Telecom
Steel
Small Scale Industries
Non Banking Financial Companies (NBFCs)
White goods
Polyester
Information technology
Real Estate
Automobiles
Tyres
Aluminium
Capital markets
FIIs
Stock Markets
Banks
Insurance
Cement
Shipping
Gold
Tea
Urea
Cigarettes
SSIs
Computer Hardware
Exporters
Mobile phone operators flay govt
The Cellular operators criticised the government for not granting a two-year
moratorium on payments of licence fees by cellular telephone service operators. The
Cellular Operators Association of India (COAI) opined that Finance Minister Yashwant
Sinha, had left out the cellular industry in his Budget, which had pushed the operators on
the brink of bankruptcy. It said the existing telecom projects were already facing severe
funding problems for their projects and the government's decision of not extending
temporary relief would deteriorate the situation further.
Hike is customs duty of steel welcomed
The steel industry welcomed the across-the-board 8 per cent customs duty hike on
imports but feared the impact might be pared by the increase in coking coal prices due to
higher duties. In the wake of heavy dumping of steel, the additional 8 per cent hike in
countervailing duty would provide a level playing field to the domestic industry, Arvind
Pande, chairman, SAIL, said. Rectification of the anomaly over the duty differential
between cold-rolled and hot-rolled coils along with across the board 8 per cent hike in
customs duty would boost the industry, steel secretary A K Basu said. Meanwhile, an
increase in the prices of steel products is on the cards. This has been triggered off by
the imposition of an 8 per cent non-modvatable duty on all imports which would increase
the price of inputs, mainly cooking coal and carbon melting scrap, consequently pulling up
the price of various products.
SSI body hails excise exemption on production
limit
The Calcutta-based Federation of Associations of Cottage and Small Industries (FACSI)
and Federation of Small and Medium Industries (FOSMI) welcomed the recognition granted to
the importance of the SSI sector. They have welcomed the raising of the excise exemption
on the production limit of SSIs from Rs 30 to Rs 50 lakh and extension of the flat rate of
excise duty of 5 per cent ad valorem from Rs 50 to Rs 100 lakh. FACSI feels the delinking
of SIDBI from IDBI will allow the former to release more fund to the SSI sector.
NBFCs sore with budget
Equipment Leasing Association of India (ELA) is sore over the budget for having
absolutely no welcome provision for the non-banking finance companies (NBFCs). ELA said
the industry had high hopes from the Budget since the BJP had, in its manifesto, stated
that the RBI's January 1998 directives were not well thought out. It had promised to amend
them if they came to power. The discriminatory treatment meted out to the NBFCs vis-a-vis
banks was also listed in the latest budget. It is proposed to raise the capital adequacy
ratio for banks from the current 8 to 9 per cent by 2000.
Local white goods players have it easy;
difficult for foreign players
Domestic companies like Videocon and BPL are expected to reduce prices of colour
televisions, while foreign companies would be forced to increase prices of their products
due to the measures announced in the budget. Similarly, white goods players with high
indigenisation, are expected to gain from the Budget against the foreign companies selling
white goods like air conditioners, washing machines and refrigerators, which may have to
increase the prices of these products. According to analysts, while the Indian companies
can pass on part of the benefit accruing from cuts in duties for integrated circuits,
companies like LG, Sony, National Panasonic and Samsung would be forced to hike prices of
colour televisions by 10 to 15 per cent. The compounded effect of 8 per cent customs duty,
5 per cent reduction in Modvat credit and rupee depreciation would, however, be between 25
to 30 per cent for the foreign companies.
Domestic polyester industry may raise prices
soon
The domestic price of polyester-oriented yarn (POY) is expected to go up by Rs 4 per
kg as a result of the imposition of an additional 8 per cent non-modvatable customs duty
on imports. The price of purified terephthalic acid (PTA), the main raw material for the
polyester industry is also expected to increase by Rs 2 per kg. With the additional 8 per
cent customs levy on POY, which already has an existing 35 per cent customs duty and a
34.5 per cent countervailing duty, the landed cost is expected to go up further, giving
the domestic industry a chance to increase the price of their products.
Concessions fall short of IT industry’s
expectations
Concessions announced in the Union Budget to boost manufacturing in information
technology (IT) have fallen far short of the industry's expectations, with a wide section
expressing apprehensions about the 8 per cent import duty levied across the board. While
local manufacturers welcomed the sops, personal computer (PC) importers were disheartened
by the fears that prices will soar following the duty.
Realtors unenthused with fiscal concessions
Real estate companies and property consultants are not enthused with various fiscal
concessions announced in the Budget for the housing sector, saying these concessions mean
very little for builders. They are disappointed with the denial of the infrastructure
status to the housing sector, which they say, would have given a fillip to the private
sector participation in the sector. Real estate companies and housing finance institutions
have demanded for a long time that the infrastructure status should be accorded to the
housing sector.
Automobiles prices to
rise
Maruti Gypsies, Tata Sumo, Sierra and Estate, representing the fastest moving
segment of the automobile industry, are likely to cost more because of to the union
government announcing an increase in excise duty on multi-utility vehicles. The automobile
majors have already started calculating the impact of the announcement and what percentage
needs to be passed on to the customers. But, in all likelihood, prices in this segment are
likely to increase. Maruti Udyog Limited Managing Director RSSLN Bhaskarudu said, company
officials were assessing the impact and the increase it would translate to. However, the
custom duty increase to 20 per cent on engine parts imports would, in no way, translate to
a price rise or cut on the end product. Daewoo Motors India Limited’s MD S G. Awasthi
said it was an anomaly and the government had just corrected it and would not translate
into a hike or a decrease in prices of the vehicles. Hitherto, component duties were
higher which resulted in cost of assembling engines being lower. With the correction,
component duties and engine assemblies would be at par and would go a long way in
promoting indigenisation, he added. Pran Talwar, Vice Chairman and Managing Director of
Talbros Automotive Components Limited, said this increase in customs would provide an
impetus to localisation of parts and boost the domestic component manufacturers.
Auto kit prices likely to rise
The automotive component industry feels prices of auto kits would rise due to
the excise and customs duty changes in the Budget. Terming the budget as disappointing and
a letdown, industry said though input costs might rise, it would be difficult to pass it
on to users in this recessionary phase. The industry had sought an increase of import duty
on engine and engine components from 20 to 40 per cent. The peak import duty on auto
components, except engines and engine components, is now 40 per cent. The Budget has
increased the duty on engines and its components to 30 per cent apart from levying 8 per
cent duty on imports across the board.
Tyre production cost likely to go up
The tyre industry expects an increase in the cost of production due to an 8 per
cent across the board hike in import duty. It will adversely affect cost structure as
certain raw material which goes into the production of tyres are imported. Besides the
hike in petrol price too is expected to impact the petrol industry. Tyre industry had
sought that import duty on the raw material be reduced to at least 10 per cent less than
the import duty on tyres, which is currently 45 per cent. Import duty on nylon tyre cord
fabric, which is a major raw material and contributes 32 per cent to the cost of raw
materials is 52.25 per cent. Import duty on SBR, PBR, Butyl and VP latex is 45 per cent
each. Now the industry is saddled with higher import duties instead of the concessions
they had sought.
Budget brings windfall for primary aluminium
producers
The budget offered primary aluminium producers industry a windfall it did not want.
In contrast struggling units in the secondary sector were left high and dry once again.
The 8 per cent additional customs duty will provide an effective protection of 33 per cent
to the primary metal producers against imports. But increase the cost of raw materials for
the secondary unit, ailing from low capacity utilisation and sluggish demand. The
Aluminium Association of India (AAI) had petitioned for a reduction of import duty from 25
to 10 per cent in interest of demand growth. But the finance minister has offered it
protection and opportunity to reap a windfall in the domestic market. The Budget proposals
sharply bring forth the difference of interest between primary and secondary producers.
No sops for capital markets and small
investors
The budget does not offer any sops for the small investor or the capital market.
Bombay Stock Exchange President J C Parekh said the market responded negatively because
there were no sops for the capital markets. Former BSE executive M R Mayya said the
government had missed an opportunity to revive the primary market. In regards to taxation
Mayya said the requirement to give the PAN in respect of transaction in shares worth more
than Rs 50,000 will adversely affect liquidity in the market and needed to be dropped. He
added that small investors have not been granted any incentives to be attracted to the
markets. NSE’s managing director R H Patil feels the governments decision to withdraw
from non-strategic areas is good news.
FIIs sore with Budget 98
Heads of foreign investment banks feel that although the budget has taken steps in
the right direction it does not go far enough to improve India’s attractiveness to
overseas investors. Alliance Capital’s chief investment officer S Arora feels the
budget is extremely bureaucratic, resembling a pre-1991 budget with nothing to offer for
any market participant. FIIs have been the net sellers for the last two months and there
is little the budget can do to change their minds, he said. Credit Suisse First
Boston’s (India) Managing Director K R Bharat said the budget aims to achieve a lot
over the medium and long term but does nothing to kick start it. He feels the steps
towards privatisation is a move in the right direction. Bharat said there is a bias
towards NRI funds but it does little to attract FDI from foreign investors.
Stocks react negatively to BJP budget
Stock indices across the country crashed on Monday, dejected by the absence of
solid measures to boost capital markets and boost the economy in the budget. According to
market analysts, the budget had failed to address the problems and demands of the capital
markets which led to a sharp drop in share prices in the post budget trading sessions. The
Bombay Stock Exchange had dropped by 151.70 points against the pre-budget session close,
while the Delhi Stock Exchange index declined by 27.90 points. Analysts said the budget
had not mentioned anything about the expectations of the stock market on buy-back of
shares and capital gains, making FIIs and domestic investors nervous, who actively
resorted to selling. According to DSE Executive Director SS Sodhi, the budget was
surprisingly silent on the exports front, not a single measure was announced to boost
exports nor was there any reference to sanctions and this depressed the investors. They
were expecting some solid steps to boost the sagging demand and market conditions but
their absence depressed them. He went on to say, the foreign funds have already been
adopting a cautious wait and watch policy and this budget would only make them further shy
away from the markets.
FM aims to cut banks NPAs to below five per
cent by 2000-01
Finance Minister Yashwant Sinha announced that the banks with high level of
non-performing assets would be allowed to float asset reconstruction companies (ARCs)
which made their balance sheets clean. These ARCs would be subsidiaries of the individual
banks. The ARCs would take over NPAs of the banks. Experts feel the measure would help the
banks tackle the issue of high level of NPAs among the Indian public sector banks. The
average NPAs among the Indian public sector banks is nine per cent, which the finance
minister wants to bring down to below five per cent by 2000-01. As a measure of restoring
health to the ailing banks, the debt recovery tribunals would also be strengthened,
according to finance secretary M S Ahluwalia.
Foreign insurance companies position unclear
Though the finance minister announced the opening up of insurance sector for the
Indian companies, it has not been spelt out whether foreign companies would be allowed any
equity participation. Sinha said in his budget speech that the insurance regulatory
authority would be given a statutory status and necessary legislative changes be brought
in. Revenue Secretary N K Singh tried to evade the issue, saying the opening of the sector
itself was a big step and questions like foreign equity participation would be addressed
at an appropriate time. However, experts feel that foreign companies may be allowed a
minority holding which may range anywhere below 40 per cent as recommended by the Malhotra
Committee. More than 20 foreign insurance majors have signed up memoranda of understanding
with Indian partners to enter the sector. The common understanding among Indian insurance
industry is that the Indian private companies do not possess the necessary expertise and
technology and would need participation by foreign companies.
Housing sector will buoy cement industry
The thrust on housing is bound to offer positive spin-offs to the cement sector,
but the dampener has been the hike in import duty on coal. Industry majors are also
unhappy their demand for reduction of excise duty on bulk cement were not heeded. ACC
vice-chairman Subrata Ganguly said the cement industry would get the long needed
demand-push from the reforms announced for the housing sector. He said that the 20 lakh
houses targeted to be provided annually would sufficiently create some demand for the
cement industry which has been reeling under a severe excess capacity situation. Narotam
Sekhsaria, managing director, Gujarat Ambuja Cements Limited said by providing a thrust to
rural and urban housing as well as infrastructure, the government had acknowledged these
sectors were the engines of growth.
No mention of shipping industry
The shipping industry has not been granted any of its long standing demands.
Shipping Corporation of India PK Srivastava pointed out that nothing even remotely
connected with shipping was evident in the budget. The only positive point he said, was
the infrastructure status being granted to inland ports and water ways.
Gold prices to go up modestly
Gold prices are expected to go up modestly following an increase in import duty
on gold from Rs 220 per 10 grams to Rs 250 per 10 grams. However, the Finance Minister did
not spell out the hike in duty per kilogram which stands at Rs 500 right now. Experts were
unable to quantify the rise in revenue due to the move. The import of gold has risen in
the recent times following relaxation of import strictures.
Tea goes up by Rs 12 per kilo
The morning cup of tea would be dearer for every household with the imposition of
eight per cent excise duty on tea. According to Praful Gordia, a leading auctioneer of
Indian tea, the prices of popular packaged tea would go up by Rs 12 a kilogram at the
retail level. However, loose tea would remain unaffected as this does not attract any
excise levy. India which produces about 800 million kg of tea is moving towards surplus
from deficit. There was a shortage of tea in the international market in the last two
years with Kenya reporting deficit in production by about 40 million kgs. India exports
about 25 per cent of its production.
Urea price hike to affect plantations
Hike in urea price by a rupee per kg is expected to impact the production costs
besides the actual yields for both the country's main plantation crops of tea and coffee.
All this at a time when the policy makers had been setting millennium targets of 1000
million kg a year for tea and 300,000 tonnes for coffee, which were considered
increasingly difficult to achieve. Rubber could also be affected but the impact may be
lesser. The worst affected would be the small growers who form the majority of cultivators
for coffee and rubber.
Cigarette cos bottomlines may dip
Bottomlines of cigarette companies will be affected by the 6 to 11 per cent hike in
excise duties proposed in the budget. Analysts say the companies will not be able to pass
on the increase to the customers immediately and would, therefore, find ways to absorb the
hike. The government would get Rs 3,584 crore through the imposition of fresh duties
against Rs 3,326 crore last year. The industry had contributed Rs 2,714 crore through
excise during 1996-97.
