India announced an ‘interim budget’ for FY15, with elections due mid-2014. It included no major policy initiatives and only Vote Bank issues which has made the corrupt Congress Party stoop to a new low. We analyze the Budget impacts by sector as under.
Automobiles: The FY15 budget has reduced the excise duty on vehicles across the board. The excise duty cut is positive in the near term, but may not lead to major consensus upgrades in FY15 estimates at this stage. The reduction in duties is applicable only until 30 June 2014 and hence demand may be bought forward in the next few months.
Auto components: The FY15 budget has proposed excise duty cuts ranging from 3% to 6% across different vehicle segments for the automobile industry. This could be viewed as a positive in the near term, bringing much needed cheer to an industry that has been witnessing low sales and negative growth.
Oil and Gas: The budget provision for FY14 was increased from the previous cINR650bn to cINR850bn to account for the subsidy already announced for the OMCs for the first three quarters. On our estimates, the oil marketing companies may have a gap of INR400bn for the balance of FY14 (net of discount from upstream companies and subsidy already announced) but the Finance Minister mentioned that he is rolling over only INR350bn to next year’s budget.
Capital Goods: Excise duty on capital goods has been reduced to 10% from 12%. Although this is positive as competitiveness should improve for the same margin, it is unlikely to kick-start a revival in new orders as low capacity utilisation across the industrial segment will restrict new capex.
Financials: The budget has no meaningfully impactful measures for the financial sector. Key measures include: Proposed injection of INR112bn to recapitalise PSU banks in FY15 (vs INR140bn in FY14) Agriculture lending target upped by 12% to INR8tn with an eye on the Vote Bank of Farmers.
Power: It has been proposed to take up four ultra mega solar power projects each with a capacity of over 500 MW in FY15. This is positive for investments in the sector. The 80 IA tax benefit was extended last year to the power projects commissioned up to March 2014. However, there seems to be no further extension of this benefit to the power projects expected in FY15.
Information Technology and the Pharma Sector have been left unchanged in the interim budget.
The Corrupt Congress Party’s illiterate Politicians in the government announced election goodies, including cuts in excise duties. While the life of this document is short, the tax cuts will provide a short term boost and could be tough for a new government to retract thus emptying the coffers of the central treasury.