9
announcements on the long-term structural drivers for the
sector which was overall positive for the sector. The FM has
given some respite in personal income tax slab which will
lead to higher disposable incomes and may give some boost
to the two-wheeler and passenger vehicle segment. On the
commercial vehicle segment, the budget did not mention the
Scrappage Policy which the industry has been awaiting for
quite some time. However, increased allocation to the overall
infrastructure sector is a positive for the commercial vehicle
segment and for companies like M&M, Tata Motors and Ashok
Leyland. Further, companies like Escorts and M&M and two-
wheeler companies like Bajaj Auto and Hero Motocorp are
likely to benefit due to the higher target for agriculture credit
and increased focus on rural development.
Banking and Insurance
Budget Recommendations
• Fiscal deficit for FY18 targeted at 3.2% of GDP; the government
remains committed to achieving 3% in the following year.
• A target of
R
10.0 trillion of agricultural credit has been fixed for
the year FY18.
•
R
100 bn earmarked for public sector bank recapitalisation.
• Proposed to ban all cash transactions above the
R
300,000
limit.
• Pradhan Mantri Mudra Yojana target increased to
R
2.44 trillion.
• Launch two new schemes by the government to promote the
usage of the BHIM App.
• Launch of Aadhar Pay, a merchant version of Aadhar Enabled
Payment System.
• Increase digital transactions to a targeted 25 bn in for FY18
through UPI, USSD, Aadhar Pay, IMPS and debit cards.
• Banks have targeted to introduce additional 1 mn new POS
terminals by March 2017 and will be encouraged to introduce
2 mn Aadhar-based POS by September 2017.
• Proposed to create a Payments Regulatory Board in the
Reserve Bank of India.
• Allowable provision for non-performing assets (NPA) of banks
increased from 7.5% to 8.5%.
• Interest taxable on actual receipt instead of accrual basis in
respect of NPA accounts of all non-scheduled cooperative
banks also to be treated at par with scheduled banks.
View:
While the announcement on bank recapitalisation was in line
with market expectations, the increase in allowable provision
for NPA would aid profitability. The proposal to ban all cash
transactions above
R
300,000 is a positive for the sector, as
this will aid digital transactions and also the liquidity in the
banking system. An improved liquidity condition could see the
current low interest rate trajectory continuing. The budget
was positive for the banking sector in general.
Capital Goods
Budget Recommendations
• Allocation of
R
865 bn towards defence capital expenditure,
against
R
785 bn in FY17BE. The overall defence expenditure,
excluding pension provided, for FY18 stood at
R
2.74 trillion.
• Allocation for railways increased to
R
550 bn in FY18, as
against
R
450 bn in FY17BE.
• Reduction in basic custom duty (BCD) from 7.5% to 2.5% on
ball screws and linear motion guides.
• Removal of BCD, countervailing duty (CVD) and special
additional duty (SAD) on parts and components used in the
manufacture of miniaturised POS card readers, micro ATMs (as
per standard version 1.5.1) and finger print readers/scanners.
• A provision of
R
7.45 bn in FY18 was made to incentivise
schemes like M-SIPS and EDF—for the creation of an
ecosystem to make India a global electronics manufacturing
hub.
• A new and restructured central scheme with a focus on export
infrastructure, namely, Trade Infrastructure for Export Scheme
(TIES), to be launched in 2017-18.
• Allocation of
R
23 bn to Namami Ganga, as against
R
22 bn in
FY17BE .
View:
The budget was moderately positive for the capital goods
space. The government’s focus on 100% electrification is a big
positive for the capital goods space. The budget has provided
sops to manufacturers of POS machines by way of removal
of excise duty, which would incentivise manufacturers. A
higher allocation to defence related capital expenditure would
be beneficial for local defence equipment manufacturers.
Moreover, plans to commission 3,500 km of railway tracks
would be beneficial for companies like Siemens and L&T.
Assurance by the finance minister on GST implementation by
the stipulated time period would be beneficial to the overall
sector in bringing the effective tax rate down. The key would be
to watch out as to how the additional defence spending would
be used to generate order flows for domestic companies.
Cement/Constructions
Budget Recommendations
• Large investment of
R
649 bn in the roads sector for FY18 and
additional allocation of
R
190 bn under PMGSY.
• Increased allocation for Metro, i.e., from
R
100 bn in FY17BE to
R
180 bn in FY18.
• Clean environment cess remains stable at
R
400/tonne.
• Allocation of
R
230 bn under Pradhan Mantri Awaas Yojana –
Gramin (as against
R
150 bn in FY17BE), in view of a target to
complete 10 mn houses (for the houseless and those living in
kutcha houses) by 2019.
• For builders for whom constructed buildings are stock-in-trade,
tax on notional rental income will only apply after one year of
T
he
U
nion
B
udget
2017-18
