Union Budget 2015 – Industry Reacts
The Union Budget 2015 has just been announced. Is it a growth-oriented Budget? Will it give the much needed impetus to Manufacturing, Infrastructure and allied sectors to give a new fillip to our economy? What’s its impact on the Industry and its prospects? Here below are the reflections from the captains of the industry.
…….Editor
At the outset this budget has given emphasis on restoration of macro-economic stability, sustainable poverty alleviation, creation of jobs and achievement of double digit economic growth. In last nine months our national economy has experienced remarkable GDP growth of 7.4% and it is expected to achieve 8-8.5% in the year 2015-16.
To increase public investment in infrastructure, it is proposed to increase outlays on both the roads and the gross budgetary support to the railways, by Rs. 14,031 crore and Rs. 10,050 crore respectively and CAPEX of the public sector units is expected to be Rs. 3,17,889 crore and this will revamp the business of the Industry in totality.
In this budget, steps are taken to curb black money, promote domestic manufacturing, improve business through minimum government and maximum governance, improve the public health through “Swachh Bharat” initiative and provide benefits to middle class tax payers.
Reduction in corporate tax from 30% to 25% over the next 4 years will have a tremendous impact towards high level investment, higher growth and more jobs. The increased Service Tax rate from 12% to 14% and Excise duty rate from 12% to 12.5% is required towards convergence of GST – proposed to be introduced from April 2016. Government has also proposed to collect 2% Swachh Bharat Cess to achieve the noble mission of Swachh Bharat.
The increase in customs duty of steel products upto 15% is likely to help deter cheap imports and provide impetus to objective of “Make in India” – a welcome move for the steel industry. The increase in Basic customs duty on coal to 5 per cent and import duty on Met coke to 5 per cent will have an impact on costs across the coal/coke intensive steel industry. However, the proposed increased expenditure on Infrastructure is expected to lead to the development of major projects, including road and railway networks which will improve the domestic demand scenario for the steel sector.
On the private sector investment front, the prospects of rationalising the corporate tax regime are promising, but have to be delivered on. Fast-track legal resolution of disputes, as promised in the budget speech, would also be a huge benefit. There are several detailed proposals related to taxes and transfer pricing, that require specialists for assessment, but they seemed to be ‘pro-business’ on the whole. Initiatives on tax incentives for greenfield investments and for growing the venture capital industry in India will hopefully also come forward in the policy agenda in the next year.
In fine, this is a unique Budget because an excellent cohesive force exists between growth, fiscal discipline and inclusiveness covering all the sectors of the society. It is positively a growth oriented budget.
In my opinion it is definitely a growth oriented and a balanced budget that Finance Minister Arun Jaitley has presented. It is definitely in line with the overall positive sentiment that has been built up since the new government took over in May-14. While committing to adhere to the medium term fiscal deficit target of 3%, the budget lays a roadmap for significantly higher investments in infrastructure, strengthening of indigenized manufacturing, roll out of the long awaited uniform tax rate in the form of GST, rationalization of subsidies, strengthening of rural credit to support both agriculture and public goods creation, giving a fillip to better defence preparedness, encouraging foreign investments in the country, deepening financial markets & curbing the malaise of black money within the economy. All in all it touches upon all important elements of the economy & in my opinion would herald the start of a sustained high growth rate for the Indian economy in the years to come.
The budget does address the issues of giving a fillip to domestic manufacturing as well as encouraging investments in infrastructure. Increase in infrastructure investment by INR 70,000 crore, launch of tax free infrastructure bonds for projects in rail, road and irrigation, plans to build 2 crore houses in rural India and 4 crore houses in urban India, formation of the “National Investment and Infrastructure Fund (NIIF)”, further strengthening of PPP (Public Private Partnership Model) in infrastructure creation, announcement of 5 UMPP (Ultra Mega Power Projects) of 4000 MW each to be awarded post all clearances, target of GST roll out by 1st April 2016, increase in defence expenditure by approximately 10% over last year’s budget outlay, etc in my view are fundamental budget announcements which would give the necessary fillip to infrastructure creation and would help in increasing the share of manufacturing in the overall GDP.
Walchandnagar Industries Ltd. Has a diversified business portfolio of EPC business in the Sugar Plant, Co-generation and Cement Plant equipments and niche manufacturing in the domains of Defence, Aerospace, Missiles, Gearboxes and Nuclear Plant Equipment. The budget positively impacts us in a number of ways –
- Almost all announcements positively influencing infrastructure creation would lead to higher demand for cement. Though the present levels of capacity utilization in the cement industryare modest, we expect a fillip to demand for cement plant equipment.
- Approx 10% higher allocation to defence and the concomitant emphasis on capital purchases with an increasing indigenization % would definitely benefit our defence portfolio which we see as a strategic growth area.
- Renewable Energy has been mentioned as a key focus area and an integral part of the energy sufficiency strategy of the government. We are already present in this sector through the biomass based boilers design and supply. We expect heightened activity in this area and at the same time it also opens up new vistas like Solar Energy which we could explore going ahead.
- Strengthening the PPP model in railways has been mentioned as part of the Railway Budget. Given our strength in mechanical fabrication, we also see this as a growth area going ahead.
The maiden union budget of Modi Government presented by finance minister Arun Jetali is historic and long term growth driven. The high lights of the budget are
- Make in India theme
- Impetus to Manufacturing in india
- Fiscal consolidation
- Tax rationalization
- Ease of business.
No FM in the past in my opinion tried to work on such holistic approach and present it to parliament. Let us look at some of the highlights in brief
- GOI has increased outlays on both the roads and the gross budgetary support to the railways, by `14,031 crore, and `10,050 crore respectively. The CAPEX of the public sector units is expected to be `3,17,889 crore, an increase of approximately `80,844 crore over RE 2014-15. In fact, all told, investment in infrastructure will go up by `70,000 crore in the year 2015-16, over the year 2014-15 from the Centre’s Funds and resources of CPSEs.
- 5 new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode. All clearances and linkages will be in place before the project is awarded by a transparent auction system. This should unlock investments to the extent of ` 1 lakh crore. The Government would also consider similar plug-and-play projects in other infrastructure projects such as roads, ports, rail lines, airports etc.
- Ports in public sector will be encouraged, to corporatize, and become companies under the Companies Act to attract investment and leverage the huge land resources.
- National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of `20,000 crores to it. This will enable the Trust to raise debt, and in turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB. The infrastructure finance companies can then leverage this extra equity, many fold.
- Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.
- PPP mode of infrastructure development to be revisited and revitalised. The major issue involved is rebalancing of risk. In infrastructure projects, the sovereign will bear a major part of the risk without, absorbing it entirely.
- Target of renewable energy capacity revised to 175000 MW till 2022, comprising 100000 MW Solar, 60000 MW Wind, 10000 MW Biomass and 5000 MW Small Hydro.
- As against likely expenditure of this year of ` 2,22,370 crore the budget allocation for defense for 2015-16 is ` 2,46,727 crore. Make in India policy is being carefully pursued to achieve greater self-sufficiency in the area of defense equipment including air-craft.
- Revival of growth and investment and promotion of domestic manufacturing for job creation. GOI proposed to undertake a series of steps in the direction to attract capital, both domestic and foreign.
- Additional investment allowance (@ 15%) and additional depreciation (@35%) to new manufacturing units set up during the period 01-04-2015 to 31-03-2020 in notified backward areas of Andhra Pradesh and Telangana.
- Balance of 50% of additional depreciation @ 20% for new plant and machinery installed and used for less than six months by a manufacturing unit or a unit engaged in generation and distribution of power is to be allowed immediately in the next year.
- Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of `20,000 crores, and credit guarantee corpus of `3,000 crores to be created. MUDRA Bank will refinance Micro-Finance Institutions through a Pradhan Mantri Mudra Yojana.
- A significant part of the working capital requirement of a MSME arises due to long receivables realization cycles. GOI is in the process of establishing an electronic Trade Receivables Discounting System (TReDS) financing of trade receivables of MSMEs, from corporate and other buyers, through multiple financiers. This should improve the liquidity in the MSME sector significantly.
- Bankruptcy law reform, that brings about legal certainty and speed, has been identified as a key priority for improving the ease of doing business. SICA (Sick Industrial Companies Act) and BIFR (Bureau for Industrial and Financial Reconstruction) have failed in achieving these objectives. GOI will bring a comprehensive Bankruptcy Code in fiscal 2015-16, that will meet global standards and provide necessary judicial capacity.
- Efforts on various fronts to implement GST from next year.
- Proposal to reduce corporate tax from 30% to 25% over the next four years, starting from next financial year.
All above initiatives will enable revival manufacturing, which in turn will create new jobs and give filip to the economy. This will also boost confidence of private sector and motivate them to invest in infrastructure and allied industries. Most of the above initiatives are directed towards investment in infrastructure, Railways, defense and power sector. This is good news for welding industry. About 65 to 70% of its business is contributed by these sectors. Over all its excellent budget with long term focus on growth and manufacturing in India.
For Generating Set Industry and Power Solutions
Business, there is practically no incentive. In fact, Central Excise has gone up marginally from 12.36% to 12.50% making the generating sets dearer to that extent. It is the market sentiment that would determine the growth of this vital Industry. Lowering of crude prices probably could have given helped in demand growth but the roll back on petroleum prices had nullifying effect.
Leveraging demand for generating sets from this budget seems a far cry.
Generally, Corporate Tax and Income Tax restructuring will not have any tangible impact on this important Industry. It could be perhaps the political compulsions that are holding back the Mody Government from fulfilling election promises and make them visible to common man across the Country. How the fine print in the Union Budget translates in to ground realities remains to be seen.
The union budget 2015-16 has been designed for growth and indicates special impetus on – manufacturing, renewable energy, education, infrastructure, agriculture & health, sectors that will impact India’s growth target greatly. Large Infrastructure investments to the tune of 70,000 Crores and 5 ultra mega Power Projects, increased Defence allocations among others are aimed at making India a hot investment destination.
The ‘Amrit Mohatsava’ in 2022, the year of country’s 75th independence, as the timeline to accomplish many big initiatives such as Housing for all, medical facilities to all the villages, providing basic facilities – electricity, water and road to every village is ambitious but necessary for India’s growth. We would have liked to see more for the common man, through changes in taxation, but reduction in Corporate Taxes will be seen as a welcome move. While the budget lays emphasis on PM Modi’s “Make in India” & “Skilling India” campaign & aim to make India a self sufficient manufacturing hub & an entrepreneurial economy by 2022, a further delay in the implementation of GST to April 1st 2016 is discouraging for the manufacturing sector. Subsidized taxes on imports of 22 important raw materials to reduce manufacturing cost domestically, conveys government’s dedication to promote & encourage ‘Make in India’ initiative. A special allocation of investment to lay an impetus on renewable energy is certainly a much needed initiative from the government- India’s opportunity for renewable energy is immense and will attract interest from Global Investors. I think this is a very positive budget and offers something to everyone. After a long time we have seen a budget that has a vision and has been proposed in a defined time frame which is excellent. I am now excited to see successful implementation of the budget in the coming year.”
Mr. Vineet Mittal, Vice Chairman Welspun Renewables
We would like to congratulate the Honorable Finance Minister Shri Arun Jaitleyji for offering measures conducive to the growth of the infrastructure sector. Overall it’s a positive budget for the industry. As direct investment in the infrastructure sector will surely lead to increase in the GDP growth of the country. With the announcement of the renewable capacity target Honorable Minister has re-emphasized the government’s commitment to renewable energy.
The infrastructure sector has been facing funding challenges and some of the measures introduced will surely help this situation. By doubling the cess on coal to Rs. 200 per tonne , the government is creating an additional corpus of funds for clean energy projects. INR 75,000 crore has been apportioned for infrastructure sector. We are happy that it’s a sizable amount. The Honorable Minister has provided much needed clarity on capital gain tax on the Sponsors, at the time of offering the assets to InvIT, and waiving it off. This was one of the issues which was preventing the implementation of the InvIT . Waiving it away will help this vehicle to take-off and will attract billions of dollars of foreign investments in India.
The National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs 20,000 crore has been announced and this will help raise investments as equity in infrastructure finance companies which can further fund the Renewable Projects at competitive pricing. This could be used to develop a sizeable IDF to fund the huge capital outlays required to achieve the target of 175 GW by 2022. The IDF can make a substantial contribution to the Infrastructure development and can attract investors if provided tax breaks for the Investors.
The Union Budget 2015-16 shows lot of pragmatism for a long haul. The budget gives ‘long term’ direction by way of reducing Corporate Tax from 30% to 25% which is definitely welcome.
The Make in India initiative is also well supported including by way of infrastructure growth. Clean Ganga initiative has been given budgetary support and tax exemption, thereby putting investments behind the intent. Companies that have the technology to clean Ganga will now be able to avail tax exemptions.
Benefits owing to rationalization of taxes through GST are expected to kick start in 2016.. Higher investment allowances would have certainly helped further.”
It is heartening to see that the GST rollout date has been committed as Apr 2016. Now after an eternal wait, we can finally begin the countdown to a simpler indirect taxation regime. This will definitely give a massive fillip to the manufacturing and logistics industry as effective economies of scale can be achieved and processes can be simplified. Focussed disinvestment in loss making PSUs coupled with a contemporary bankruptcy code will definitely aide in cleaning the mess and introducing overall efficiencies in the industry. This will have a long term impact of ensuring the “survival of the fittest” and breed excellence that is much required if India has to emerge as a preferred global manufacturing hot spot. Announcement of 100,000 km of roads and 4 UMPPs is surely a move in the right direction and will help in giving a good boost especially to the capital goods companies. Overall a good budget for the economy.”
Mr José Ruiz Hernandez, Managing Director, Isolux Corsan India.
The Government has decided to keep its action plan for the infrastructure sector simple. The major requirement for the roads and highways and the infra sector is fund and the government has tried to address that by increasing capital outlays. Along with the capital infusion, the government has also declared the ambit of tax-free bonds once more which will allow the sector to call upon foreign investors and drive up foreign investment inflow in the sector. We are also glad that the government has decided to keep its focus on the Public Private Partnership play in the infrastructure sector and Mr Jaitley’s words that the government will seek to increase public capex in the PPP format will instil enough confidence in the private players to go for PPP models to expedite the development of roads and infra projects which will be essential to compliment India’s economic growth.
The government’s decision to convert the excise duty of Rs4 on petrol, diesel into road cess augurs very well for roads and highways sector as it has enabled the government to allocate an additional 14,000 crores for the sector. The additional revenue shall help the government fuel its ambitious National Highways Development Project and introduce the e-toll collection system which shall help save another Rs 88,000 crore.”
The railway budget had set up a roadmap for reforms and the tone for the Union Finance Budget has followed more or less a similar pattern. It is more of a directional budget which talks about the “what” & “where” rather than “how”. The intent of the budget has been to focus on Growth & Equality and as a budget which has something for everyone. The thing which stands out that the government has realized that there is a very strong case for improving the Global Competitiveness of India by focusing on infrastructure, ease of doing business by bringing in regulatory reforms to cut bureaucracy and improve existing taxation norms and help to generate jobs.
The announcement that GoI will set up 5 more ultra mega power projects of 4000MW, entailing investments of around Rs 1 lakh crore, is a big positive for copper industry. Though we do not have anything specific for real estate but the clarity that there will be no capital gains tax on contribution to REITS will also be positive.
Consolidation and improvement in operations of railways by bringing in better technology will also be a big positive for the copper industry.
We are happy with government sticking to its vision of ‘Housing for All’ by 2022 which will mean the government will build 60 million homes — 40 million in rural areas and 20 million in urban areas by allocating Rs 22,407 crore for taking measures in housing and urban development across the country in 2015-16. If this happens, then it will be a big boost for our building wire for residential application. We would have been more happy if the exemption limit on interest on home loan was increased too.
Additional public expenditure is likely to increase to Rs 1.25 lakh crore, with Rs 70,000 crore of capital expenditure. This commitment of government to have participation of sovereign in Infrastructure space can be a very positive step for boosting the almost defunct PPP model. The idea of having National Infrastructure Investment Fund is very good, concept of Plug and Play kind of projects where all clearances are worked out before allotment of the project is also very good. By and large we as an association, our happy with the announcements in the budget and feel that it will all boil down to “How” part and quick creation of capital on the ground which will mark how successful this budget has been in setting a roadmap for future.
