Budget Series 2018-19 : #3 Impact on Education Sector

By TJEF Editor Laxmi Mishra

Challenges faced by the Industry

  • Gross enrolment pattern: At present, in India, there are about 1.86 crore students enrolled in various streams of higher education including Business Management. The ratio is just 16%. The government needs to focus on strategies to increase this ratio.
  • Infrastructure facilities: There is an imperative need to ensure quality physical infrastructure by managing apolitical private sector participation in the establishment of colleges.
  • Student-teacher ratio: India has Student-teacher ratio is 22:1 while the average for developed countries is as low as 11:1. It brings the necessity to hire quality teachers and strengthen the backbone of Indian education sector.

Expectations from Budget

  • The Government’s budgetary expenditure on health, education, and social protection was INR 8.18 lakh crore in 2017-18. It is expected to increase by 3-5%.
  • The National Testing Agency (NTA) which was proposed by Mr. Arun Jaitley is expected to be the main focus of this year’s budget.
  • Students are expecting some relation on education loans considering the ever-increasing cost of higher education.
  • Expenditure towards recruitment of teachers is expected to be high.
  • Initiation of more programmes to increase the gender parity in educational institutions.

Budget Announcements

  • The Government has allocated INR 8.5 lakh crore this year, an increase of approx. 4% over last year.
  • Also announced Rs. 1, 00, 000 Crore initiative to drive research and infrastructure over the next four years.
  • The government proposes to move to “Digital Board” over the next few years to mark the involvement of technology in Indian education system.
  • “Revitalising Infrastructure and Systems in Education (RISE)”, a major initiative dedicated towards revamping the education infrastructure, will be launched.
  • An integrated B.Ed. programme for teachers will be initiated to ease the training of teachers during service.
  • Launch of ‘‘Prime Minister’s Research Fellows (PMRF)’’ Scheme to encourage students to undertake Ph.D. in IITs and IISc with an attractive fellowship.
  • To ensure quality education for tribal children an “Ekalavya Model Residential School” will be setup in every block with more than 50% ST population and at least 20,000 tribal persons.
  • A specialized Railways University at Vadodara also to be setup under the scheme of setting up Institutes of Eminence.
  • 18 new Schools of Planning & Architecture (SPAs) will also be established in IITs and NITs as autonomous schools.

References:

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Budget Series 2018-19 : #2 Impact on Banking, Financial Services and Insurance Industry

By TJEF Editor Kriti Kanchan Sinha

Finance Minister, Mr. Arun Jaitley presented the much-awaited Union Budget on 1st February, 2018. The budget was focused on rural India with agriculture, insurance, housing and MSMEs being the biggest gainers. There were no big announcements regarding the banking sector apart from a reiteration of the bank recapitalization plan. Some of the key aspects of the Union Budget that will impact the banking, insurance and financial services industry are listed as below:

  • Long-Term Capital Gains Tax – Long-term capital gains exceeding 1 lakh will be taxed at the rate of 10%. However, all gains up to 31st January, 2018 will be grandfathered which means all gains made up till 31st January, 2018 will not be taxed. Distributed income by equity oriented mutual fund will also be taxed at the rate of 10%. This may introduce some investor churn in the short-term however as major capital gains are accrued to corporates and LLPs, a long-term impact on equity markets is unlikely.
  • Bank recapitalization – This recapitalization will help the public-sector banks in lending additional credit of 5 lakh crore.
  • Uncollateralized Deposit Facility – The RBI Act will be amended to institutionalize Uncollateralized Deposit Facility which will act as an instrument to manage excess liquidity without offering any securities as collateral. The funds parked with the RBI through this facility by the banks could earn interest.
  • Better Financing for MSMEs – Online loan sanctioning facility for MSMEs will help in prompt and larger financing of MSMEs and also considerably ease cash flow challenges faced by them. Tax rate reduced to 25% for companies who have reported turnover up to 250 crore in the financial year 2016-17. This will benefit the entire class of micro, small and medium enterprises which accounts for almost 99% of companies filing their tax returns.
  • Rural Regional Banks – Strong Regional Rural Banks will be allowed to raise capital from the market to enable them to increase their credit to the rural economy.
  • Tax Exemptions – The government has put forward a proposal to exempt transfer of derivatives and certain securities by non-residents from capital gains tax in order to promote trade in stock exchanges in IFSC. Further, non-corporate taxpayers operating in IFSC shall be charged Alternate Minimum Tax (AMT) at concessional rate of 9% at par with Minimum Alternate Tax (MAT) applicable for corporates.
  • Agriculture Credit – A 10% increase in the volume of institutional credit for the agriculture sector to 11 lakh crore for the year 2018-19 along with 1.5 times hike in Minimum Support Price of all crops will improve rural income and improve the banks’ credit offtake and asset quality for this segment.
  • Affordable Housing – The government will establish a dedicated Affordable Housing Fund (AHF) in National Housing Bank, funded from priority sector lending shortfall and fully serviced bonds authorized by the Government of India. Affordable housing will have a positive retail loan growth of banks and NBFCs.
  • National Health Protection Scheme – The National Health Protection Scheme will provide free medical care of up to Rs five lakh each to 10 crore poor families – about 50 crore beneficiaries (assuming five members per family). This will improve penetration of the Insurance industry in the rural markets.
  • Financing of NBFCs – Refinancing policy and eligibility criteria set by MUDRA will be reviewed for better refinancing of NBFCs. Public sector banks will be onboard the Trade Electronic Receivable Discounting System (TReDS) platform and linked with GSTN.
  • Bond Market – Reserve Bank of India has issued guidelines to nudge Corporates access bond market. SEBI will also consider mandating, beginning with large Corporates, to meet about one-fourth of their financing needs from the bond market.
  • Cryptocurrencies & Blockchain – It has been clearly mentioned that Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system. However, it is open to exploring block chain technology for ushering in a digital economy.
  • No announcement of any change in foreign holding limit in private sector banks from the present 74%.

References

Budget Series 2018-19 : #1 Impact on Indian Agriculture Industry

By TJEF Editor Vasudeva Kamath

Challenges faced by the Industry

  • Large number of marginal farmers in India: There are a large number of marginal farmers in the country due to the fragmented land holdings. The fragmentation is to such an extent that it is economically unviable to cultivate crops by using mechanized farming methods.
  • Lack of storage facilities: About 10% of the agricultural produce gets wasted due to lack of proper storage facilities in the country. There also the problem degradation of the quality of produce due to improper storage.
  • Lack of proper irrigation channel: Indian farmers are largely dependent on the monsoon for irrigation. There is no proper implementation of irrigation facilities to grow the crops around the year.

Expectations from Budget

  • The budget amount allocated to the agriculture sector was to the tune of Rs.1.5 lakh crores. The expectation this year is at least 8-10% increased allocation.
  • Establish fund to guarantee credit to encourage investment in agriculture
  • Allocate more funds for crop insurance schemes
  • Increase spending for dams and canals, micro-irrigation systems
  • Provide subsidies for building cold storage to avoid wastage of perishable crops

Budget Announcements

  • Government has decided to keep minimum support price (MSP) for all unannounced Kharif crops at least one and half times of their production cost after declaring the same for the majority of Rabi crops
  • The government has allocated a total of 1,87,223 crores, which is 24% more than what was allocated in the previous financial year.
  • The volume of credit for agriculture is proposed to be at Rs. 11 lakh crores from the present Rs. 10 lakh crores, thus catering to the expectation from the budget.
  • A new Scheme ‘‘Operation Greens’’ was announced with an outlay of Rs 500 Crores to address the price volatility of perishable commodities like tomato, onion and potato
  • Agri-Market Infrastructure Fund with a corpus of Rs.2000 crores will be set up for developing and upgrading agricultural marketing infrastructure
  • Rs 200 crores allocated for organized cultivation of  highly specialized medicinal and aromatic plants
  • National Bamboo Mission will be initiated with an outlay of Rs.1290 crores to promote bamboo sector in a holistic manner
  • Ministry of food processing has got an almost double increase in allocation from Rs. 715 Crores to Rs. 1400 Crores
  • Under  Prime Minister Krishi Sinchai Yojna, 96 deprived irrigation districts will be taken up with an allocation of Rs 2600 crores
  • To realize the full potential of Indian agricultural exports (about USD100 billion), the export of Agri-commodities will be liberalized

Conclusion

This year’s budget is termed as the “Next Green Revolution” by many experts. With normal monsoon forecasted for the year, there would be a good pickup in agricultural activities during the sowing season. We can expect a significant contribution from agriculture sector towards the GDP this year.

Budget Impact on Construction Sector

By Akshay Chaudhury

Challenges faced by the Industry:

  • Low-cost finance via FDI, ECB, and domestic banking assistance: Both the Centre and state must work together to remove bottlenecks for faster implementation of the reform measures in order to promote FDI in real estate. The ECB route should be opened for developers and FDI must be permitted in limited liability partnership (LLP) realty firms
  • A little clarity on land titles: Cross purchase shouldn’t suffer tax. So if the proceeds from the sale of commercial property are used to buy residential property or vice versa, capital gains tax shouldn’t apply. This exemption should be extended to cases where properties in both categories, residential and commercial, are from the proceeds of a single property.
  • The tedious process of getting project approvals: The red tape and time involved to approve real estate projects has caused the sector much grief. This issue can be addressed by a single-window clearance mechanism that will not only reduce the gestation period of projects but will also insulate them from cost escalations and delays in handing over possession.

Expectations from the Budget:

  • Industry status to the sector which contributes almost 15% to the Indian GDP
  • Clarity on GST and a raise in HRA deduction allowance
  • Single-window clearance mechanism which would ramp up supply and help rationalize prices and ensuring construction quality norms are not compromised
  • Clarity on entry and exit norms of FDI and reduce the lock-in period
  • Digitize all land records
  • Confidence-boosting measures to put more money in people’s hands in order to bring back the sales to pre-demonetisation levels

Budget Announcements:

  • 64,000 crore allocated for highways
  • A total allocation of Rs. 39,61,354 crore has been made for infrastructure
  • ‘Infrastructure’ status for Affordable housing aligned with the government’s agenda of ‘Housing for All by 2022’
  • PM Awas Yojana allocation raised from Rs. 15,000 crore to Rs. 23,000 crore
  • 27,000 crore on to be spent on PMGSY; 1 crore houses to be completed by 2017-18 for homeless
  • PM Kaushal Kendras will be extended to 600 districts; 100 international skill centers to be opened to help people get jobs abroad
  • National Housing Bank will refinance individual loans worth Rs 20,000 crore in 2017-18
  • Dispute resolution in infrastructure projects in PPP mode will be institutionalized
  • Trade Infrastructure Export Scheme to be launched in 2017-18; total allocation for infra at record Rs 3.96 lakh crore
  • Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001
  • Abolition of Foreign Investment Promotion Board (FIPB)
  • Dairy processing infrastructure fund to be set up

Trends after Announcements:

  • The BSE Realty index gained 4.7%, the highest among sectoral indices for the day.
  • Realty stocks such as Godrej Properties Ltd, Housing Development and Infrastructure Ltd and Prestige Estates Projects Ltd rose by around 6% on easier access to low-cost funds.
  • DLF rose by 6.7%, although it has little exposure to the affordable housing category.
  • Construction firms with a greater exposure to roads, such as IRB Infrastructure Developers Ltd, rose by 2.5%.
  • GMR Infrastructure Ltd gained due to the sops for roads and airports.
  • Larsen and Toubro Ltd gained as it is the largest player in infrastructure.

Conclusion:

Overall, it was a positive budget for the sector and the government has done well to create awareness for the need to increase tax compliance. Demonetisation was a temporary setback and the economy must bounce back. In particular, we look forward to the gains once GST is rolled out later this year.

Budget Impact on Metals and Minerals Sector

By Sahitya Kumar Shee

Expectations from Union Budget:

Key expectations of Industry Current rate Expected
Non Ferrous
Increase in basic custom duty on Aluminium and Aluminium products Aluminium-7.5% Aluminium products – 10% 15%
Increase in export duty on Bauxite 15% 20%
Increase in basic custom duty on copper products 5% 7.50%
Exemption of basic custom duty on copper concentrate 2.50% Nil
Ferrous
Reduction in export duty of low grade iron ore 10% Nil
Increase in import duty on Stainless steel 7.50% 15%
Reduction in duties on stainless steel scrap 2.50% Nil
Reduction of basic customs duty on metallurgical coke 5% Nil

The steel industry has been reeling under immense stress from import glut and predatory pricing for the last couple of years. Due to the excessive surge in imports of stainless steel products, the industry has been struggling and was expecting an increase in basic customs duty on finished goods from 7.5 per cent to 15 per cent. Also, measures to protect domestic aluminum players were expected which are troubled with cheap imports.

Announcement in Budget

  • The basic custom duty on nickel has come down to nil from 2.5 per cent earlier.
  • Basic customs duty on MgO coated cold rolled steel coils for use in the manufacture of CRGO steel has been reduced from 10 per cent to 5 per cent.
  • The government reduced the BCD on Hot Rolled Coils when imported for use in the manufacture of welded tubes and pipes from 12.5 per cent to 10 per cent.
  • Export duty on ‘Other aluminum ores, including laterite’ has been revised from nil to 15%.
  • Allocation of Rs 3.96 Lakh Crore to Infrastructure Sector. This will aid to growth for Steel sector in future years.

Impact on the sector: Neutral

  • Bringing down the basic customs duty (BCD) on nickel (a key steel-making raw material) to zero from 2.5 per cent comes as a great relief for the stainless steel industry which has been facing challenging times. This reduction of BCD on nickel will be mildly positive for the domestic industry.
  • The reduction of BCD on CRGO steel will help in reduction of the cost of power transformers.
  • The reduction of BCD on Hot Rolled Coils for captive use in welded tubes and pipes would create price pressure on domestic HR coil producer.
  • Focus on infrastructure is a big positive for steel companies and the industry because it is a key driver of steel consumption. 

Proposal & Impact

Budget Proposal Impact on the industry
Decline in the customs duty of HR coils used for manufacturing of welded tubes & pipes This is likely to marginally increase the imports of specific categories of HR coils. A very few select manufacturers who produce these coils may face increase competition from imports.
Decline in the custom duty on nickel As nickel (required for stainless steel production) is mainly imported, it is expected that the raw material cost is likely to get reduced. This is likely to benefit the highly cost competitive stainless steel manufacturing industry, which faces significant imports threat.
Export duty on ‘Other aluminium ores, including laterite’ has been revised from nil to 15%. Marginally Positive for the Aluminium Producers

Proposed Changes in Duties:

Duty Structure Changes
Export Duty (%)  Before After
Aluminium Ore 0% 15%
Custom Duty (%)
Nickel 3% 0%
Hot Rolled Coils 12.50% 10%
MgO coated cold rolled steel coils 10% 5%


Impact on Companies:

Company Impact Comment
Tata Steel, SAIL, Jindal Stainless Steels, JSW Steel Ltd., Usha Martin Limited Neutral While reduction in the custom duty on nickel is a positive for the stainless steel producers, overall the impact on the steel industry remains neutral.
Hindalco Industries Limited, Vedanta Limited, National Aluminum Company Limited Positive The rise in the export duty would ensure its domestic availability for higher aluminum production.


Conclusion: 
The plight of the stainless steel industry has been ignored in the Budget; despite an increase in import of stainless steel products, the basic customs Duty on finished products has been not hiked. Abolishing the duty on key raw materials and increase duty on stainless steel finished goods would have helped to revive the industry. Nonetheless, a huge investment in infrastructure will help steel sector in coming years.

IMPACT OF BUDGET 2017 ON INDIAN IT SECTOR

by Divya Ramesh

INDIAN IT SECTOR OVERVIEW

IT sector in India can be categorized into the following segments-

  • Software products and engineering services (own software products)
  • IT services (application, website development)
  • IT enabled services (medical – transcription, BPOs, ERP)
  • IT hardware (PCs, laptops, mobile phones)

The IT industry has had a 5-year CAGR of 10.1% from 2008-2009 to 2015-2016 of which the exports markets had 12.6% and the domestic market had 3.8%. Though the export market of IT contributes to a major share of revenue, the domestic market is strengthened with a steadily rising number of mobile applications, e-commerce services and the government’s strategic push to a digital economy.

VERTICALS AND TRENDS

  • Government and BFSI verticals contribute to 35% and 30% of the domestic IT revenue respectively
  • Key drivers of the IT sector:
    • Government projects
    • BFSI
    • Telecom
  • IT infrastructure is key in digitalizing the existing government processes
  • Government initiatives such as “The Digital India” program boosts the domestic IT Industry

IMPACT OF BUDGET ON IT SECTOR

  • The 2017 union budget primarily emphasizes on a digital economy with increased cashless transactions aimed at weeding out corruption within the country. This shift towards digital payments and use of online portals for secured transactions increases the demand for cyber security and it’s applications in future.
  • Statistics for period 2013-16 show that online traffic in the e-governance portal has increased from 2060 million to 4940 million transactions accounting for a 140% increase. This calls for the need of contemporary and competent IT solutions to manage the ever-increasing data and maintain support for such services.
  • Schemes introduced such as:
    • Aadhar pay
    • Digital modes of payment for political donations
    • Removal of service tax for online ticket bookings
    • Digital payments in petrol pumps, universities, colleges, etc. lead to increase in online transaction and thus provide more opportunities for the IT sector in terms of job and revenue.
  • The Budget has proposed to improve the digital payment infrastructure and online grievance handling. This will result in a huge increase in the online traffic and data to be handled thus increasing the involvement of the IT sector services.
BUDGET SCHEMES IMPACT ON IT SECTOR
BHIM app promotional features and Aadhar pay app for cashless transactions Increases the number of cashless transactions which would increase online traffic and would require more IT services help to establish the application on a large scale. Increased web traffic also leads to the growth of cyber security.
High speed internet for Gram Panchayats Increases the connectivity thereby driving the cloud infrastructure of the IT sector. IT would also encourage the gram panchayats to buy phones improving the IT hardware sector
DigiGaon to provide education through digital technology, tele-medicine etc., To create digitally able citizens which would require IT infrastructure in terms of application and data management
Core banking support for cooperative banks and encouragement to provide core banking software Government rope in IT companies to sell core banking software strengthening the domestic IT sector

Thus, domestic IT market is expected to grow at CAGR of 10 % according to CRISIL reports and long-term growth will be achieved through e-governance initiatives of central and state government.

Though the export IT market seems to have become a bit volatile after Brexit and Trump’s assuming office as President of the US, there is a ray of hope with the disruptive Indian market steered by a number of digital initiatives taken by the Indian government.