A CRITICAL ANALYSIS ON “INDUSTRY” IN UNION BUDGET 2014

PRESENTED BY: 1) PUJA SAHA 2) ASHA LAXMI NAIR 3) AVIJEET KHUNTIA 4) RISHABH MAITY

HIGHLIGHTS IT INDUSTRY:

1) The outlay of Rs. 7060 Crores on Smart Cities

2) The e-governance program to inter-link all ministries and departments

3) eBiz platform on 24x7 basis with integrated payment gateway POWER INDUSTRY

1) Rs 100 crore for preparatory work of new scheme on thermal power technology2) Ultra modern solar projects to get Rs 500 crore in Ladakh, Rajasthan

3) Rs 4,200 cr set aside for Jal Marg Vikas project on river Ganga connecting Allahabad to Haldia over 1,620 km

AVIATION INDUSTRYNew airports in smaller cities in association with AAI and PPP model

Property Infrastructure IndustryForeign Direct Investment policy to be setup in a mass scale

BETTER CONNECTIVITY TO NORTH EASTNew trains and fund for better connectivity to north east is to be set up

Manufacturing industryExemtion in duty in domestically manufactured items.

A National Industrial Corridor Authority, with its headquarters in PuneThe master planning of three new smart cities in the Chennai-Bengaluru Industrial Corridor region, viz., Ponneri in Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka The perspective plan for the Bengaluru Mumbai Economic corridor (BMEC) and Vizag-Chennai corridor would be completed with the provision for 20 new industrial clustersTo establish technology centre network to promote innovation, entrepreneurship and agro-industry, to set up a fund with a corpus of Rs 200 crore.The central government has been laying considerable emphasis on improving connectivity in the land-locked northeast region.

TEXTILE INDUSTRY

•Six more textile clusters to be set up in Bareily, Lucknow, Surat, Kuttch, Bhagalpur, Mysore.•Textile mega cluster in Varanashi.•A Hastkala Academy for the preservation, revival, and documentation of the handloom/handicraft sector in PPP mode in Delhi•Rs 30 crore for handloom development•Rs 10,000 cr fund for helping start-ups•Kakinada port to be developed with special focus on manufacturing•Export promotion mission to bring all stakeholders including states under one umbrella

IT INDUSTRY

The outlay of Rs. 7060 Crores on Smart Cities will not just push the frontier of urbanisation in India but also create a new set of markets for tech players

 New employment and wealth creation opportunities will abound in the start up eco-system with the Rs. 10,000 Crore fund created to boost start ups and SMEs.

The duty reduction (from  4% to 0%) on imported PC components will give local electronics and computer manufacturing a boost;

However, the education cess on imported electronics, including PCs and Smartphones, will challenge consumption growth as it will increase street prices.

The spread of the Internet to rural areas will greatly enhance the quality of life for the communities.

In this context the National Rural Internet and Technology Mission with the fund allocation of Rs. 500 Crores. Over time will boost both the IT and the ecommerce sectors.

POWER INDUSTRY

Focus on solving the coal impasse by increasing coal production and assuring coal supply to power plants makes the government's priorities very clear to the industry.

The government's expectations of achieving a sustained growth of 7 per cent hinges on the growth in the power sector. To achieve the growth percentage, the power sector must grow above 7 per cent.

The government's vision to provide 24x7 access to electricity therefore needs to be further complemented with clarity on issues like addressing the cause of losses by the State Electricity Boards (SEBs) and incentivising them to make it profitable.

It is not however clear in the budget as to how critical enablers such as land acquisition, acceleration in environmental clearances and removal of associated bottlenecks would be addressed

New airports in smaller cities, towns

New airports which will be developed in smaller cities and towns will surely encourage air travel in the country,

The Airport Authority of India (AAI) will build the airports through public private partnership (PPP) process. This will lower the air fare and this will open the economic gate to the average class passengers.

Public Private partnerships could increase and provide greater infrastructure solutions

It will offer faster project completion and reduced delays on infrastructure projects

The Public private partnerships return of investment (ROI) is greater when compare to traditional methods, due to innovative design and financing approaches

Budget can create 5-8 million jobs in 3-4 years

With the government putting strong emphasis on job creation, measures proposed in the Union Budget can help create 5-8 million jobs in next 3-4 years across various sectors.

The sectors that are likely to see an immediate job creation are infrastructure, transport, power, consumer goods, e-commerce, startups and tourism.

National multi-skill programme, 'Skill India', will skill the youth with an emphasis on employability and entrepreneurship.

By promoting tourism and agro-based industries, employment opportunities will be expanded.

Real Estate: Boost for property buyers

The realty sector are expected to improve liquidity for real estate companies, improve demand for housing and increase the supply of affordable houses.

The increase in the tax deduction limit on account of interest on loans in respect of self-occupied house property from Rs 1.5 lakh at present to Rs 2 lakh is expected to improve purchasing power.

Northeast to get better rail connectivity

A total of Rs 5,116 crores has also been earmarked to speed up execution of several projects in the regions in the current fiscal year, marking a jump of over 54 per cent from the last year.

There are 23 projects underway in the north-east, of which 11 are national projects.

People hope that the promises will be delivered.

If delivered, this will open the gate of NE to the rest of the INDIA and more interaction will groomed up which has lacked in the previous years.

AUTOMOBILE SECTOR

The government has adopted a balanced approach towards the automobile industry, though without any major policy announcements.

the excise duty benefits announced in the interim budget have been extended till December 2014 and any further changes would depend on the demand in the automotive sector in the next five months.

The Goods and Service Tax (GST) is a welcome move and increase thrust on infrastructure development, especially in the northeast and rural areas, is likely to increase vehicle ownership there

the announcement of infrastructure growth like developing 100 smart cities and rural roads will benefit the industry in the long term

The speeding up of highway projects and development of 8,000 km of roads will boost medium and heavy commercial vehicles as also the proposals for the housing and power sectors

HOSPITALITY INDUSTRY

While there are welcome initiatives, provisions will take between five to ten years to impact the growth of domestic and international tourist travel.

The introduction of electronic visas and visas-on-arrival initiated earlier this year can be a major game-changer for Indian tourism with respect to foreign travel into India.

The improvement and modernization of railways, proposed new airports of international standards and the thrust on improved road connectivity argue well for the hospitality industry.

The sector is desperately in need of incentives in Tier 2 and Tier 3 cities to make hotel investments there reasonably attractive

The sector also needs better borrowing terms through the infrastructure lending route, and relaxed ECB norms

The sector needs to be spared from double taxation through service and luxury tax/VAT at the state and centre levels.

Indian hospitality was looking forward to rationalisation of taxes and ease of raising capital.

Budget 2014 aims at low prices via domestic

manufacturing

The Budget clearly made a case for more domestic manufacturing by doing away with the inverted duty structure for many products that made domestic manufacturing uncompetitive.

FM has exempted all inputs and components used in the manufacture of personal computers from the four per cent special additional duty (SAD) which will develop more domestic manufacturing.

This will generate more job opportunities and more domestic products in low price.

CORPORATE WINNERS

CORPORATE WINNERS

Increase in foreign direct investment cap in the insurance sector to 49 percent from 26 percent now will benefit companies such as ICICI Bank Ltd, Max India Ltd, Housing Development Finance Corporation Ltd (HDFC) that have insurance ventures with foreign partners.

Real estate companies such as DLF Ltd, Unitech Ltd, Phoenix Mills Ltd will benefit from the proposal to provide incentives for setting up real estate investment trusts.

Plan to develop 100 smart cities and increase in allocations to support rural housing will help developers and housing finance companies such as HDFC, LIC Housing Finance Ltd and Dewan Housing Finance Corp Ltd.

The proposal to allow manufacturing units to sell products via e-commerce platforms is likely to benefit the local units of foreign retailers such as Nike Inc, Marks and Spencer Group and Puma SE.

Insurance and asset management companies will gain from a proposal to increase the tax exemption limit on certain investments to 150,000 rupees from 100,000 rupees per year.

Companies such as Larsen & Toubro Ltd will benefit from plans to increase spending to build roads and ports.

CORPORATE LOOSERS

A proposal to increase excise duty on cigarettes is negative for companies such as ITC Ltd and VST Industries Ltd.

No change in import duty on gold and silver from the current 10 percent is negative for companies such as Titan Company Ltd and Gitanjali Gems Ltd. Etc as some had expected a cut.

Discussion In Aviation industry: 1) Every Public private partnership has risks involved, and the government will the

pay the price to transfer those risks to the private sector. 2) In PPP, Profits of the projects can vary depending on the assumed risk, competitive level, complexity and volume of the project being performed. 3) There is risk that the proposed contracting alternative being offered is not the best suited option

In Defense sector, where FDI will come, Government representative must be highly specialized personnel and contracting experts.

Land acquisition for different projects maybe a big problem.

The announced funds are only for the initiation. There is no given pathway for future funds.

There maybe be problem in recruiting mass labour in upcoming projects.

Technological advancement and automation is to be updated for mass scale domestic manufacturing.

To give a constant power supply, a constant supply and storage of coal and fuel will be a major problem.

There maybe many red ribbon problems, many environmental PILs which will slow down the growth process.

Conclusion

The Budget looks pragmatic and realistic and was in line with expectations. Defined focus on domestic manufacturing & infrastructure, investment

allocations to build Smart Cities & to increase broadband penetration of Indian villages, liberalization of FDI in ecommerce sector, promised actions to finalize GST this year etc., are all steps in the right direction and indicative of a positive start to a long-term process.

To conclude, this Budget is quite optimistic with clear roadmap ahead and it will be quite interesting to track how it plays out eventually in the sector of INDUSTRY.