outflow in the initial years of the project.

Positive

EducationKey expectations of Industry Current rate Expectation CARE Ratings view Impact on Industry

Grant of Infrastructure status to Higher Education sector

NA NAWould enable the players in the Higher education sector to garner greater flow of funds at relatively lower cost.

Positive


Engineering and Capital goodsKey expectations of Industry Current rate Expectation CARE Ratings view Impact on Industry

Reduction in excise duty on copper and aluminum

12.50% 10%The reduction is likely to improve the cost competitiveness of domestic capital goods players.

Positive

Increase in customs duty on motor and transformer laminations

7.50% 10-15%The increase is likely to protect the interest of domestic lamination players.

Positive

Rebate/refund of excise duty paid by manufacturers on raw materials consumed for duty exempted final goods

NA NA

Excise duty paid on raw materials consumed for production of duty exempted final goods, is accumulated in the form of cenvat credit. This is to be set-off against future sales, which results in an increase in the working capital requirement of the manufacturers.

Rebate/refund on such goods as against accumulation of cenvat credit would help improve the liquidity position of the manufacturers, though marginally.

Positive

Removal of minimum import price (MIP) on steel products

USD 341 –USD 752

NIL

Removal of MIP on steel products is likely to improve the cost competitiveness of industry players. However, removal of MIP is less likely, given the threat faced by the domestic steel manufacturers from imports/ dumping of steel in the domestic market.

Positive

Import duty drawback on deemed exports at ‘All Industry Rate’ (AIR), even when cenvat credit is availed

NA NA

Presently, in case of deemed exports, if the manufacturer has availed cenvat credit on such exports, then the import duty drawback on such exports can only be availed on submission of evidence of payments of such import duty.

Receipt of import duty drawback at AIR, ie, without submission of evidence, is likely to save on the procedural time and costs.

Positive


FertilizersKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

To allocate additional Rs.15,000 crore per year for the next 3 years towards fertilizer subsidy budget to clear the outstanding subsidy receivables

NA NA

Increase in budget to such an extent is less likely given the limited headroom with target of containing fiscal deficit and track record of stable budgetary provision for the past 3 years despite substantial amount of arrears. However, any increase in subsidy budget would be positive for the industry.

Positive

To increase the import duty differential on finished products and raw material, to protect domestic P&K producers against cheaper imports

Di-ammonium phosphate (DAP)-5% Phosphoric acid – 5%

NAThe move is likely to protect the interest of domestic P&K fertilizer manufacturers.

Positive

Allow fertilizer companies to directly import urea as against the present scenario of only three state enterprises being allowed to import

NA NA

De-canalizing the import of urea may benefit the industry as it may inspire private players to form joint ventures abroad and procure urea at competitive rates.

Positive

Expediting the efforts for direct benefit transfer (DBT) for fertilizer subsidy to farmers

NA NA

The synchronization of data would require some time period. However, it may be rolled out in a phased manner and progress on this front would be positive for all stakeholders of the industry.

Positive

FMCG & Consumer durablesKey expectations of Industry Current rate Expectation CARE Ratings view Impact on IndustryIncentive to encourage manufacturers producing high energy-efficient products (EER)

NA NAThis would help increase production of high EER products.

Positive

Increase in excise duty on select goods to align with GST

NA NAThis would lead to increase in prices of certain FMCG products

Negative


Gems and Jewellery Key expectations of Industry

Current rate


Reduction in customs duty on Gold and Silver

10% NA

Low tax rate will curb Illegal activities like smuggling of precious metals, increase affordability of gold jewellery in the domestic market and enhance cost competitiveness of Indian gold jewellery manufacturers in the export market.

Positive

Revise compulsory PAN card requirement to transactions above Rs.5 lakh instead of current limit of Rs.2 lakh

NA NA

More than 50% of India’s domestic demand for gold comes from rural households, especially farmers. Most of them do not have a PAN card. Revision in limit back to higher level will result in operational convenience for jewelers in catering to rural demand

Positive

Involvement of jewellers under Gold Monetization Scheme (GMS)

NA NA

Incremental gold demand in India is largely met through imports. Jewellers are the first/main point of contact for retail investors. Inclusion of jewellers (who are equipped to test the purity of the gold) can increase the level of participation of retail investors in GMS.

Positive

Special turnover tax regime for diamond industry

NA NA

Introduction of special turnover tax regime for diamond industry with 0.75% tax on sales turnover. This will boost G&J exports as it would improve the competitiveness of Indian diamond players vis-à-vis other major diamond trading nations like Belgium and Israel where such tax is already in place.

Positive

Hospitals and HealthcareKey expectations of Industry

Current rate


Universal health insurance plan

NA NA

With focus on social sectors paramount, universal healthcare would provide relief to vulnerable section of the society. This would improve penetration of healthcare services.

Positive

Withdrawal of service tax on health insurance premium

14.5% NILThis would make buying coverage more affordable and thereby increase the penetration level.

Positive


HotelsKey expectations of

IndustryCurrent rate Expectation CARE Ratings view

Impact on Industry

No further increase in service tax

• Room service-9.80%*• Foods and beverages

- 5.60%**Similar

Although the Occupancy rates have improved for hotels, the ARR continue to remain under pressure. Any further increase would impact the sector.

Neutral

Reduction in eligibility criteria for infrastructure status of hotel development

• Hotel projects> Rs.200 crore

• Convention centre> Rs.300 crore

• Hotel projects> Rs.100 crore

• Convention centre> Rs.200 crore

Existing policy benefits only the upscale hotel segment and a handful of large mid-market hotels. Furthermore, given the dearth in the quality of branded mid-market hotels and the growth potential for the segment, the segment has been in focus by the hotel developers. However, the segment continues to face high cost of debt. Reducing eligibility limit to provide much needed support to the segment.

Positive for mid- market

hotels

*Abatement of 30%, ** abatement of 60%.

IT/ITESKey expectations of Industry

Current rate


Exemption of MAT on SEZ NA NA This would help reduce the tax outflow PositiveTechnology startups be exempted from direct and indirect taxes

NA NAThis is expected to ease compliance, tax burden and encourage investments in startups.

Positive


Media and EntertainmentKey expectations of Industry Current rate Expectation CARE Ratings view Impact on Industry

Rationalization of indirect taxes such as entertainment taxes which range from 30%-70%.

30%-70% -

Currently, the entertainment industry players such as DTH and cable service operators are reeling under the heavy burden of multiple taxation and levies such as license fee, service tax, etc. Moreover, high rates of entertainment tax and lack of uniformity in tax rates across different states, is adding on to their burden. A uniform, simplified and single-point taxation across product categories under the purview of GST will benefit the entertainment sector.

Positive

Mining and MineralsKey expectations of Industry Current rate Expectation CARE Ratings view Impact on IndustryIncrease in the period for amortization of the expenditure incurred on prospecting; extract ion and production from 5 years to 10 years.

NA NA

Mining activities from exploration to prospecting and ultimate production have a long gestation period and increase in amortization by 5 years will benefit the industry.

Positive

Increase in the depreciation allowance on P&M used in field operations

31.23% 40%

Mining industry being capital intensive, increase in depreciation allowance shall provide a boost to the capital investment in the sector.

Positive


Non-Ferrous Metals


Current rate

Expectation CARE Ratings view Impact on Industry

Increase in custom duty on copper products

5% 10%

Imports of refined copper products are steadily going up. Imports have zoomed nearly 100% from around 85,000 mt in FY13 to around 170,000 mt in FY15. This is eroding the market size available for the domestic players. The increase in the custom duty would help the domestic players in the country.

Positive

Imposition of export duty on alumina

Nil 5%

Alumina exports are increasing to Middle east countries; however, capacities in India have not been commissioned owing to non-availability of alumina. With the higher captive consumption of alumina in the country, India will be able to export aluminium which will fetch more value.

Positive

Increase in export duty on bauxite

20% 30%

Alumina refineries in India are finding it difficult to source indigenous bauxite and are forced to import. On the other hand, merchant miners are exporting huge quantities of bauxite. The duty will ensure domestic value addition within India.

Positive

Increase in Basic Customs Duty on aluminium products

5% 10%

Indian Aluminium industry has seen a huge surge in imports in recent years from Middle East and China. The imports have almost doubled from 0.88 mmt in FY11 to around 1.56 mmt in FY15. The increase in custom duty would help the domestic aluminium industry.

Positive


Oil & GasKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

Revamping bidding process to make it more efficient

NA NA

The current bidding of oil fields is a tedious & long-drawn process, with actual production starting much later than receipt of bids. Streamlined and expeditious bidding process augurs well for the industry.

Further, with implementation of ‘Revenue sharing contract’ system (against existing ‘Production Sharing contract’) shall bring more transparency and efficiency by providing returns to Govt based on gross revenue rather than profitability.

Positive

Removal or reduction in ad-valorem cess on crude paid by pre-NELP blocks

Rs.4,500 per tonne

Nil

As per Oil Industry (Development) Act, 1974, the cess is collected for pre-NELP blocks. The rate of cess has been increased from time to time and currently stands at Rs.4,500 per tonne of crude. The rate was last revised when crude was $100 per barrel in 2012. However, for past few years, crude has been selling below $50 and as such becomes burdensome for exploration players.

Positive


PaperKey expectations of Industry Current rate Expectation CARE Ratings view

Impact on Industry

Reduction in custom duty on import of raw materials: wood pulp, wood chips/ logs.

Wood Pulp: Basic Duty: 5% CVD: 6%Wood: Basic Duty: 5% CVD: 12%

Nil or reduced

Scarcity of raw material has resulted in large imports of wood logs and wood chips. Wood prices have also risen substantially in the domestic market during the period FY12-15, though some reduction in prices is there in FY16.

The industry has suffered in the last 2-3 years on account of scarce raw material availability and increasing prices. Relief in import duties of raw materials would benefit the industry.

Positive

Reduction in excise duty on few grades of paper/paper board where it is 12.5% to bring a uniform rate of 6% on all kinds of paper/paper board

12.5% 6%

Uniform lower rates of excise duty on domestic manufacture would lead to higher cost competitiveness for the industry especially in light of the cheaper imports from neighboring countries.

Positive

Withdrawal of duty concessions on imports of paper and paper boards under the Free Trade Agreements (FTA).Keep paper and paper products in negative list while reviewing the existing and formulating new FTAs

Indo- ASEAN FTA :W.e.f. January, 1, 2014, Import duty on most paper and paper products has been progressively reduced from 10% to Nil

FTA with S.Korea:Progressive cuts in Basic Customs Duty; it will be nil in 2017

10%

FTA with the Association of Southeast Asian Nations (ASEAN) and other countries has led to lower or nil import duty on paper supplied from these countries to India. Consequently, there has been an increase in volume of cheaper imported paper

from ASEAN and other countries in the last 2 years leading to pricing pressures on domestic paper manufacturers.

Positive


PetrochemicalsKey expectations of Industry

Current rate


Reduce import duty on key petrochemical inputs

Varying (2.5% to

15%)NA

Reduction in import duty on products may be reduced or brought down to zero, to enable lower cost of products and attract greater investment.

Positive

Reduce basic excise duty Varying NA

As in Budget 2016, the government should further reduce excise duty on petrochemicals to boost domestic manufacture, encourage new investment and capacity addition in chemicals & petrochemicals sector.

Positive

Abolishing Special Additional Duty

2% Nil

During last budget, the SAD on naphtha, ethylene dichloride, vinyl chloride monomer and styrene monomer for manufacture of excisable goods was reduced from 4% to 2%. The government, in order to further encourage production, shall consider removing SAD on petrochemicals.

Positive

PharmaceuticalsKey expectations of Industry

Current rate


GST should be enacted at the earliest, which will enable companies to avoid payment of State Tax at the beginning stage itself. At present, companies are getting refund through a defined process.

NA NAThis would help reduce the outflow of tax at early stage and reduce the time consuming cumbersome refund process.

Positive

As of now there are no specific incentives for Export-Oriented Units (EOUs). Indian Pharmaceutical Industry (IPI) is competing in international market and deserve certain support from the Government by way of reduction in Income Tax, Additional Depreciation allowances, relaxation in MAT Rules and reduction in Dividend Taxes

NA NA

IPI being majorly an export-driven industry, any incentive for EOUs will benefit the industry broadly. With significant amount of products going off-patent in the regulated market in next 5 years, any export related incentive would encourage the industry players to target more export destinations.

Positive


Power (Including renewables)

Key expectations of Industry Current rate Expectation CARE Ratings viewImpact on Industry

Extension of 10-year tax exemption beyond 2017

18.5% plus surcharges

SameBeneficial for companies whose projects would come up in the 13th plan.

Neutral

Increase in allocation of funds from National Clean Energy Fund towards development of clean energy

Nil NAWill augment capacity addition in the renewable energy sector.

Positive

Thrust on renewable energy (solar and wind) and continuation of accelerated depreciation and GBI schemes for wind power projects

NA NAWill augment capacity addition in the renewable energy sector.

Positive

Higher allocation for augmenting T&D infra

NA NAWill improve transmission network availability and provide impetus to curtail AT&C losses.

Positive

Real Estate

Key expectations of IndustryCurrent

rateExpectation CARE Ratings view

Impact on Industry

Increased tax-benefit on interest on home loans and increased 80-C limit (tax benefit on home loan repayment amount)

NA NA

Increase in the tax-benefit on interest on home loans from the present Rs.2 lakh and increased 80-C limit from the present Rs.1.50 lakh will encourage more buyers to invest in property, thereby providing a boost to the sector.

Positive

Passage of Real Estate Bill NA NAThis will help in bringing transparency in the sector and in restoring the investor confidence.

Positive

Removal of Dividend Distribution Tax in case of REIT funds

16.9% NILRemoval of the only pending bottleneck for the launch of REITs in India will help the developers in launching REITs and improve their liquidity.

Positive

Introduction of single window clearance system for project approvals

NA NASingle window clearance will ensure faster approvals, which in turn will help the developers in delivering the projects on time.

Positive

Reduction in service tax 14.5% 12%-13% This will reduce the cost for property buyers. Positive


Retail


Current rate


GST Implementation NA

The government has already displayed resolve to roll out GST from April 1, 2016. The budget may provide clarity in that direction.

GST to reduce cascading effect on taxes and tax efficiencies can be passed on to the customers.

Positive

Exemption from service tax on lease rentals of commercial properties

14.5% Appropriate Abatement

This will reduce cost for retailers operating on thin profitability margins and bring parity with purchased properties.

Positive

Roads and HighwaysKey expectations of

IndustryCurrent rate Expectation CARE Ratings view

Impact on Industry

Higher budget allocation for the road sector

Rs.45,000 crore

Rs.60,000 crore - Rs.65,000 crore

Higher budget allocation for the sector on account of majority of the projects being awarded in the Engineering, Procurement and Construction (EPC) segment and with introduction of hybrid annuity projects for Public Private Partnership (PPP) projects the outlay for the government is expected to increase significantly. In addition, higher allocation would be required for government’s vision of constructing highways at much higher rate as compared with current rate of 18 km per day.

Positive

Minimum Alternate Tax (MAT)

20%Abolition or reduction in the MAT rates

Abolishment/reduction in MAT for road developers shall make the tax incentive under Section 80-IA of the Act more meaningful. Also, there should be complete tax exemption (including MAT) to developers who want to migrate their assets/infra projects into an Infrastructure Investment Trusts (INViTs).

Positive

Dividend Distribution Tax (DDT) /Corporate Dividend Tax (CDT)

16.99%Abolition of DDT/CDT

Abolishment of DDT on dividend payable by Infrastructure Special Purpose Vehicles (SPV) and the holding company.

Positive


Special Economic Zones (SEZ)Key expectations of

IndustryCurrent


Impact on Industry

Removal of MAT on SEZ units and developers

18.5% 0%

SEZs were brought under the purview of MAT with effect from AY2012-13. Thereafter, many SEZ proposals were either withdrawn or sought cancellation. Removal of MAT would be highly positive for the SEZ units as this would attract huge investments in the sector and also help to grow foreign trade.

Positive

Reduction of DividendDistribution Tax (DDT) on SEZ units

20% 10%

2011, SEZs were burdened with DDT @16.9% (inclusive of surcharge and cess). The finance (No. 2) Bill 2014 changed the method for calculation of DDT taking the effective tax rate to be about 20% which is applicable from October 01, 2014. Reduction in DDT would help encourage more investment in SEZ.

Positive

Shipping


Current rate Expectation CARE Ratings viewImpact on Industry

To make coastal shipping easier through simplicity in documentation, fixation of freight rates

NA NA

Indian flagged vessels/shipping companies have a negligible share in the international trade. Most of these companies are finding it difficult to deploy their vessels in the international market. With increased focus on coastal shipping, some of the idled Indian flagged vessels are likely to get deployed towards coastal shipping. This is also likely to benefit shipping companies with relatively small size or lesser number of vessels.

Positive

Allocate funds to develop coastal shipping routes

NA NA Positive

Steel


Current rate Expectation CARE Ratings viewImpact on Industry

Increase in import duty on stainless steel.

7.5% 15%

The increase in import duty for the stainless steel products shall help in arresting the uninhibited flow of cheap imports from countries such as China, Japan & Korea.

Positive

Reduction in duties on metal scrap

5% 0%

Reduction in duties on metal scarp shall lead to cheaper supply of scrap in the domestic market thereby increasing the competitiveness of the steel industry.

Positive


Tea and CoffeeKey expectations of

IndustryCurrent


Impact on Industry

Interest subsidy of 5% on borrowing under activities related to tea plantations (replantation/rejuvenation).

NA NA

Average age of tea bushes in India is over 40 years which hampers productivity of the sector. Interest subsidy will provide financial support to tea growing companies for undertaking replanting, replacement planting and rejuvenation of old aged tea bushes and increase productivity.

Positive

Telecom SectorKey expectations of

IndustryCurrent


Impact on Industry

Approval for the utilization of balance of CENVAT credit of Cess to be set-off against output Service tax liability

NA NA

Government has allowed service providers to utilize CENVAT credit of Cess received on or after June 01, 2015, against liability of output service tax payment. However, the notification provided by the government does not mention about the significant balance of CENVAT credit of cess lying unutilized in the books of telecom service providers as on May 31, 2015. Assent in this regard is expected to curb the cash outlay pertinent to the payment of taxation liability.

Positive

Exemption from applicability of withholding tax on spectrum trading and amendment with regards to the definition of royalty in finance act 2012

NA NA

This would eliminate any potential tax dispute arising out of such transactions. This will further support the on-going consolidation in the sector which is beneficial for the whole industry. Additional withholding tax burden on the telecom operators will affect the already stressed margins of telecom companies. Furthermore, currently, there is ambiguity over the treatment of spectrum fees as intangible asset, and in case the government allows it then it would not only enable the telecom service providers to amortize/depreciate the spectrum fees but also lead to relaxation in tax liability.

Positive

Provisions related to investment linked tax incentives

NA NA

Investment linked tax incentives (tax holidays, exemption from minimum alternate tax, differential excise duty structure, etc.) are expected to help in attracting investment from foreign players in telecom and its allied sectors, this is expected to provide the impetus to the industry players (telecom service operators, tower infrastructure companies, equipment manufacturers, etc.) leading to improvement in the quality of service. Furthermore, this would also help in implementation of Digital India Mission which is banking on the growth of telecom sector and its allied industries.

Positive


Textiles



Impact on Industry

Reduction in excise duty on man-made fibres (MMF)

12% 6%Cotton (MMF substitute) attracts 0% duty. Lowering MMF duty would bring some parity and aid growth in the sector.

Positive

Warehousing / Logistics



Impact on Industry

Roll out of the much awaited Goods and Services Tax (GST) implementation road map

NA NA

GST is expected to cut logistics cost by around 20% and lead to enormous savings in terms of time and money for delivery of goods and services.

Positive

Focus on Infrastructure development- Rail Freight Corridors, Roads and fuel efficient transport equipment

NA NAPace of development of good roads infrastructure has been less than impressive and needs to be pushed.

Positive

An appropriate tax system for rental costs which is currently subject to Service Tax and TDS at higher rates

NA NAWill streamline costs and bring about efficiencies in warehousing.

Positive

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