budget expectations 2011- commodity perspective

8/6/2019 Budget Expectations 2011- Commodity Perspective

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Feb, 2011 Budget Expectations 2011-2012Budget Expectations 2011-2012Commodity Market Perspective

For Private Circulation Only23rd February 2011

Indias budget is the most awaited event for the first quarter each year, however this years budget is eager

eyed, especially with the headwinds faced by Indian economy. Inflationary pressures and the interest ra

hikes over past few months have raised questions about the sustainability of the robust pace of econom

growth. The three biggest challenges that the government faces are-the large deficit, high crude prices, an

high inflation. With concerns rising about the impact of higher prices, government is likely to continue wi

current subsidies. While this will help calm nerves, it will definitely balloon countrys increasing deficit.

Commodity prices have increased substantially over past few months especially food prices and expectatio

are high that this years budget will address some of the concerns relating to rising inflation. Expectatio

range from waiving of taxes on essential commodities to tweaking fuel taxes to reduce the burden of risi

prices. Meanwhile some expect that government will make a substantial increase in the food subsidy bill.

Waiving of mandi, octroi and local taxes on essential commodities

The sharp rise in food prices seen over past few months has been attributed to some extent to the glitches in the suppchain. In order to smooth the movement of essential commodities, Indian Prime Minister suggested waiving of mandi taxoctroi and local taxes. Such a move will definitely help keep prices lower.

Grains Sector

Rising food cost is a worldwide concern and governments across the globe are facing the heat of it. Higher food prices asupply constraints have led to riots. Meanwhile, Food and Agriculture Organization (FAO) has warned about worsenisituation. Along with other nations, India is also struggling to keep the food inflation under check. We expect thgovernment will leave no stone unturned to increase the food grain production, preserve the agricultural output asubsidies food for the 180 million poor families who are served through public distribution system. Food subsidy is arounpercent of the total budget. We expect this spending to increase from 5 percent to 7-8 percent in the coming budget. Expalso forecast an increase in the food subsidy bill by more than 20 percent to $15.5 billion.

Sugar Sector

India, the worlds top consumer and the biggest producer behind Brazil, has yet to decide on exports of 500,000 tons of suunder the Open General Licence (OGL) scheme, and the budget may talk about this issue. The government may announsteps to ease stock limits for traders and bulk consumers looking at the rising inflation. India may also allow duty-fr

imports of sugar.


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Feb, 2011 Budget Expectations 2011-2012

Oilseeds Sector

More than half of Indias edible oil demand is met by imports. In this budget, we expect that the government will reduce 7.5 percent import tax on refined vegetable oils in line with duty-free imports of crude edible oils. In order to lower the trate ceiling from the present level of 4 percent to around 0.25 percent. We expect the central government to amend tprovisions of section 14 and 15 of Central Sales tax Act 1956, so as to include some of the left out food articles namvegetable oil in the list of declared goods. The industry has also appealed to the railway ministry to roll back the hike in freight and revert to the original classification of Deoiled cakes to class 100 or at least to class 110 thereby facilitatireduction in the cost of raw material, which had resulted to an average increase of 13.45 percent freight on Deoiled cakes.

Pulses Sector

India, despite being a major producer, is a net importer of pulses to meet the ever-growing demand. At this budget, expect the government to continue with duty-free imports while the 15% subsidy to state-run agencies for pulses importslikely to remain in place. We also expect imports to be exempted from all taxes levied by state governments and variolocal bodies that currently vary between 1 -2 percent. Export ban announced in 2006 is likely to remain intact.

Petroleum SectorIndias crude oil basket price has hit the triple digit mark and concerns have increased about how government will addrthe problem of rising fuel prices and its impact on overall inflation. Early forecasts indicate that government could considslashing duties on crude oil and refined petroleum products. Such a move would insulate people from the burden of riscrude oil prices, but lower tax revenues may hurt the government. Fuel subsidies are likely to be held steady in the budgDiesel price decontrol is unlikely in the Budget session. Meanwhile, some suggest that the government could consider giva fixed subsidy on a litre of diesel instead of announcing a consolidated amount in the budget. Beyond the fixed subsidy, oil retailers may be allowed to pass on costs to consumers. Overall, we expect that Indian government will consider a cutduties to reduce the impact of higher price. Any move to keep prices low will continue to support Indias increasing demafor crude oil and petroleum products. However, it is unlikely to affect futures market.

Bullion Sector

Gold and Silver prices in rupee terms have hit new all time high this year and Indias demand has continued to recover afthe slump of 2009. Market expectations have increased that higher price may lead the Finance Ministry to consider revisithe tariff for gold and silver imports at this Budget. Customs duty on Gold was raised by Rs.100/10 gm at last Budget whduty on Silver was raised to Rs.1500/kg from Rs.1000/kg. We could see similar move this year as well. Another hikeduties on gold and Silver will affect Indias incremental demand. Also higher duties will translate into higher domesprices.


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Coal SectorWith acute coal shortage of domestic coal threatening to destabilize its power generation plans, the power ministry hdemanded that the government abolish the custom duty of 5 per cent in the coming Budget on imports of the mineral.

Steel and Iron Ore Sector

Steel prices have increased substantially over past few months and this has forced the domestic steel industry to considecut in import duty. India is one of worlds biggest steel consumer and rising infrastructure demand is likely to keep Stconsumption higher. However sharp rise in steel price will push product prices higher adding to inflationary pressure. Tdomestic steel industry has requested the government to cut down import duty to nil from 5 percent and levy duty on Hcoil. In addition to it, the steel firms have asked the finance ministry to grant infrastructure status to the steel industry. Sua move by the finance ministry would ensure long-term funds and tax holidays for the steel industry.

The federal government may increase export duty on iron ore to limit shipments and boost the availability for domestic stmakers. The government had last year raised export duty on iron ore lumps to 15 percent. The industry expects at least apercent increase on the export of iron ore lumps, but it wants duty to be increased on iron ore fines as well.

Rubber Sector

Rubber sector has been struggling as the raw material cost has surged in last one year. Rubber made an all-time high in tcurrent year further narrowing margins for tyre makers. The industry has recommended many changes including lower tImports of natural rubber currently attract 20 percent tax and tyre makers have been demanding a lower tax. Tgovernment can also correct the import duty disparity between natural rubber and tyre, in order to protect the domesindustry. Recommendation also includes increasing Customs Duty on tyres - from current 10 percent to suggested percent.

Cotton Sector

With increasing prices and declining raw material availability, exporters and textile manufacturers for cotton are asking changes in government policy. Exporters are asking the government to continue the existing cap of 720 million kg on expof cotton yarn till the next cotton season as well as to remove import duty on cotton yarn. It has also asked for a specincentive package to achieve the export targets. In addition to it, the textile industry has urged the government to exempt sector from all the import duties imposed on man-made fibres. It also suggested for optional excise duty for textile produthat may be continued at a uniform rate of 4 percent for all products irrespective of the fibre content. The excise duty shoualso be reduced to 4 percent on the man-made fibres.


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ResearchSudhaAcharya EdibleOils,Pulses [email protected] +91-22-6652880

FaiyazHudani Spices [email protected] +91-22-6652883

MadhaviMehta Energy,Bullion [email protected] +91-22-6652880

PriyankaJhaveri BaseMetals [email protected] +91-22-6652884

DharmeshBhatia TechnicalAnalyst [email protected] +91-22-6652884

AjayBaheti TechnicalAnalyst [email protected] +91-22-6652884

AmitSajeja TechnicalAnalyst [email protected] +91-22-6652884

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