Crisil Budget analysis: Overall sectoral impact

The overall impact of the budget on the media and entertainment sector is neutral. The hike in customs duty on set top boxes - from nil to 5 per cent - is expected to incentivise its domestic production. However, the move will also increase the subsidies borne by digital pay-tv operators, and hence, will marginally impact their margins.

A 15 per cent waiver of agency commission and 10 per cent increase in the rates of DAVP advertisements in print media, and exemption of customs duty on newsprint have been retained till December 2009. This move is expected to provide some relief to the print industry, which has been experiencing margin pressure
due to the economic slowdown.

The impact of Union Budget 2009-10 is neutral on the non ferrous metals industry with no changes announced in the customs and Central Value Added Tax duties. Thus, the prices of non ferrous metals are not expected to be affected.

The government has increased the allocation under Accelerated Power Development and Reform Programme and rural electrification scheme in the power sector, which forms around 40-45 per cent of the total aluminium demand. Hence, demand for aluminium might be positively impacted from increase in investments in the
power sector.

The impact of the Union Budget 2009-10 on the domestic paper industry is neutral with no change in the customs and excise duties on paper and paper boards. The customs duty exemption provided to newsprint in the fiscal stimulus package has also been continued.

The higher emphasis on education is likely to boost demand for writing and printing paper, although the benefits will be visible only over a long term, as a significant portion of investments in education will go towards infrastructure development. The education sector accounts for around 30 per cent of the total writing and printing paper demand.

The excise duty on naphtha has been reduced from 16 per cent to 14 per cent. This is expected to have a marginally positive effect on margins of naphtha-based crackers. But the overall impact of Union Budget 2009-10 on the domestic petrochemical industry is neutral with no changes announced in the excise and customs duties.

Also, the Central Government has proposed to expedite the 220,000 tpa Assam
gas cracker project (announced in April 2006). A capital subsidy of Rs 21.38 billion will be provided out of the total project cost of Rs 54.61 billion.

The overall impact on the pharmaceuticals sector is neutral. The reduction in customs duty from 10 per cent to 5 per cent and exemption of CVD on imports of select life-saving drugs and their bulk drugs for treating ailments like breast cancer, hepatitis, rheumatic arthritis, etc will have a negligible impact as the proportion of life-saving drugs is marginal.

Further, the marginally negative impact due to the hike in the Minimum Alternate Tax (MAT) rate from 10 per cent to 15 per cent will be partly offset
as fringe benefit tax (FBT) has been abolished.

The Union Budget 2009-10 is expected to have a neutral impact on the ports sector. The government has imposed a service tax on the transport of goods through the coastal and inland waters route, including National Waterways. Considering the low cost of transporting goods through the coastal mode vis-avis the roadways and railways, this tax will not have a major implication.

The increase of MAT from 10 per cent to 15 per cent is expected to have a marginally negative impact on the revenues of players. The refinancing scheme through IIFCL, announced initially in the interim budget of 2009, is not expected to have an incremental impact on the sector.

There were no major announcements with respect to the power sector. IIFCL has been given greater flexibility to re-finance infrastructure projects. The budgetary allocations for the APDRP and RGGVY programmes have been increased by 160 per cent to Rs 20.8 billion and by 27 per cent to Rs 70 billion, respectively.

The hike in MAT from 10 per cent to 15 per cent would have a neutral impact, as it would be passed on to the end users. The enhancement in credit period for MAT from 7 years to 10 years would be marginally positive for the sector. On the renewable energy front, the basic customs duty on permanent magnets used in wind power generation has been reduced from 7.5 per cent to 5 per cent.

Even though the allocation for NHDP has increased by 23 per cent, the mplementation of the projects is expected to remain slow on account of policy issues.
Allocations under PMGSY have increased by 59 per cent in 2009-10 to Rs 120 billion. However, the past track record of expenditure reveals that funds allocated are inadequate considering the future funding requirements.

Refinancing commercial bank loans for Public Private Partnership projects through IIFCL will facilitate higher incremental loans towards the projects. However, this measure was already announced in the interim budget in February 2009.
Increase in Minimum Alternate Tax from 10 per cent to 15 per cent of book profits will have marginal negative impact on the financials of players.

The budget impact for the steel industry is expected to be neutral with no effect on industry profitability. Since there has been no change in the customs or Central Value Added Tax duty related to steel products, the prices are not to be impacted.

However, with the provision of higher investment in infrastructure segments such as roads, railways and urban infrastructure under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), the demand for steel is likely to improve marginally.

The impact of Union Budget 2009-10 on the sugar sector is expected to be neutral. The elimination of the commodities transaction tax will not impact the sugar sector in the near future as trading in sugar futures is banned till December 2009. CRISIL Research expects the margins of sugar companies to remain unaffected by the change.

The Union Budget 2009-10 has a neutral impact for the textile sector. Interest costs for exporters will decline by 1 per cent due to the extension of 2 per cent interest subvention on pre and post shipment export credit till March 31, 2010. Excise duty on cotton textiles beyond the fibre stage which had been reduced to zero in the stimulus package has been restored to a 4 per cent optional duty.

Excise duty on man-made fibres and yarns has been raised to 8 per cent from earlier levels of 4 per cent. While this will increase polyester prices by Rs 2.5 per kg, it will not affect demand, as polyester continues to be cheaper than cotton and substitution will continue.