BUDGET: OF BOUQUETS AND BRICKBATS

The Union Budget 2016 drew both bouquets and brickbats from various sections of the industry. While most of them expressed happiness in developments and benefits for the rural sector including farming where adverse monsoons had impacted crops growth and farmers’ finances, the auto industry expressed worry about decreasing diesel vehicle sales and some felt that there was not much benefit for them in this budget.

Ashok P Hinduja, Chairman, Hinduja Group of Companies (India), described the budget as pragmatic and growth-oriented. “The government’s commitment for retaining the fiscal deficit at 3.5 per cent will have sobering effect on the interest rate in general and on the yields of government and corporate bonds in particular. This will place our economy in the double digit growth trajectory. Coupled with agriculture, rural and infrastructure spending including roads and highways, the economy will have a resultant effect of bottom-up demand generation and job creation. The auto sector will stand to benefit by the proposed amendment to the Motor Vehicles Act to allow the private sector participation in the passenger vehicle segment. Amnesty window announced for unaccounted money is a good initiative. However, tax on dividend above Rs 10 lakh is a big disincentive for promoters/large investors.”

Ashwani Kumar, IBA Chairman and Dena Bank CMD, said the budget provides impetus to long-term growth and credible road map of fiscal consolidation, promotes growth through focus on agriculture, rural and urban infrastructure development. “The 4 R’s – Recognition, Recapitalisation, Resolution, and Reform – will revive the balance sheet syndrome with Indian characteristics and will set a new reform path setting a positive note towards growth of the banking sector.”

Shyam Srinivasan, MD & CEO, federal bank, described the nine pillar approach setting priority areas for the year as vital to growth of the overall economy. “Fiscal deficit target being maintained is a great show of confidence, while housing being activated is a fundamental plus as the economy gets lubricated when housing picks up. The proposal to enact the bankruptcy law will help enhance credit health of banks. Though one would have hoped for a higher allocation for recapitalisation of public sector banks, it is reassuring to note that the government is committed to supporting the banks. The proposed amendments to the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100 per cent stake in the ARC and permit non institutional investors to invest in securitisation receipts may help in creating a secondary market for sticky assets. Opening up of road transport in passenger sector will create employment and promote entrepreneurship, while bringing a new credit rating system exclusive for infrastructure lending will facilitate revival of stalled projects and thereby create credit demand. Other welcome moves are: digitalisation of land records, Stand Up India Scheme for promoting entrepreneurship, schemes to promote digital literacy, Corporate Tax benefit for start-ups, the focused and time-bound measures to double income of farmers by 2022 and incentivising Oil and Gas production.”

Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank, “PSU bank recapitalisation was lower than expected, but finance minister promised to find a way to garner necessary resources in case further capital is required. While steps for affordable housing,  higher allowance for those staying in rented houses, a rebate for income below five lakhs – will provide relief to small tax payers, the budget thrust will address various segments and provide a boost to the economy, putting more money in the hands of the lower income segments.”

Jonathan Anchen, Head of Economic Research and Consulting, India, Swiss Re, said: “Large allocations to infrastructure and encouraging proposals for public-private-partnerships should help attract private sector investments and positively impact commercial insurance. We need to now think about the close monitoring and the rigid structures needed to get the execution right.”

Dr Vikas Gupta, Executive V/P and CIO, ArthVeda Capital, noted: “The budget delivered according to our expectations with respect to the push towards rural sector and public investment in infrastructure like road and railways. Another positive was no slippage on fiscal deficit, which shows government’s intent to rein in the fiscal deficit. However, budget fell short of expectations on allocation towards recapitalisation for public sector banks, especially given the NPA mess. The sectors expected to benefit from the budget are: two-wheeler stocks due to rural spending; fast-moving consumer goods due surge in rural incomes; infrastructure companies involved in road sectors; cement sectors due to infrastructure spending on roads, railways and low income housing.”

Vinod Nair, Head-Fundamental Research, Geojit BNP Paribas Financial Services Ltd, lauded the budget’s strong, long-term vision of maintaining fiscal consolidation at 3.5 per cent for FY17, expanding the rural economy and increase in infrastructure outlay. “However, in the near-term, the setbacks are; PSU banks recap of Rs 25,000 crores is below estimates, hike in STT for F&O options, introducing DDT for HNIs, no reduction in tax especially for corporate which is against the expectation and no draft about the introduction of GST,” he said.        

Satish Menon, Executive Director, Geojit BNP Paribas Financial Services Ltd, said the budget’s prime emphasis on rural economy/population and infrastructure spending could go a long way in increasing India’s GDP with total inclusion, while adherence to 3.9  per cent fiscal deficit and 3.5 per cent for next year would bring comfort to FII – though the key to the budget is its implementation. “No bad news on the LTGC was good news to the stock markets. On the negative side, expected reduction in corporate tax rates have not yet materialised.” 

Ankita Tandon, Chief Operating Officer, CouponDunia, said: “How efficiently the Start Up India funds are utilised is something all startups and investors will be watching out for. Skill Development and Digital Literacy Mission are not only great social initiatives, but will also widen the addressable market for digital startups as making the internet accessible to the masses will also create more internet consumers. As the markets/demands for digital startups grow, they are bound to attract monetary backing.”

The automobile sector too had its say. Pawan Goenka, Executive Director, M&M Ltd said: “The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector, while laying down some very clear goal posts on farm income and on village electrification. Perhaps more could have been done for financial sector and taxation. Imposing upto four per cent Cess for passenger vehicles is a concern for auto industry. It would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”

V S Parthasarathy, Group Chief Financial Officer, Group CIO and President (Group Finance and M&A), Member of the Group Executive Board, Mahindra & Mahindra Group, said: “The finance minister has created a credible menu of allocation for initiatives like: irrigation (PMKSY), e-market place for agri wholesale, rural infrastructure (PMGSY), MNREGA, social welfare (healthcare) etc. to effectively grease the wheels of the rural economy with aggregate spending in excess of Rs 87,000 crores. It will augur well if implemented effectively and will surely kick-start the economy and rural demand. 

On the other hand, the additional levies including infrastructure cess will create an additional burden on the corporate. However, it would be a very small price to pay for a bigger growth agenda. The fiscal rectitude shown in containing both the deficit and the GoI borrowings, augurs well for the interest rate scenario, and will be hopefully followed through by the RBI soon,” Parthasarathy said.

Tata Motors is particularly encouraged with the government opening up private participation to the public road transportation sector, for a potential to address commuters’ grievances, by enhancing the quality of public road transportation services. Boost in spends related to infrastructure and construction of roads and highways, will help increase spends on commercial vehicles and also improve last mile distribution. Positive changes to custom duty will help further the country’s Make in India initiative. Amendments to the Motor Vehicles Act, removing permits for plying small passenger vehicles, will encourage small entrepreneurs, and more importantly ensure safe and efficient last mile connectivity, across states,” a Tata spokesman said, while noting that while the passenger vehicle industry has been facing challenges over last few years, it has barely begun to show some signs of recovery and additional cesses may “disincentivise” passenger vehicle customers, impacting the industry.

Arun Malhotra. Managing Director, Nissan Motor India Pvt Ltd. said “The Union Budget 2016 has continued with the government’s focus on maintaining fiscal deficit, agriculture, infrastructure development and recapitalizing of PSU banks, besides special focus on grass-root level economy, with an overall positive impact in the long run. The Government’s decision to amend the Motor Vehicle Act in passenger vehicle segment to allow innovation – coupled with a focus on infrastructure – will help improve overall public transport in India.   

There is not much for auto industry in this budget. Infrastructure cess increase up to four per cent on passenger vehicles will definitely impact prices and, though not a major burden for small car buyers, the luxury cars and SUVs will feel the heat. We are still trying to understand the modalities of collection of TDS of 1 per cent on more than 10 lakh priced cars. Further, curbing incentives on in-house R&D spends from 200 per cent to 150 per cent is not very positive. There is no presentation on roadmap for GST implementation, additional Incentives for Electric Vehicles and Hybrids under FAME Scheme and the plan for Vehicle Scrappage scheme which is a damper.”  

Yadvinder Singh Guleria, Senior Vice President - Sales & Marketing, Honda Motorcycle & Scooter India Pvt. Ltd, said: “The finance minister has walked a fine rope of balancing social welfare with economic growth. In the backdrop of two consecutive weak monsoons, the government’s focus on rural sector – especially farmer welfare, education, interest subvention on existing loans and skill development – will inject strength in rural economy. The Rs 1 lakh crore allocation on road and highways will accelerate connectivity and mobility across all geographies led by rural areas, which is very positive news for overall auto industry”.