Budget expectations for FY19. It Expectations for …

1 This publication provides CARE Rating s Budget Expectations for fy19 . It is divided into 2 sections. The first section includes Budget Expectations from the macro-economic standpoint while the second provides Expectations of various industries. The following is the structure of the Report. I. Budget Expectations for the Broader Economy A. Summary of FY18 Budget B. Performance of the 2017-18 Budget so far C. fy19 Budget Expectations II. Industry Wise Expectations from Budget fy19 A. Industry-wise Expectations on taxes/duties, expenditure allocations and specific sector measures in the Budget 2018 -19: 1. Infrastructure (Roads & Highways, Ports, Cement) 2. Power 3. Real Estate 4.

2 Automobiles 5. Tyres 6. Textiles: cotton yarn, manmade fibres and readymade garments 7. Hotels & Tourism 8. Retail 7. Telecom 9. Steel 10. Drugs & Pharmaceuticals 11. Sugar 12. Edible oils 13. Aluminium 14. Copper 15. Fertilizers 16. Oil & Gas 17. Paper B. Industry-wise GST Expectations (A general discussion which may not be part of the Budget and could be deliberated in the GST Council meeting) January 23, 2018 I Economics CARE Ratings Budget Expectations for fy19 Contact: Madan Sabnavis Chief Economist Economics team: Kavita Chacko, Senior Economist Rucha Ranadive Associate Economist Manisha Sachdeva Associate Economist Shivam Kaushik Associate Economist Industry research team: Saurabh Bhalerao Associate Director (Paper, Gems & Jewellery) Darshini Kansara Research Analyst (Automobiles, tyres, Textiles, Hotels & tourism, retail) Bhagyashree Bhati Research Analyst (Telecom, Steel, sugar, edible oil, Drugs & Pharmaceuticals) Ashish K.

3 Nainan Research Analyst (Infrastructure, Power & Real Estate) Urvisha Jagasheth Research Analyst (Aluminium, Fertilizers, Copper Oil & Gas) Mradul Mishra (Media Contact) 91-22-67543515 Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/ inferences/ views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report. Economics and Industry ResearchI Budget Expectations for fy19 2 I.

4 Budget Expectations for the Broader Economy The union Budget for fy19 , to be presented on 1 February, 2018 , is the last full Budget of the current government before the general elections of 2019 and comes in the backdrop of weaker domestic economic growth (GDP growth expected to be compared with in FY17), lower revenue collections and rising global commodity prices which can potentially impact inflationary Expectations . It is also the first assessment of the impact of the GST reform on the overall finances of the government. Starting 2017, the government has followed the practice of presenting the union Budget on 1 February, a month earlier than that in the preceding years. The advancement of the Budget presentation by a month is being done so as to make available authorized funds for spending from the beginning of the financial year itself, as opposed to the authorized funds being available (following passage of Budget in Parliament) 2-3 months into the financial year.

5 The delay in fund authorization for spending earlier led to inactivity in various ministries at the start of the financial year. The earlier passage of the Budget is also intended to make available to the government the benefits of the new tax measures higher revenues from the onset of the fiscal year. The fiscal performance and progress of the government in the first 8 months (Apr-Nov) of the current financial year has been examined in conjunction with the Budget provisions and estimates that were made for FY18. This serves as the base on which we have based our Expectations for the fy19 Budget . Summary of FY18 Budget (A) Key Highlights and Announcements of the FY18 Budget The Railway Budget was merged with the union Budget . The plan and non-plan expenditure classification was done away with. The 25 year old Foreign Investment Promotion Board (FIPB) was abolished with the aim to boost FDI inflows.

6 Income tax for MSME with turnover less than crs was reduced to 25% from 30%. Infrastructure status awarded to affordable housing. The taxation rate for individuals having an income between Rs lakhs to Rs 5 lakhs was reduced from 10% to 5%. Government imposed a restriction on cash transactions above Rs 3 lakh with an aim to promote digital economy. The holding period for computing long term capital gains from transfer of immovable property was reduced from 3 years to 2 years. In addition to this, a shift in base year for indexation from 1981 to 2001 was proposed. MAT credit allowed to be carried forward up to a period of 15 years instead of 10 years. The profit (linked deduction) exemption available to the start-ups was changed to 3 years out of 7 years from the earlier 3 years out of 5 years. Concessional withholding rate of 5% charged on interest earned by foreign entities in external commercial borrowings or in bonds (including Rupee denominated bonds) and Government securities is extended to Allowable provision for Non-Performing Asset of Banks was increased from to Interest taxable on actual receipts instead of accrual basis in respect of NPA accounts of all non-scheduled cooperative banks also to be treated at par with scheduled banks.

7 Economics and Industry ResearchI Budget Expectations for fy19 3 (ii) Size of Budget FY18: Total Expenditure and Total Revenues Table 1: Budgeted Revenue Expenditure and Revenue Receipts in FY18 RE: Revised estimates and BE: Budget estimates Rs Crore FY17(RE) FY18(BE) (i) Revenue Expenditure 17,34,560 18,36,934 Interest payments 4,83,069 5,23,078 Subsidies 2,60,485 2,72,276 Pensions 1,28,166 1,31,201 Salaries 4,07,000 4,38,000 (ii) Capital Expenditure 2,79,847 3,09,801 Total Expenditure (i) + (ii) 20,14,407 21,46,735 Rs Crore FY17(RE) FY18(BE) (i) Revenue Receipts 14,23,562 15,15,771 Tax Revenue 10,88,792 12,27,014 Non tax revenue 3,34,770 2,88,757 (ii) Capital Receipts 5,90,845 6,30,964 Recovery of loans 11,071 11,932 Disinvestments of equity in PSEs 45,500 72,500 Internal Debt(Market borrowings) 3,47,218 3,48,226 Total Receipts (i) + (ii)

8 20,14,407 21,46,735 The Budget announcements of FY18 were seen as the government s attempt to provide the necessary impetus to stimulate growth while continuing on the path of fiscal consolidation. The focus was on increasing productive expenditure and curtailing non-development spending along with boosting consumption by offering tax relief and not having significant changes on the indirect tax front. The increase in both the budgeted expenditure and revenue collections for FY18 was lower than the average annual increase of the previous years. For FY18, total expenditure of the government was budgeted to be higher than in FY17 (RE), which was lower than the average annual increase during FY13-17. Revenue Expenditure for FY18, which accounts for 86% of total expenditure, was budgeted to increase by from that in FY17 (RE), lower than the average annual increase of in FY13-17.

9 The budgeted capital expenditure for FY18 was the highest ever at lakh crore. The annual increase in the same at in FY18 was lower than the average growth of the previous 4 years. The main focus area of this expenditure in FY18 was towards creating transport infrastructure rail and road. The revenue receipts for FY18 were budgeted to grow by over FY17 (RE), notably lower than the average annual growth of 13% during the preceding 4 years. The government had estimated lower non-tax revenues in its FY18 Budget ( less than in FY17). Tax revenue in FY18 was budgeted to grow by , lower than the growth of FY17. Capital receipts were budgeted to grow by a high of in FY18 (y-o-y), aided in large part by the rise in disinvestment receipts. Economics and Industry ResearchI Budget Expectations for fy19 4 B.

10 Performance of the 2017-18 Budget so far Table 2: Central Governments Fiscal Position (Apr-Nov) Budget Estimate 2017-18 Actuals upto Nov 17 % of actuals to Budget Estimate Rs. Crore Rs. Crore Revenue Receipts 15,15,771 8,04,861 53% Tax Revenue (Net) 12,27,014 6,99,392 57% Non-Tax Revenue 2,88,757 1,05,469 37% Non-Debt Capital Receipts 84,432 61,849 73% Recovery of Loans 11,932 9,471 79% Other Receipts (Disinvestment) 72,500 52,378 72% Total Receipts 16,00,203 8,66,710 54% Revenue Expenditure 18,37,505 12,94,700 71% Interest Payments 5,23,078 3,09,799 59% Capital Expenditure 3,09,230 1,84,115 60% Loans disbursed 39,993 22,042 55% Total Expenditure 21,46,735 14,78,815 69% Fiscal Deficit 5,46,532 6,12,105 112% Revenue Deficit 3,21,734 4,89,839 152% *Source: Ministry of Finance Lower revenue collection and decline in non-tax revenue Despite, the government budgeting for a lower than average growth in revenues for FY18, the revenue collections in the first 8 months of FY18, as a percentage of Budget estimates, has been 5% lower than that in the comparable period last year.