What can we expect from Budget 2009

The budget is expected to balance between social orientation and growth; as well as fiscal prudence. Greater allocation to infra, healthcare and education spending is likely to continue. Considering the large capital requirements going forward, opening up of several sectors to attract FDI / FII investment can be expected. 2% hike in excise and service tax is expected post 4% cut in excise through Stimulus I and II. Some benefits in personal income tax, increase in exemption limit of home loan interest and schemes to divert investment into infrastructure, are also expected. A tax amnesty scheme could be considered in the budget to address fiscal deficit. We anticipate the Finance Minister to indicate a clear way ahead that will lead to sustainable economic growth. The fiscal deficit is cause for concern and should be reigned in. While the Union Budget 2009 might appear to have several disappointments, it is expected to be a healthy one for the long term. Across the key sectors, our expectations are as follows:

Agriculture Revisions are expected in the urea policy to attract new investments. The government should increase focus on rural infrastructure by increasing RIDF corpus and other rural schemes. Focus on irrigation is likely to continue by bringing more land under irrigation and increasing outlay.

Auto Roll back of additional charge of Rs. 15,000 to Rs. 20,000 on utility vehicles/cars above 1500 cc. Some benefits are anticipated under income tax for product development/capex.

Cement Uniform excise duty should be levied on cement. Some changes have already been undertaken during last year and we expect the government to maintain status quo on other factors. Import duty on coal, pet coke and gypsum saw no change and continues to attract 5% duty which the industry wishes should be abolished.

Engineering and capital goods Easy access to fund, increase in import duties on equipments for the benefit of local players, faster implementation of ongoing projects and those in pipeline, tax incentives to private sector players to encourage private sector participation and an increase in the ad valorem rates from 8% to 10% with exceptions in generation and transmission equipment; are also very likely to be announced, in our opinion.

Financial services Exemptions are likely to be granted to bring down cost of fund for infrastructure projects, raising of agri-credit targets, measures to channelise credit to export oriented units should be undertaken.

FMCG The government should increase tax incidence on filtered cigarettes and alcohol beverages, continue development spending for rural India and increase allocation to social programs to boost consumption. We also anticipate that the 2010 timeline for implementation of GST should be maintained and the multiple tax system should be replaced.

IT/ITES The industry anticipates the extension of tax benefits available to Indian IT/ITES companies to be extended further given the weakness in the end markets for the sector by around 3-5 years. However, we do not expect any substantial tax benefits. It would benefit mid Tier IT companies/ITES players in a more meaningful manner.

Metals Import duty on steel is likely to be increased. No imposition of export duty is expected on iron ore. The industry expects anti-dumping duty of 25% on steel, but we re of the view that anti-dumping duty may not be imposed. If imposed then it not likely to be more than 15%.

Pharma Healthcare sector is likely to be granted infrastructure status. It is also likely that the sector will see an extension of EOU benefits for another three years. Greater allocation on healthcare infrastructure and National Rural Health Mission can be expected. We also believe that excise duty on formulation and bulk drugs will be maintained at current level.

Power The industry anticipates several much awaited measures and incentives in this sector and reflecting the same sentiment we too anticipate the policy frame work to encourage private participation in power distribution. A roadmap to expedite various clearances required for approval of power projects and extension of 80 IA benefit up to 2017 for power projects, is much awaited.

We also anticipate allocations to National TandD fund, which was created in 2008-09 budget. A comprehensive policy framework for transmission sector and especially boost open access meant to implement the current provisions for open access above 1 MW, limit the number of UMPPs for each developer to facilitate execution, provide tax exemptions to promote energy efficiency programs and designing appropriate incentives to encourage investments in equipment manufacturing, are some key expectations that we anticipate to be addressed.

Real Estate We expect an increase in the deduction available u/s 24(B) from Rs1,50,000 to Rs2,50,000 (on interest paid on home loans). The government must provide greater clarity on Real Estate Mutual Funds

TelecomWe expect a reduction in the license fees to 6% across all services and circles - to benefit incumbent mobile operators such as Bharti, RCOM (RCOM.NS : 285.5 -7.05). Additionally, an extension of tax holiday from five years to ten years is also anticipated to benefit all incumbent and listed players Bharti, RCOM and Idea.

By Krishna Kumar Karwa

Author is MD - Emkay Global Financial Services