The sectoral impact of Finance Minister Arun Jaitley's maiden budget has touched upon a larger population base than any other budget in recent times. Though there were a few sector specific announcements, those that have been made have the potential of reviving the investment cycle and overall growth of the economy.
But let us first start with the negatives. One of the biggest disappointments of the budget is that there is still some uncertainty on retrospective tax, which was introduced by the earlier government. Though Jaitley said such new retrospective tax will not be introduced, the fact that the earlier cases remain open has caused anxiety in the minds of foreign companies.
Sin Tax: In an post budget interview, Jaitley said he does not have much sympathy for cigarettes, pan masala and tobacco product manufacturers. He increased duties on these products from 11% to 72%. However, the companies will not be affected in terms of margins as they will be passing on the cost to the consumers. At best, consumers might shift to lower priced brands which will have an impact on the companies in the medium term.
Infrastructure: Perhaps the biggest focus of the budget is in reviving the infrastructure sector. The finance minister has approached this issue from a number of angles. By extending the 80 IA tax benefit by three years, government has provided tax incentive for investment in the sector.
Apart from this, the minister has made investment in this sector easier for banks by allowing them to avail of long term deposits as well as giving investment in this sector will make them eligible for SLR and CRR exemption. The target for building roads has been increased to 8,500 km while budget outlay for the sector has been set at Rs 37,880 crore. But the other important announcement is the setting up of 16 new ports. Setting up of new ports results in increase in associated infrastructure like roads and rails apart from being an important hub of development.
Capital goods: The finance minister has extended the incentive scheme for manufacturing companies by allowing investment allowance of 15% for three years for those players who invest over Rs 25 crore in plant and machinery. Measures have also been taken to revive the power sector by assuring coal linkage and helping closed units to restart. Tax holiday for power project under 80 IA has also been extended.
Steel: The steel sector, in line with the benefits given to the infrastructure sector, has received special attention from the finance minister. Import duty on stainless steel products has been increased from 5% to 7.5%, giving them buffer room as their selling price is pegged to landed imported price. Further duties on inputs like steel scrap and coking coke has been reduced, which can further help in improving their margins.
Jewellery: Though Arun Jaitley did not reduce import duties on gold, which was largely expected on account of a comfortable current account deficit situation, he has given some relief in rationalising duties on inputs like diamond and precious stones.
Consumables: The consumers sector, both durable and non-durable sector, have been provided for in the budget. The sector is likely to firstly benefit from the personal tax measures announced by the finance minister. Higher tax exemptions would leave more money in the hands of the buyers for purchases. Import duties on computers, TV sets and raw material for soaps have been reduced. The intention clearly is to increase demand of these goods. The footwear sector will also benefit from a reduction in duty.
Retailers and FMCG sector is expected to gain from a reduction in excise duty on food processing and packaging machinery.
The author is with Midas Touch Capital Advisors