As the trading day began, most stock market players were predicting a bold, impetus-led Union Budget 2009-10 that would invigorate corporate and retail investors alike. But after handsome gains made in the initial trade in the early morning, the barometer of Sensex tanked by about 870 points and Nifty slipped down by 225 points soon after Union Finance Minister (FM) Pranab Mukherjee tabled 2009-10 budget report in the Parliament today. Industry in particular, had high expectations from this Union Budget but FM disappointed on many fronts — by not mentioning anything about disinvestment, infrastructure, FDI, corporate tax, prevention acts to curb revenue leakage in retail sector, etc. Given the high expectations leading up to Mukherjee’s budget speech today, the reality was fairly disappointing, leading to an immediate reflex plunge in the trading indices. Only four of the 50 stocks on Nifty were trading in green at the time of budget was being tabled.
For retail and allied sectors, the current fiscal’s budget may be somewhat of an anti-climax. With the ruling party having recorded a resounding victory in the recent Lok Sabha elections, and the intervention of any other party in policy-making being minimised, many had expected a certain degree of flair and freedom to dominate today’s presentation.
Clearly, those hopes remain unfulfilled. On the other hand, given an ongoing global economic slowdown and faced by the reality of a falling GDP growth, perhaps the FM had limited options in trying to shore up the national output.
Most analysts believe that the government should have focussed on stability in policy making, should have indicated some intent in according industry status to retailing. Opening the sector completely to foreign direct investment (FDI), on the other hand, was not expected. Ahead of the budget presentation, IndiaRetailing had tapped the nerves of numerous retail stalwarts to gauge their expectations from the FM. Thomas Varghese, CEO, Aditya Birla Retail Ltd (ABRL) and chairman, CII National Committee on Retail yesterday stated that the retail sector is a major source of employment in this country and will serve as a vehicle to augment revenue from the large retail industry, which today is unorganised and has revenue leakage. “We expect the new government to accord industry status to retail; this will help ease the industry’s access to funding,” he said.
“I propose to extend investment- linked tax incentives to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce.” — Finance Minister Pranab Mukherjee
Varghese further pointed out yesterday that to simplify the path for organised retail, the government should adopt policies to streamline the process of opening stores by reducing the number of clearances and permissions required from multiple bodies. “A number of acts pertaining to retail will have to be re-looked at in the current context as these were drafted several years back and some of their regulations are no longer pertinent to the current context,” Varghese added. But his wishlist evidently did not reach the FM’s desk.
The government has left the FDI conflict-ridden area untouched. The FM was widely expected to announce something on this major divisive issue, and he may have disappointed many global retailers by maintaining silence on this sticky issue. One of the leading real estate consultancies Jones Lang LaSalle Meghraj (JLLM) expected that in addition to allowing FDI into the real estate sector, the Budget would focus on the introduction of a real estate regulator and provide forward momentum for Real Estate Mutual Funds (REMFs) to make real estate accessible to retail investors. “The budget should provide forward momentum for REMFs so that real estate becomes accessible to retail investors,” Anuj Puri, chairman & country head, JLLM, said before the budget was tabled. He is now among the disappointed set of industry watchers. “The increase in Income tax exemption limits is not sufficient to make a significant difference in buyers’ purchasing power, but may serve only as a feel-good factor,” he said after the Budget report.
On the surface of things, the FM has not done anything directly to boost modern retail, though he did announce relief measures for certain consumer electronics products, textiles and branded jewellery.
“The electronic hardware industry has a strong potential for creating employment especially in the SME sector. I intend to reduce the basic customs duty on LCD panels from 10 per cent to 5 per cent to support indigenous production of LCD televisions,” he announced.
“Full exemption from CVD of 4 per cent was available to accessories, parts and components imported for the manufacture of mobile phones till the 30th of June, 2009. I propose to reintroduce this exemption for another year,” he added.
“For reasons that are apparent, industry sectors having an export-orientation have been adversely impacted by the demand compression in global markets. Currently, exporters of leather products, textile garments, footwear as well as sports goods are permitted to import raw materials, consumables etc. upto 3 per cent of the FOB value of their exports free of duty. I propose to add a few more items to these lists. Full exemption from basic customs duty is being provided to rough corals for encouraging value-addition and export,” he revealed.
Presenting details on the state of the economy, and key macro economic indicators, the FM announced that the development course charted by the UPA Government in the last five years has been possible due to a step up in the growth rate of the economy and improved revenue buoyancy. The principal growth driver in this period has been private investment, which has been predominantly funded by domestic resources. “During the year 2008-09, there was a dip in the growth rate of GDP from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent. It has affected the pace of job creation in certain sectors of the economy and the investment sentiments of the business community. It has also resulted in considerably lower revenue growth for the government. Another feature of the year 2008-09 was a sharp rise in the wholesale price index to nearly 13% in August 2008 and an equally sharp fall close to 0% in March 2009,” he outlined in the Budget report.
Referring to measures to restore export growth, the FM said, “With a view to insulating the employment-oriented export sectors from the global meltdown, Government had provided an interest subvention of 2 per cent on pre-shipment credit for seven such sectors. These sectors are textiles including handlooms, handicrafts, carpets, leather, gems and jewellery, marine products and small and medium exporters. I propose to extend the interest subvention beyond the current deadline of September 30, 2009 to March 31, 2010.”
The FM also totally exempted the custom duty and countervailing duty on influenza vaccine and nine specified life saving drugs. On this he announced, “On influenza vaccine and nine specified life saving drugs used for the treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5 per cent. They will also be totally exempt from excise duty and countervailing duty.”
Although the fine print is yet to be analysed, there could be some reason for cheer for those connected with food processing and food retailing, as the FM announced some incentivised tax benefits for cold chain development.
“Under the present scheme of the Income Tax Act, tax exemptions are largely profit-linked. Such incentives are inherently inefficient and liable to misuse. Therefore, it is proposed to incentivise businesses by providing investment-linked tax exemptions,” he said. “To begin with, I propose to extend investment- linked tax incentives to the businesses of setting up and operating ‘cold chain’, warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.”
Amit Burman, vice chairman of Dabur India Ltd, which has wide ranging interests in food to FMCG, health & pharma, and retailing, had mixed reactions to the Budget.
“Finance Minister Pranab Mukherjee stuck to the UPA government’s ‘Inclusive Growth’ theme by continuing its focus on the Aam Aadmi, but has done little to cheer Corporate India and FMCG industry in particular,” he noted.
“While on the one hand the government has left untouched key matters like corporate tax, it has, on the other hand, hiked Minimum Alternate Tax (MAT) which would lead to higher tax outgo and erode the benefits accrued from the removal of Fringe Benefit Tax (FBT),” he said in an official reaction.
“However, around 144 per cent increase in allocation for rural job schemes, extension of the debt waiver schemes and the decision to offer loans at a subsidised interest rate of 6 per cent for farmers would surely go a long way in giving a further boost to rural economy, which eventually boost the spending power of the customers. Increased spending on farmers and the poor by the government is positive for the FMCG industry, and is expected to further fuel demand growth in rural India,” he said, concluding on a more positive note.
— Diwakar Kumar