Introduction

The Finance Minister Mr. P. Chidambaram took a balanced stance in his Budget 2007-08. He continued on the lines of last budget, and there were no architectural changes. The finance minister has honored his commitment and has strengthened the growth path that the government has taken in the last three years. Mr. Chidambaram has successfully handled the social, economical and political factors. The FM has announced a slew of measures in areas of rural development, Infrastructure, employment and education to take care of growth.

On the macro economic front, FM said that GDP growth for the current fiscal is likely to be at 9.27%. Pointing towards an optimistic outlook, Mr. Chidambaram said that the Government is determined to achieve a growth of 10%. The government has delivered improved performance on the fiscal front too. The centre's fiscal deficit as a proportion of GDP is expected at 3.3% (a decline from last year) in 2007-08. The increase in the gross tax-GDP ratio to 11.2% in 2006-07 from 10.5% in the last year is also commendable. This has been made possible by the reforms in tax and better expenditure management. The three key themes of the budget are Growth, Stability and Equity. Concrete announcements regarding illiteracy, rural development including agriculture, infrastructure, health, employment, women welfare coupled with robust macroeconomic fundamentals, particularly with tangible progress towards fiscal consolidation, a strong balance of payments position, and upsurge in domestic savings and investment rates depicts a bright picture for Indian economy.

Economy

Finance minister presented his fourth budget with an average GDP growth of 8.6% during his tenure. Minister said that Economy in a stronger position than ever before with a robust growth for the fourth year in a row and strong macroeconomic fundamentals. GDP growth is expected to be 9.2% in 2006-07. However, there are some genuine concerns on the inflation front that is hovering around the level of 6.5%. While the agriculture sector that surprised everyone with 6% growth last year, may grow at 2.7% in the FY07 as per advance estimates. Services continue to remain robust and expected to grow at a buoyant rate of 13% during FY 07, while there were distinct signs of sustained improvements on the industrial front. External sector expected to be strong and supportive of growth, with stable capital flows financing moderate current account deficits. Inflation that measured by the wholesale price index (WPI), year-on-year stood at 6.7 % on February 3, 2007 resulted by supply-side factors, was on an upward trend from the beginning of the year. Inflation was accompanied by buoyant growth of money and credit in 2005-06 and 2006-07 so far. Rapid accretion in foreign exchange reserves, which grew from US $151.6 billion at end-March 2006 to US$185.1 billion on February 9, 2007 , was reflected in rapid growth in money supply.

Tax Payer

There has been no change in the rates of personal income tax. However, certain amendments have been made to enhance the saving options for an individual. The threshold limit of exemption in the case of all assessees has been increased by Rs.10,000, thus giving every assessee a relief of Rs.1,000. Consequently, in the case of a woman assessee, the threshold limit is increased from Rs.135,000 to Rs.145,000, giving her a relief of Rs.1,000, the threshold limit of exemption in the case of a senior citizen is increased from Rs.185,000 to Rs.195,000, giving him or her a relief of Rs.2,000.
The deduction in respect of medical insurance premium under section 80D is increased to a maximum of Rs.15,000 and, in the case of a senior citizen, to a maximum of Rs.20,000 from Rs.10,000 and Rs.15,000 respectively.

Upto Rs.1,10,000	NIL
Rs.1,10,001 – Rs.1,50,000	10%
Rs.1,50,001 – Rs.2,50,000	20%
Rs.2,50,001 and above	30%

Upto Rs.1, 45,000	NIL
Rs. 1,45,001 – Rs.1,50,000	10%
Rs.1,50,001 – Rs.2,50,000	20%
Rs.2,50,001 and above	30%

Upto Rs.1,95,000	NIL
Rs. 1,95,001 – Rs.2,50,000	20%
Rs. 2,50,001 and above	30%

Stock Market

Markets on the morning of the B-Day opened in red due to weak global cues. The stock market gave thumbs down to the union budget 2007-08. Market started with a weak note and selling pressure continued, as there were no concessions in corporate tax and securities transaction tax. Budgetary proposals like a hike in dividend distribution tax, a 25% dividend distribution tax for money market and liquid mutual funds, imposition of tax on employees stock option plan (ESOP) and MAT on IT & ITES companies. Markets slid sharply, Sensex and Nifty both went down by nearly 4%. Sensex recorded its biggest-ever loss in absolute terms on the Budget Day and the second highest in percentage terms. Sensex registered a loss of 541 points and closed at 12,938 while Nifty registered a loss of 149 points.

Foreign Investment

Foreign Institutional Investments (FII):

The debt market in India lacks liquidity and efficiency as stated in the Economic Survey 2005-06. The turnover ratio, an indicator for liquidity in the debt market has dropped every year since 2002. An attempt had been made to deepen and strengthen the debt markets by increasing the FII limit last year. The existing limit of US$2 billion on investments in Government securities by foreign institutional investors (FIIs) to be enhanced in phases to US$3.2 billion by March 31, 2007. As per the latest data on foreign direct investment inflows, there has been a 98.4% jump in the equity investment into India in April-September 2006-07 over April- September 2005-06 levels. The sharp decline in portfolio net inflows was more than the increase in FDI (net) to result in a decline in foreign investment inflows between the first half of the previous year and current year. The survey said that expectations of higher corporate investments and earnings, robust GDP growth and government's commitment to carry forward economic reforms are expected to scale up FIIs interest to retain India as one of the preferred destinations.

Foreign Direct Investment (FDI):

FDI continues to play an important role. There are opportunities to make India a manufacturing hub for textiles, automobiles, steel, metals, petroleum products etc. for the world market. In April-January, 2006-07, foreign direct investment amounted to US$12.5 billion and outpaced portfolio investment, which was US$6.8 billion. India will continue to attract more foreign investment into the country, especially in infrastructure.
In line with the Government of India's policy on foreign investments in infrastructure companies in the Indian securities market, the limits for foreign investment in stock exchanges, depositories and clearing corporations, have been specified as follows:

• Foreign investment up to 49% will be allowed in these companies with a separate Foreign Direct Investment (FDI) cap of 26% and cap of 23% on FII investment;

• FII shall not seek and will not get representation on the Board of Directors; and

• No foreign investor, including persons acting in concert, will hold more than 5% of the equity in these companies.

Industry

The high growth in the industrial sector continued in the current year so far propelled by robust growth in manufacturing. The budget 2007-08 seems to be a mixed bag for the industry with some positive and some not so positive changes brought about by the finance minister. The corporate tax rate kept unchanged to 30%, reduction in peak custom duties from 12.5% to 10% & various industry specific cuts in excise duties will provide a boost to the overall corporate growth.

However implementing a MAT (minimum alternate tax) of 11.22% on IT and ITES companies, proposal to raise the rate of dividend distribution tax from 12.5% to 15% on dividends distributed by companies, raising the dividend distribution tax on dividends paid by money market, mutual funds and liquid mutual funds to 25% for all investors, proposal to levy an additional cess of 1% on all taxes to fund secondary education and higher education and introduction of GST (Goods and Service Tax) with effect from April 1, 2010 may affect the pace of industry growth.

In spite of the fact that the budget has given immense focus on social and infrastructure sector, which may have a trickle down effect across various industries of the economy, the performance of the industry and services is expected to remain buoyant for the FY–08 supported by 23.7% growth in gross domestic capital formation (GDCF) in 2006-07, 7.4% increase in per capita income and increased saving rate estimated at 32.4%. We have witnessed a robust growth in the economy. The only concern being inflation, an increase in the Investment rate would point towards bright future prospects for overall industry growth.

Auto Ancillary

Neutral

• Direct tax breaks such as tax holiday for the auto-component industry for investment exceeding the set threshold as well as exemption for exports.

• To bring the auto-component sector within the purview of an incentive structure prevalent in some competing countries.

• Reduction in excise duties on components in small cars and two wheelers to 8%

• To benchmark its policies against that of competing countries like Thailand and China .

• Introduction of specific tax incentives for attracting investments in the area of auto-components such as a tax holiday for auto-component industry for investments exceeding Rs 500 m and automobile industry in excess of Rs 5 bn.

• A secondary and higher education cess @ 1% of the aggregate of duties of excise has been imposed on excisable goods including auto ancillaries.

• Vocational training programmes based on public-private partnerships to be initiated

The reduction in the peak custom duty makes the auto ancillary industry competitive and will have negative impact. On the other hand the vocational training programmes will benefit, as there is high demand of skilled workforce on the back huge growth in the auto ancillary industry. Increase in the education cess will have marginal effect on the profitability of the company.

Automobile

Neutral

• Uniform rate of excise duty on all passenger vehicles i.e. passenger cars, MPVs (multi purpose vehicles) and MUVs (multi utility vehicles) of 16%.

• Retention of current level of customs duty for CBUs of passenger cars, two and three wheelers. Delinking of tariffs for CBUs of commercial vehicles from other tariffs.

• Extension of weighted tax reduction at 150 per cent on R&D expenditure u/s 35 (2AB) of Income Tax Act, which is to expire on March 31 2007 , be extended for a period of 10 years.

• Merging of multi-taxes and duty structure such as basic excise duty, automobile cess and abolishing the national calamity contingent duty.

• Secondary and higher education cess @ 1% of the aggregate of duties of excise has been imposed on excisable goods including automobiles.

• Extension of weighted tax reduction at 150% on R&D expenditure for five more years.

Impact

The budget impact is largely neutral on the auto industry. The budget did not contain any provision for the automobile sector as the industry analyst expected it. The only areas where the sector shared its pie is in education and training of the workforce and extension of the weighted deduction on R&D expenditure by five years. The budget focused more on agriculture investment and 50 lakh more farmers to be brought under farm credit will have positive impact on farm equipment and tractor manufacturers. Also an increase in defence spending will help the industry particularly Tata motors and Ashok Leyland. Spending on infrastructure will prove to be positive for the overall industry. The major beneficiaries are Maruti Udyog Ltd, Tata Motors, Ashok Leyland, M&M & Punjab tractors.

Banking

Neutral

• Relaxation in lock in period for savings u/s 80C from 5years to 3 years, which will increase attractiveness of term deposit.

• Perpetual non-cumulative preference shares to be included in Tier-I capital and redeemable cumulative preference shares to be included in Tier-II capital in order to improve CAR.

• In order to rationalize manpower government should allow another round of VRS and more power to attract suitable talent.

• SARFAESI Act to be extended to loans advanced by Regional Rural Banks (RRBs). RRBs to be permitted to accept NRE/FCNR deposits and those that have a negative net worth to be recapitalised

• Cash withdrawals by Central and State Governments to be excluded from the scope of Banking Cash Transactions Tax (BCTT). Exemption limit for individuals and HUFs to be raised from Rs 25,000 to Rs 50,000

Impact

Public sector banks with more rural branches will be benefited as they ll be able increase their core business. More branches will facilitate banks to increase their reach and subsequently balance sheet size. Extension of SARFAESI to RRBs will help reduce NPAs for such banks and the permission to garner NRI /FCNR deposits will augment resources for the banks. Exclusion of Central and state governments will benefit banks by way of low administration cost. However the budget had very little to offer for SCBs, enhanced lending to agriculture and priority sectors will require banks (especially PSU banks) to be more cautious towards NPAs. No measures were taken for improving liquidity in the banking system by way of exempting taxes on 3-year fixed deposits, taking note of the high inflation in the economy persisting currently.

Cement

Neutral

• Reduction in the rate of duty from Rs.400 per metric tonne to Rs.350 per metric tonne on cement sold in retail at not more than Rs.190 per bag; rate of Rs.600 per metric tonne on cement that has a higher MRP

• Rs.4,000 crore a year have been allocated for construction of rural roads & general thrust on construction

Impact

Even though nearly all cement companies are selling cement above Rs.190 per bag but due to supply constraints, cement companies are in position to pass on the costs to the end-users.

Engineering

Positive

• To reduce the excise duty to 8 per cent from the current levels of 16 per cent on all products and corresponding raw materials supplied to the power generation, distribution and transmission projects.

• To reduce the excise duty on the earth moving and construction equipments to 8% from the current levels of 16%.

• To maintain the customs duty on aluminium, cooper, zinc and steel Alloys at 5%.

• Increase in corpus of RIDF-XIII and higher allocation for RGGVY to aid addition to power capacities for rural areas.

• Private sector participation in transmission projects likely to lead to higher spending and faster creation of transmission infrastructure, thus benefiting transmission equipment companies.

• Higher education cess and dividend distribution tax to impact net profits and retained earnings, though the impact will be marginal.

Impact

The measures in the budget aims to drive the engineering industry. Hike in allocation for rural infrastructure development, boost to power generation and transmission segments and increase in defence capital expenditure are some of the positives to have come out of from the proposals. The investment measures announced in this budget for private-public partnership to remove difficulties concerning the development of infrastructure in the country. Apart from power, the potential for the sector lies in the oil and gas industry, where high global demand has led to increased action in exploration and production activities. The budget is positive for equipment makers like BHEL, Siemens, ABB, Alstom and Areva T&D. Drip irrigation systems to impact domestic manufacturers positively like Jain Irrigation.

Fertilizer

Positive

• Support from the government to facilitate conversion of naphtha and fuel oil/LSHS- based urea units into gas and LNG based units.

• Removal of duty on fuel oil used for non-feed purposes in manufacture of fertliser.

• Simplifications of rules for claiming custom duty exemption on inputs like naphtha, fuel, oil and ammonia.

• To allow a concessional rate of 5% for urea imported to manufacture complex fertlisers.

• Withdrawal of the duty for capital goods, imported for expansion, modernization and revamp.

Impact

Thrust on improving subsidies and increase in farm credit will lead to increase in the demand for fertilizers. Increase in demand will help fertilizer companies to improve its margins, as is likely to pass directly to farmers. Hence the overall impact is positive for the sector.

FMCG

Positive

• Increase in abatement rate of excise on shampoos, toothpaste, soaps & detergents

Impact

Though there is no direct impact on FMCG sector from budget, however, Finance minister has increased outlay on rural infrastructure & also increased Rs.10,000 in hands of tax-payers, which will have a positive impact on the sector.

Food Processing

Positive

• Reduction in average incidence of tax applicable to this sector from current level of 25% to under 10%.

• Rationalization of excise duty for other processed foods like ready to eat packaged foods, instant food mixtures and agro based products from current range of 16% - 8% to 8% - 0%

• Complete exemption of excise duty on biscuits whose retail price does not exceed Rs. 50 per kg.

Impact

Union budget 2007-08 will have a positive impact on the food processing industry. The budget has emphasized on agri sector. Increased emphasis on Agri sector will benefit the food-processing industry. Reduction in excise duty on biscuits is expected to benefit small-scale industries and players like Britannia, Marrico and Parle. Reduction in excise on food mixes will have a positive impact on ITC. Crude and refined edible oil is now exempted from 4% CVD, this will also have positive impact on the industry.

Infrastructure

Negative

• Increased allocation in NHDP & Bharat Nirman programs for rural infrastructure projects.

• Increase in provision for Bharat Nirman by 31.6% from Rs.18,696 crore to Rs.24,603 crore

• Provision for National Highway Development Programme to increase from Rs.9,945 crore to Rs.10,667 crore

• Public Private Partnership and Viability Gap Funding: Revolving fund with a corpus of Rs.100 crore to be set up to quicken project preparation; fund to contribute up to 75% of preparatory expenditure in the form of interest free loan to be recovered from the successful bidder.

• Innovative Financing for Infrastructure: Funds from National Small Savings Fund may also be borrowed by India Infrastructure Finance Company Limited; suggestions of Deepak Parekh Committee to be examined for establishment of two wholly-owned overseas subsidiaries of IIFCL with objectives to provide credit to infrastructure sector.

• Provision of Rs.350 crore to Delhi Government for Commonwealth Games 2010 in Delhi

Impact

Construction companies are directly impacted by the infrastructure spending of the government. In the current budget, GOI has given stress on two things (a) increased allocation towards infrastructure (b) trying to come up with innovative ways to fund infrastructure projects. Combination of the two will lead to huge positive for the entire sector. Among various segments of infrastructure, irrigation is the key beneficiary with 54% increase in outlay & grants to state governments. Players like Nagarjuna Construction & IVRCL have strong hold in this space.
However, the increase in excise duty on cement will put pressure on margins of construction sector as cement accounts for 13%-20% of cost for various construction projects. All construction companies will be negatively impacted by these measures but Jaiprakash Associates having presence in both cement & construction will have least impact. Also, clarification that section 81(1)A benefit will not be applicable for work contracts but only for developers will hurt the industry.

InformationTechnology

Negative

• Concessions given to software exports from special economic zones (SEZs) should be extended to software technology parks (STPs)

• Allocation for e-governance to increase from Rs.395 crore to Rs.719 crore and for e-governance action plans at State levels to increase from Rs.300 crore to Rs.500 crore

• Rs.33 crore to be provided for a new scheme of manpower development for software export industry

• Minimum Alternate Tax (MAT) to be extended to income in respect of which deduction is claimed under sections 10A and 10B; deduction under section 36(1)(viii) to be restricted to 20% of profits each year.

Impact

High thrust on education & special allocation for development of manpower will help industry in long-run by providing more employable candidates. Spending increase on e-governance would be positive for companies like TCS, Wipro, 3i Infotech, who operates in this space. Focus on education will also have positive impact on companies like NIIT, Aptech, Eudocom.
Introduction of MAT at 11.22% & ESOPs being taxable at 33.99% will have negative impact on IT companies. Approximately 90% IT companies use ESOPS as a critical retention tool. Companies like HCL tech, Rolta, Mphasis BFL etc., which are paying very low taxes, however, the big four i.e. Infosys, TCS, Wipro & Satyam will not be/ little impacted from MAT provision.

Media and Entertainment

Negative

• To bring service tax rates at par levied on advertisement for the broadcasting media and the print media.

• Reduction in excise duty on set top and other broadcasting equipments from existing level of 16%.

• Development and supply of content for use in advertising purposes brought under service tax net

• Excise duty exemption on recorded videocassettes intended for television broadcasting has been withdrawn and 8% excise duty has been imposed.

• Sale of space or time for advertisement i.e. sale of space in business directories, yellow pages and trade catalogues for commercial purposes are now entitled for service tax.

Impact

The overall impact of the budget on Media industry has been negative. Commercial properties for rent purposes are now brought under service tax sphere. This will have a negative impact on multiplexes. Rise in advertising cost will have a negative impact on top line of the broadcasters and print media. Videocassettes are now entitled for 8% service tax. It will result in increased cost for broadcasting industry. ESOPs are now brought under the FBT. This will also have a negative impact on media and entertainment industry.

Metals

Positive

• Import duty on steel may be cut from 5% to 2%. On non ferrous metals too it may be cut to 2.5%.

• Excise duty on both, steel as well as non ferrous metals, may be reduced from the current level of 16% to 12%.

• The duty on prime steel is 5%t. Customs duty has been reduced from 20% to 10% on seconds and defectives of iron and steel.

• The rate of compounded levy on aluminium circles has been increased from Rs.7,500/10,000 per machine per month to Rs.12,000 per machine per month.

• Exemption from excise duty on pipes used for carrying water from a water supply plant to a storage facility to be extended to all pipes of diameter exceeding 200 mm used in water supply systems.

Impact

Indian steel makers welcomed the hike in export duty on iron ore and ore concentrates and the cut in import duty on secondary steel imports proposed in the budget. Imposing export duty on iron ore and ore concentrates is in line with the recommendations of the Hoda Committee that was formed to draft a policy on mining. A reduction in import duty on secondary steel is beneficial for small Indian steel makers as these items are included in scraps used as raw material by secondary steel plan t. The government focus in this budget had been on improving irrigation facilities. This would be beneficial for pipe manufacturing companies. FM has proposed to extend the excise duty exemption on pipes used for carrying water from a water supply plant.

Oil and Gas

Positive

• Rationalization of taxes has been one of the lasting demands of the industry.

• Cross-country pipelines should be treated as infrastructure. Crude oil product and gas pipelines, storage terminals and other related facilities for transportation and storage should be classified as infrastructure facility.

• Oil and gas exploration and production industry should be given infrastructure status.

• Rangarajan Committee recommendations should be implemented. A 10-year tax holiday should be granted to pipelines, storage terminals and other related facilities for transportation and storage of petroleum products.

• Undertakings engaged in the commercial production or refining of mineral oil should be given the option of claiming tax holiday.

• Advalorem component of the excise duty on petrol and diesel reduced from 8% to 6%.

• Extension of service tax to services outsourced for production of oil and gas.

Impact

Cut in excise duty on petrol and diesel will be positive for downstream (marketing) companies like IOC, BPCL and HPCL and consumers as the cost burden will get reduced for companies which expected to be passed to consumers. While infrastructure status for gas pipeline will benefit gas transmission companies like GSPL, GAIL and RIL this measure will also help in attracting more investment as huge investment is needed to develop the gas market. However most of the measures remain positive for the sector except dividend distribution tax as Oil and Gas sector dominated by PSUs, these companies pays huge dividend. With inclusion of service tax to outsourcing of the oil and gas production will be marginally negative for the upstream players.

Pharmaceutical

Positive

• The extension of the weighted deduction benefit of 150% on R&D expenditure indefinitely or at least for another 15 years, which is due to expire in March 2007.

• To remove with holding taxes on R&D and allow provisions to include expenses on clinical trials as part of R&D expenditures of the firm.

• Full exemption of custom duty on select life saving drugs that are attracting duty ranging from 5% to 12.5%

Impact

The finance minister has shown a little soft heart towards pharmaceutical industry. The extension of tax exemption to the extent of 150 percent of a firm's research expense by five years, exemption of clinical trials for drug testing from the service tax net and cut general custom duty reduced to 7.5% and no FBT on free samples mark positive for overall industry. A deep focus on healthcare in the budget is a good news for the industry.

Power

Positive

• Continued thrust on facilitating timely implementation of awarding ultra mega power projects.

• APDRP scheme should be continued and the Ministry of Finance should provide adequate budgetary support to the scheme.

• Reduction in the excise duty from the current 16% down to 8% to enjoy the benefit of MODVAT or CENVAT.

• Complete waiver of customs duty on imported naptha for power generation and put an 8% excise duty for the same.

• 2 sets of duties for mega and non-mega power projects. Mega power projects were to enjoy an initial concessional zero customs duty, but now the ministry has recommended a customs duty of 5% and a countervailing duty of 8% for non- mega power projects.

• The benefit of 80 IA should be extended to turnkey contractors and power equipment suppliers.

• To avail the benefits of section 80-IA, an Indian company set up for reconstruction or revival of a power generating plant is eligible for ten year tax benefit if it begins to generate or transmit or distribute power before 31st March, 2007 . This time limit has been extended by one year for generating or transmitting or distributing power i.e., before 31st March, 2008 .

• Seven more Ultra Mega Power Projects are under process and at least two likely to be awarded by July, 2007.

• Accelerated Power Development and Reforms Project (APDRP) being restructured to cover all district headquarters and towns with a population of more than 50,000. Budgetary support for APDRP to increase from Rs.650 crore to Rs.800 crore.

• In order to conserve natural resources as well as to raise revenue, the FM proposes to impose an export duty of Rs.300 per metric tonne on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates.

Impact

The government has maintained its focus on accelerating the process of power generation. This would enable top line growth for engineering, power equipment manufacturers and power generating companies. Some of the demands of power industry have been addressed to. The pace of increase in power generation capacities is slow as against targeted. The government proposes to increase budgetary support for ARDRP and impose export duty on export of iron ore.

Real Estate

Negative

• Limits on Sec 80C could be raised from current interest payments upto Rs150,000p.a. (Sec 80C) and principal payments of upto Rs100,000p.a (Sec 24(2)) on home loans are tax exempt.

Impact

The first two measures will have negative impact on the industry as real estate consumes maximum amount of cement & any increase in excise duty will be passed on the companies. Also, tax on rentals are expected to further being passed on the consumers, thus raising already high prices of real estates further. However, tax holiday for hotels in NCR will boost the bottomline of companies like Parsavnath Developers, Anant Raj (i.e. real estate companies situated in NCR).

Retail

Negative

• Opening up of retail sector to foreign investment in select specialty retail areas such as electronics, sports goods, building equipment, stationery and furniture.

• Renting of immovable property for use in commerce or business brought under net of service tax.

Impact

There is no provision for retail industry in this budget. Demands such as permission of FDI & incentives are left untouched. The decision of finance minister to tax the rented property used for business will negatively affect the retail companies, as rent is the one of the major cost components.

Telecommunications

Neutral

• Allow telecom infrastructure providers with tax exemption at 100% for 10 years.

• Unify multifarious taxes, charges and fees applicable to the industry and a single levy on revenue should be collected.

• Propose the Department of Telecommunications need to constitute a committee to study the present structure of levies and make suitable recommendations to government.

Impact

The services sector continues to maintain impressive growth and has recorded, in the three years, a growth rate of 9.6%, 9.8%and 11.2% respectively. Indian Telecom sector is growing at an unprecedented pace, and subscribers base is growing at a scorching rate of around 5 mn per month. Telecom subscribers are growing at a CAGR of 31% from 1997 to 2006. Cellular subscriber growth seems to be in full steam, growing at a YoY CAGR of 94% in last 10 years, Shift of focus to service sector with its share reaching from 49% to 54% of GDP from 2000 to 2006. Going forward, with supportive regulations, incremental Capex spends; higher end product innovations and failing equipments prices will keep the sector momentum ahead.

Textiles

Positive

• Extension of Technology upgradation fund (TUF) beyond March 2007 for another 5 years.

• Cut in excise duties on polyesters fibres and yarns from existing level of 10%.

• Extension of Technology Upgradation Fund (TUFs) for Eleventh Plan with provision of Rs. 911 crore. Handlooms are also included under TUFs.

• Provision for Scheme for Integrated Textiles Parks (SITP) to increase from Rs. 189 crore in 2006-07 to Rs. 425 crore in 2007-08.

• Outlay for the Handloom sector increased from Rs 241crore in FY2007 to Rs.321 crore in FY2008.

• Customs duty on raw material such as DMT, PTA and MEG will also be reduced from 10% to 7.5%.

Impact

Union budget 2007-08 has been encouraging for the textiles industry. The budget is positive for all textile players. The extension of TUFs will continue the process of modernization and technological upgradation of the industry and will benefit the smaller players who are yet to complete expansions. Custom duty cut in raw materials like PTA and MEG is expected to improve the cost structure of the companies into man made fibre segment like Indo Rama, RIL, SRF, Vardhman Textiles and JBF. Custom duty on man-made yarn has been reduced to 8%. This wills improve man - made fibres competitiveness vis a vis cotton yarn. Increased allocation under Scheme for Integrated Textiles Parks will boost garment and textile companies.

Tobacco

Negative

• Cigarettes to get included under VAT (tax of 4%) instead of normal 12.5% tax

• Duty (excluding cess) on biris to be raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for machine made biris;

• withdrawal of exemption for pan masala containing tobacco and other tobacco products given to units in the North Eastern States.

Impact

Extra levy of taxes will raise the cost of tobacco products, thus hampering demand of the same.

Tourism and Hospitality

Positive

• Depreciation on hotel buildings to be changed to earlier 20% from current 10%.

• 5 year tax holiday for 2, 3 and 4 star hotels in NCR regions till March 31st 2010 .

• Tourism infrastructure to get an allocation of Rs.520 cr as against Rs.423 cr last year.

Impact

The budget has proposed a five-year tax holiday for two-, three- and four-star hotels and convention centers in and around New Delhi from April 1, 2007 to March 31, 2010 to boost room capacity in time for the Commonwealth Games in Delhi in 2010.

The outlook for the industry looks quite positive from the fact that in most of the major cities a demand-supply mismatch is brewing up which has resulted in a healthy growth in occupancies. This has resulted in strong operating and net margins for most hotel companies. The budget would be positive across the sector.

Commodiiy Market

Negative

• The budget should ensure uniform VAT structure across all the states of the country. Reduction in import duties.

• To make edible oils more affordable, crude and refined edible oils to be exempt from additional CV duty of 4%, reduction in duty on sunflower oil, both crude and refined by 15 percentage points.

• Agreement reached with State Governments to phase out CST, rate to be reduced from 4% to 3% with effect from April 1,2007, Rs. 5495 crore provided for compensation for losses, if any on account of VAT and also on account of CST, a roadmap for introducing a national level Goods and Services Tax(GST) with effect from April 1, 2010 to be prepared

Impact

Giving a jerk to the expectations of the commodity market of successful continuation of futures trade in agri commodity, government banned futures trade in Wheat and Rice. The reduction of 4% special additional duty on all imported edible oils is not in the interest of local crushers, as it would pull down local edible oil prices and fetch them lesser returns. However, no doubt it will serve the motive of the importers to some extent. Moreover, the uncertainty regarding the decision of the committee that is supposed to submit the report by April will make the traders hesitate to hold position. No measures have been introduced in the budget to impart more power to the Forward Markets Commission. Contrary to this, the government has intimated to provide more authority to SEBI.