THE PRUDENT PATH TO GROWTH - Nielsen€¦ · the prudent path to growth . adrian terron . executive...
Transcript of THE PRUDENT PATH TO GROWTH - Nielsen€¦ · the prudent path to growth . adrian terron . executive...
1Copyright © 2015 The Nielsen Company
BUDGET 2015
THE PRUDENT PATH TO GROWTH
2 BUDGET 2015: THE PRUDENT PATH TO GROWTH
C O N T E N T S
OVERVIEW ......................................................................................... 03
TELECOMMUNICATIONS ................................................................. 05
FMCG ................................................................................................ 07
INFORMATION TECHNOLOGY ........................................................ 09
FINANCIAL SERVICES ........................................................................ 12
RURAL AND AGRICULTURE ...............................................................16
THE AUTOMOBILE SECTOR...............................................................18
INDUSTRIAL CORE SECTORS ........................................................... 20
MEDIA................................................................................................22
PHARMACEUTICALS ......................................................................... 24
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With the hype and hoopla that has come to surround the Union
Budget in India out of the way, the more substantive business
of rebuilding industry, investor and consumer confidence has
resumed. While it may not have whetted the hungry stock market
investor’s appetite for the pomp that usually accompanies dramatic
moves to stimulate market sentiment, the new government wins
on account of its consistency with stated goals. By clearly outlining
a growth path, it has reassured ratings agencies, international
investors, domestic business and individual tax-payers that it will
play the balancing act that long term growth and stronger fiscal
health demands.
Our sectoral experts have enumerated the developments and
announcements that most closely impact individual sectors.
Overall, the move towards rebuilding the economy and setting
it on a path of sustainable growth are bigger positives that
underscore the continued move towards inclusive development. At
the same time, realistic revenue goals while also retaining a focus
on supporting the agricultural and manufacturing sector have been
made possible by levying a gradually rising burden on the service
sector to reflect its proportionate share of GDP, focusing on
divestment proceeds and a reduced fuel subsidy bill on account of
sliding crude prices.
That said, the economy will have to wait for a slower recovery
given the budget’s focus on infrastructure investment rather than
a one-sided preference for stimulating demand through tax cuts.
This shows a more mature stance and a leaning towards longer
term reform rather than short term populism. In the following
pages, each of these announcements are listed and their sectoral
linkages outlined. In addition to the sector specific announcements
whose implications for government revenues and industry are
self-evident, our assessment is that the following developments are
also far-reaching with a bearing on the future:
THE PRUDENT PATH TO GROWTH ADRIAN TERRON
EXECUTIVE DIRECTOR NIELSEN INDIA
BUDGET 2015 SHOWS A MORE MATURE STANCE AND A LEANING TOWARDS LONGER TERM REFORM RATHER THAN SHORT TERM POPULISM – EVIDENT FROM THE FINANCE MINISTER’S FOCUS ON INFRASTRUCTURE INVESTMENT RATHER THAN A ONE-SIDED
PREFERENCE FOR STIMULATING DEMAND THROUGH TAX CUTS.
4 BUDGET 2015: THE PRUDENT PATH TO GROWTH
Devolution of decision making to states: The tenfold increase in
disbursement to states equates to nearly 1% of GDP that will result
in the government spending nearly half of its fiscal stimulus through
the states. This is a dramatic shift that could change the way an
electorate interacts with its government. Provided state governments
focus on key investments like power distribution, affordable housing,
health and sanitation and infrastructure, instead of freebies doled to
appease vote banks, this can transform the way consumers perceive
tangible change and progress. This in turn can help tax payers feel
more confident about the future and consequently, spending.
Funnelling of savings into investments rather than consumption: By creating tax free bonds to attract private investment into
infrastructure, incentivising investments in health and life insurance
and pensions and creating initiatives to monetise the Indian penchant
for storing value in metal gold, the budget has initiated a move
towards productive savings. The creation of a social security net that
includes both insurance for those most in need of it and a pension
scheme to cater to the longer term needs of India’s burgeoning
elderly population, can help envision a very different future for India’s
citizens.
Incentivizing non-cash transactions: Though thin on details, the
Finance Minister’s explicit focus and proposal to introduce several,
yet-to-be detailed measures to incentivizing credit and debit card
transactions is a slow-burn revolution in the making. Combined with
the impetus to payment banks, the creation of bank accounts for 125
million unbanked households, a surging telecom infrastructure and
a continued focus on bringing more money into the formal economy
through clamps on black money, this may mark the beginning of a
very different consumer economy. With consumers empowered to
carry and transact more easily, this bodes well for the way in which
consumers across the income spectrum purchase goods and services.
Admittedly, some of the moves to stimulate the economy sustainably
over the long term need greater detailing and a hard-nosed focus
on execution to realise their benefits fully. Nonetheless, the Union
Budget manages the tight rope walk with aplomb in a well-intentioned
roadmap to economic growth, albeit with a slightly longer time-frame
than businesses would have hoped. If patience is a virtue, now will be
the time for Indian industry to test themselves on it.
THE UNION BUDGET MANAGES THE TIGHT ROPE WALK WITH APLOMB IN A WELL-INTENTIONED ROADMAP TO ECONOMIC GROWTH, ALBEIT WITH A SLIGHTLY LONGER TIME-FRAME THAN BUSINESSES WOULD HAVE HOPED.
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HIGHLIGHTS
• Maximisation of revenues from spectrum sales will have a positive
impact on reducing the fiscal deficit. However, there would be a
negative impact on debts on telecom operators who are already
struggling.
• The government’s special focus on the “make in India” initiative
will benefit SMEs in the sector.
• Reduction in corporate tax rates from 30% to 25% over the
next four years will help free-up additional cash for the telecom
industry.
• The digitisation of money at lower level and the ‘JAM’ trinity (Jan
Dhan, Aadhaar and Mobile Access including Payment banks) will
play a very important role in promoting cashless transactions and
usage of digital money.
• Increase in service tax from 12% to 14% will pinch mobile users
directly and also handsets, hands-free devices and memory
cards could become costlier with the proposed duty structure
rationalization.
The sale of spectrum is one of the crucial sources of funds which
will help the government bring down fiscal deficit. With the Finance
Minister announcing a reduced fiscal deficit target going forward,
it becomes all the more important to maximise revenues from the
spectrum sale.
All the 3 initiatives announced under “Make in India” should boost
local manufacturing:
a. Announcement to free SMEs from “prior permit raj” with the
aim of increasing the chances of “Make in India” and also
improving India’s ranking in “ease of doing business.”
b. Continued special additional duty on printed circuit boards (PCB)
c. Duty structure on imported mobile handsets doubled from 6%
with CENVAT credit to 12% with CENVAT credit.
ABHIJIT MATKARDIRECTOR NIELSEN INDIA
T E L E C O M M U N I C AT I O N S
6 BUDGET 2015: THE PRUDENT PATH TO GROWTH
Moving corporate tax rates from 30% to 25% in the next four years
should further free up cash for companies to invest in CAPEX/OPEX
to improve quality and services for both voice as well as in the rapidly
increasing area of mobile internet services.
The Govt’s positive approach on financial inclusion using mobile
access for digitisation of money will play an important role in
promoting cashless transactions (i.e. launch of payment banks
services) and usage of digital money. Our studies indicate that
close to 75% of consumers are considering opening a payment bank
account with their telecom service providers, who are well placed in
terms of distribution, reach and depth. But their next opportunity lies
in building trust with customers.
WHAT IT MEANS
With cut throat competition expected in the bidding process for the
precious 900 MHz spectrum slot, debts of the telecom companies
are expected to go up and it may also lead to hikes in mobile voice
and data tariffs. At the same time, this may trigger consolidation in
the industry (although this could be slightly difficult given the current
complex M&A norms)
Given the rapid increase in smartphone penetration in India (from
17% in Mar ’13 to 30% in Dec ’14), it’s yet to be seen if the increase in
costs of importing handsets will be passed on to consumers given the
fierce competition that exists between foreign and local players in the
handset category.
The increase in the service tax rate to 16% (inclusive of Swachh Bharat
cess) would also result in the services getting costlier for subscribers.
CONCLUSION
The industry, however, continues to wait for clarification on several
issues including a clear roadmap on the implementation of reduction
in corporate tax and simpler guidelines for mergers and acquisitions.
The industry had also requested for the compliance requirements
under GST to be made uniform, user-friendly and simple for
businesses and other stakeholders – but this remains unaddressed.
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HIGHLIGHTS
• Boost to the rural economy
• Rollout of the goods and services tax (GST) from April 1, 2016
• Increased focus on infrastructure with investments
• Focus on employment generation, benefits to salaried community
by raising tax exemptions
• Service Tax increased and excise duty hike on tobacco
• Swachh Bharat campaign gets support
Rural economy to get a f illip: The focus on MNREGA, newer schemes
to boost rural farm yields, investment in infrastructure, creation of
National Agricultural mission to ensure better prices for both farmers
and consumers, electrification of 20,000 villages - all these will have
a favourable impact on disposable incomes and boost FMCG growth
in rural areas.
Power to Swachh Bharat: India seems to be headed for a health and
hygiene revolution with the Govt planning to build six crore toilets.
Enter GST: Introduction of GST will add buoyancy to the economy
by developing a common Indian market and reducing the cascading
effect on the cost of goods and services.
Essentials for all: Ambitious target to provide underprivileged Indians
with shelter, water, electricity and employment (minimum one per
household) under the Amrut Mahotsav by 2020. This coupled with
direct transfer of subsidy into beneficiaries’ Aadhaar -linked bank
account, will ensure benefits reaching rural consumers.
Service Tax up: Service tax has been increased from 12.36% to 14%.
Precooling ripening, retail packing and labelling of packaged fruits
and vegetables have been exempted from ST. Service tax exemption
to transportation of ‘food stuff ’ by rail, sea or road, will be limited to
foodgrain including rice and pulses, flours, milk and salt.
Smokers hit: 25% increase in excise duty on cigarettes of length not
exceeding 65 mm and by 15% for cigarettes of other lengths, cigars,
cheroots and cigarillos. The budget has also increased the excise duty
on cut tobacco from Rs 60 per kg to Rs 70 per kg.
Costlier beverages: The excise duty on aerated, flavoured drinks
and packaged water has been hiked from 17.5% to 18%. It will be
interesting to see how manufacturers deal with this increase.
DOLLY JHA EXECUTIVE DIRECTOR NIELSEN INDIA
FA S T M O V I N G C O N S U M E R G O O D S
8 BUDGET 2015: THE PRUDENT PATH TO GROWTH
WHAT IT MEANS
The 2015 Budget is pro-consumer, pro-farmer and pro-poor. The fast-
moving consumer goods industry is battling with stagnant volumes,
and slow growth, but 2015 promises to be one of hope, with experts
expecting double-digit growth for the sector as:
• Inflation has lost some of its bite.
• Announcement of several policies focussing on India’s rural/farm
growth.
• Development of roads and railways will lead to improved reach for
manufacturers.
• Tax exemption on Swachh Bharat-related schemes may induce
major FMCG players spend towards this scheme in addition to
their CSR activities. This will also lead to increased sensitization
on health and hygiene issues and FMCG categories in this space
like soaps and disinfectants are likely to grow.
• LPG subsidy will significantly ease the stress on the homemaker
and will help in bringing down household expenditure.
• The budget provides clear intent to ensure that the intended
subsidy reaches the poor via the Jan Dhan initiative. This will
improve the direct cash in hands of the masses both in urban and
rural India. FMCG companies can leverage this opportunity to
further drive penetration of branded consumer products as India
is still an under-served and under-penetrated market .
• The long-term agenda of focusing on improvement in
infrastructure – both rail and road as well as providing for basic
amenities and social security should do well for the FMCG
companies.
CONCLUSION
While the budget gave benefits in terms of saving tax, the increase in
service tax is likely to curb consumer spending. Overall, the benefits
of the budget will be seen in the medium run; quick gains in the short
term will be limited. The finance minister has presented a balanced
budget, walking the fine line between fiscal prudence and populist
reforms. While far from the game-changing budget of 1991 which
ushered in India’s economic liberalisation, the budget with its focus
on investments is a path to an investor-friendly India.
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I N F O R M AT I O N T E C H N O L O G Y• Smart Country not just smart cities: INR 2510 crore allocated for
‘Digital India Programme and Telecommunications and Electronic
Industries.’
• Enterprising Entrepreneurs: Sanction for INR 1000 crore to
enable IT start-ups
• Enablers: Ease of doing business and e-governance initiatives,
favourable taxation and policy changes to encourage local
manufacture of digital devices like tablets.
SMART COUNTRY NOT JUST SMART CITIES
The smart city endeavour initiated in the July 2014 interim budget
(INR 7000 cr sanctioned) did not see a follow-up this year. The focus
was more on sustained uniform development and digitization drives.
‘Digital India’ is a 1.13 lakh crore initiative for all encompassing
digitization in the country by ushering in investments in electronics
manufacturing sector and make India a more connected economy.
• Open Wi-Fi would be made available at 400 railway stations
across the country
• Railways given the nod for digitised mapping of land to counter
encroachment
• Online booking of retiring rooms at select major stations
• The National Optical Fibre Network (NOFN) of 7.5 lakh kilometres
in nearly 2.5 lakh villages is being expedited by allowing favouring
states to undertake its execution on reimbursement of cost as
per DoIT. Besides, the reduction of customs duty on HDPE (High
density polyethylene) for use in the manufacture of optical fibre
cables from 7.5% to nil under customs duty will benefit the sector.
• Draft cabinet note finalization on e-Kranti, the circulation of a
note on national information infrastructure (NII) and the near
finalization of a note on common services centres.
• To improve enforcement, the Central Board of Direct Tax (CBDT)
and the Central Board of Excise and Customs (CBEC) will leverage
technology and have access to information in each other’s
databases. This would provide fresh opportunities to Indian IT/
ITeS players to provide IT solutions to this cause.
• The government has envisioned steps to make India a cashless
society. This would encourage more cashless transactions and is
expected to provide a significant boost to IT vendors.
KUNDAN KUMAR DIRECTOR NIELSEN INDIA
10 BUDGET 2015: THE PRUDENT PATH TO GROWTH
ENTERPRISING ENTREPRENEURS
The Finance Minister has announced several measures that will
provide a platform for start-ups and IT firms to expand and grow.
Some of the key ones include the sanction of INR 1000 crore to
enable IT start-ups, an initial sum of INR 150 cr to create a world-
class IT hub, mitigate credit availability issues faced in the micro
small and medium enterprises (MSME) sector by Microfinance Unit
Development Refinance (MUDRA) - a micro units development
refinance agency, Mudra Bank with a corpus of 20,000 crore and
credit guarantee corpus of INR 3000 crore.
EASE OF DOING BUSINESS – THE ENABLERS
• Reduced taxes on technical services from 25% to 10%
• Proposal to set-up an IT-based student financial aid system under
the PM Vidya Laxmi scheme
• To cut income tax on royalty fee on tech services to 10%. This
means that the tax on royalty will come down from 25% to 10%.
Reduction in withholding tax rates for payments royalties and
technical services fees will help the IT/ITeS sector use the latest
global technologies to improve their offerings.
• Removal of special additional duty on IT products and
components and concessional structure of 2% without CENVAT
(Central Value Added Tax) credit which is a big positive for
domestic manufacture of tablets.
• Reducing tax on R&D and innovation investments to 10% is
another positive move, both from the point of view of facilitating
technology transfer as well as incentivising companies to invest
more in driving innovation.
• Single-window clearance and increasing role of E-governance
to fast-track infrastructure projects need to be clearly spelt out.
Direct benefit transfer leading to better e-governance, will again
likely to benefit IT vendors.
WHAT IT MEANS
The focus of this year’s Budget is clearly on giving a boost to
the entrepreneurial environment in the country. The various
announcements will go a long way in encouraging growth among
start-ups and MSMEs in India. This will have a rub-off effect on IT-
enabled services enabling start-ups to evolve and compete effectively
with established players. Some key developments to be expected in
the ecosystem are:
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• Cloud solutions for effective IT infrastructure in MSMEs
• IT and financial solutions ecosystem for relative favourability and
intervention strategies
• Bigger IT players will foster start-up developments and push their
own solutions and services to them as a win-win combination
The digitization drive will lead to higher internet penetration, higher
mobile internet usage and boost many of the traditionally offline
activities like tax-filing, online ticket booking and so on. Ventures
like cashless merchandizing will further promote m-commerce and
e-commerce in India.
The Prime Minster is also looking to Indian IT companies to offer
effective solutions like ‘cloud godowns’ and ‘digital lockers’ for on-
the-go information and document access.
CONCLUSION
On the whole, the IT/ITes industry is positive about Budget 2015 but
there are some aspects which have not been addressed:
• Clarity on rules regarding exemption of custom duty on telecom
goods manufactured in SEZs
• Excise duty on white goods were expected to come down
• Incentivizing creation of tax free export-oriented zones did not
find a mention in the Budget
• Address transfer pricing issues in IT/ITeS
• Clarity on tax implication on cloud computing on issues like
tax and regulatory obligations and risks arising from multiple
jurisdictions, especially since the service providers, service
recipients, infrastructure providers, etc. operate across geographic
boundaries.
12 BUDGET 2015: THE PRUDENT PATH TO GROWTH
F I N A N C I A L S E R V I C E SFinance Minister Arun Jaitley has released a budget aimed at high
growth, saying the pace of reducing fiscal deficit would slow down as
he seeks to boost investment and ensure that ordinary citizens can
benefit. The country’s fiscal deficit target for the 2015-’16 fiscal year
was set at 3.9% of the gross domestic product (GDP). Jaitley said the
government will work towards reducing the target gradually to 3% by
2017-‘18, one year later than previously expected.
TAXATION AND THE INDIVIDUAL TAX PAYER
HIGHLIGHTS
• Abolition of Wealth Tax
• Additional 2% surcharge for the ‘super-rich’ with income of over
INR 1 crore per annum
• Total exemption of up to INR 4,44,200 can be achieved for
individual tax payers
• Service tax increased to14%
• 100% exemption for contribution to Swachh Bharat, apart from
CSR
• Transport allowance for salaried increased to INR 1600 per month
The government’s goals since the last year’s Budget, has been
focussed on increasing savings. India’s savings rate needs to go up
by at least 5 percentage points to 36% if the country wants to sustain
a GDP growth of 7-8%. The government has also taken a pragmatic
view of increase in travel expenses and made changes to the transport
allowance which allows individuals to save a maximum of INR 9600 in
taxes.
The tax exemption of INR 4,44,200 might not be beneficial for
everyone since this also includes the interest on the housing loan
component. With a vast majority of the population not owning a
house, the key task is to reduce interest rates to make buying a house
easier. The RBI’s monetary policy this year seems to be moving in the
right direction. However, the industry and consumers are expecting
more measures on this front.
The impact of the increase in service tax will be felt on insurance
premiums being paid by consumers.
ANAND PARAMESWARAN DIRECTOR NIELSEN INDIA
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FINANCIAL SECTOR
HIGHLIGHTS
• Non-Banking Financial Companies (NBFC) registered with the
RBI and having an asset size of INR 500 crore and above will be
considered as a ‘financial institution’ under the SARFAESI Act
2002 (Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act), enabling them to fund small
and medium-sized enterprises and mid-corporate businesses.
• Sovereign gold bond as an alternative to purchasing metal gold.
New scheme for gold depositors to earn interest and jewellers to
obtain loans on their metal accounts.
• To develop an Indian gold coin which will carry the Ashok Chakra on
its face. The move aims to reduce the demand for foreign coins and
recycle the gold available within the country.
• Increase in deduction for health insurance premium from Rs. 15,000
to Rs. 25,000. For senior citizens, this limit has been increased from
Rs 20,000 to Rs 30,000.
• Additional deduction of Rs 50,000 for contribution to pension.
• Mutual Fund (MF) distributors and financial advisors to pay service
tax on commissions.
The number of mutual fund distributors had dropped to 40,000
post the financial crisis in 2008. However, the industry is witnessing
seeing a gradual increase in the numbers over the past one year. This
move is a setback for the MF distributor who is already reeling under
low commissions. The only silver lining has been the impressive
stock market performance over the last 12 months leading to higher
investments by the retail sector.
Inflation on medical expenses and treatment has been rising sharply
than overall inflation. The need to incentivise individuals to buy a policy
to take care of these expenses is important. With the advent of new
life-threatening diseases, getting quality treatment becomes imperative.
Individuals without a policy tend to compromise on treatment costs
leading to higher mortality. There is also a drain on financial savings.
Right steps have been taken by raising the exemption limit.
India has 100 million elderly at present and the number is expected
to touch 323 million by 2050 -roughly about 20% of the population.
Factoring in inflation, today’s youth would need to save for his/her
future where costs will rise drastically. The government has given
additional tax benefits to individuals investing through the National
pension Scheme (NPS).
With access of NBFCs to the SARFAESI Act, such companies will be able
to better manage their loan assets along with smoother loan recovery.
14 BUDGET 2015: THE PRUDENT PATH TO GROWTH
UNIVERSAL SOCIAL SECURITY SYSTEM
HIGHLIGHTS
• Pradhan Mantri Suraksha Bima Yojana will be launched to cover
accidental death risk of Rs 2 lakh for a premium of just Rs 12 per
year.
• Atal Pension Yojana, which will provide a defined pension,
depending on the contribution and its period. To encourage people
to join this scheme, the government will contribute 50% of the
beneficiaries’ premium limited to Rs. 1000 each year for five years.
• Pradhan Mantri Jeevan Jyoti Bima Yojana introduced, which covers
both natural and accidental death risk of Rs 2 lakh. The premium will
be Rs 330 per year, or less than one rupee per day, for the age group
18-50.
• Housing for all - building six crore ‘pucca’ houses for poor in the
country by 2022.
A key growth driver of the Indian banking sector includes financial
inclusion which will help the banking sector achieve its aim of expansion
and growth. With the bank accounts now opened under Jan Dhan
which will aid in direct subsidy transfer, the government is also looking
at increasing the security net of the poor. In a bid to help weaker
sections of the society in the event of disease or accident, the Bima
Yojana will help overcome these adversities and aid in improving their
overall savings potential. This also means not relying on traditional
moneylenders and the unorganised sector for loans with high interest in
the case of any eventuality.
The govt. aims to construct 20 million houses in urban areas and 40
million houses in rural areas. This move will also benefit banks and
housing finance companies thanks to the projected increase in the
number of home loans availed.
BUDGET IMPACT ON EMPLOYEES
With respect to Employees Provident Fund (EPF), the employee will be
provided two options. First, the employee may opt for EPF or the New
Pension Scheme (NPS). Second, for employees earning below a certain
monthly income threshold, contribution to EPF would be optional,
without affecting or reducing the employer’s contribution.
The take home salary has been a concern for the Indian salaried
class. With multiple taxes (income and professional), EPF and other
deductions like bonus and gratuity, the net pay is far lower than what
individuals expect. This has a greater impact on the younger population
staying as tenants since a substantial amount is diverted towards
payment of rent. The government has taken a bold step in proposing
a new legislation to make these changes. Care should be taken that
employee social security fund is not compromised and this should be
capped to a certain age or income limit.
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WHAT IT MEANS
It is clear the government has presented a balanced budget taking into
account all sections of the society. The budget focusses on:
1. Increasing the savings rate by focussing on savings rather than
just increasing consumption
2. Financial inclusion and social security to reduce the dependence
of poor on other sources
3. Focus on health and pension which can hinder growth if not
addressed now
4. Utilize vast reserves of gold currently lying with individuals
CONCLUSION
There are a few aspects that the industry continues to expect. These
include a further increase in tax exemptions to increase forced
savings, extending additional benefit on investing for pension to life
insurance policies and a consistent policy by each financial regulator
to avoid course correction.
Apart from the Budget, consumers and the industry will be keeping
a close watch on the RBI monetary policy since a lower interest
regime is required to spur growth of financial products. With EMIs
constituting a major pie of the payouts every month, savings and
consumption would get triggered in case of a rate cut.
16 BUDGET 2015: THE PRUDENT PATH TO GROWTH
R U R A L A N D A G R I C U LT U R EThe budget for Rural and Agriculture this year prepares the sector for
the future. There is a roadmap for developing the rural economy and
improving the country’s agriculture productivity.
By 2022, the 75th year of India’s independence, the government wants
to increase agricultural output and establish optimum prices for
agricultural produce. The government is also committed to increasing
the irrigated area and improve the efficiency of existing irrigation
systems. There are plans to promote agro-based industries for value
addition and increasing farm incomes by ensuring reasonable prices
for farm produce.
A Soil Health Card Scheme has been launched to improve soil fertility.
‘Per Drop More Crop’ seems to be the aim of the government, with
them focussing on various micro-irrigation schemes. There’s an
allocation of INR 5,300 crore to support micro-irrigation, watershed
development, and the Pradhan Mantri Krishi Sinchai Yojana. The
budget aims to create a Unified National Agriculture Market, which
will have the incidental benefit of moderating price rises.
Another aim of the government is electrification of the remaining
20,000 villages in India by 2020, including off-grid solar power
generation where necessary.
Infrastructure will also play a huge role in developing rural India.
The government plans to connect each of the 1,78,000 unconnected
habitations by all-weather roads. This will require completing
1,00,000 km of roads currently under construction, plus sanctioning
and building another 1,00,000 km of roads.
To provide effective and hassle-free agriculture credit, the budget
proposes to allocate INR 25,000 crore in 2015-16 to the corpus of
Rural Infrastructure Development Fund (RIDF) set up in NABARD;
INR 15,000 crore for Long Term Rural Credit Fund; INR 45,000 crore
for Short Term Cooperative Rural Credit Refinance Fund; and INR
15,000 crore for Short Term RRB Refinance Fund.
The budget also aims to provide the quality and effectiveness of
activities under MGNREGA with initial allocation of INR 34,699 crore
for the programme.
RITESH SAHUDIRECTOR NIELSEN INDIA
BUDGET 2015 PROVIDES A ROADMAP FOR DEVELOPING THE RURAL ECONOMY AND IMPROVING THE COUNTRY’S AGRICULTURE PRODUCTIVITY.
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WHAT IT MEANS
The government is cognizant of the fact that agricultural incomes are
under stress. Along with increased investments in MGNREGA and
rural credit, a firm roadmap for uplifting the rural economy is being
chalked out.
More money in the hands of the rural masses by way of schemes
like farm credit, rural infrastructure funds allocation, MGNREGA
allocation, and increasing agricultural productivity would translate into
increasing purchasing power of rural India, making rural an important
sector for the growth plans of various companies.
In a study conducted by Nielsen in 2014, 42% of rural consumers
indicated lack of information on output price as an area of
dissatisfaction. Addressing this need through a unified market, would
help in increasing rural satisfaction and confidence.
CONCLUSION
The government has pressed the right buttons to effectively address
the condition of the current rural economy. Soil, water, credit and
finally right price realisations are the key focus of the government
this year for improving India’s agricultural productivity. Effective
implementation of credit, irrigation, and unified market would bring
the country’s rural economy to a different platform than what it is
today.
Addressing infrastructure needs like electrification and roads also
form a part of the government’s vision towards making a better rural
India. Effectively addressing these needs would definitely lead to a
stronger, more confident rural sector.
We would look forward to the implementation of the plans put forward
in the budget. The speed of execution and the percolation of benefits
to the desired level will play an important role towards improving the
rural economy - a significant aim for the government in this budget.
18 BUDGET 2015: THE PRUDENT PATH TO GROWTH
A U TO M O B I L E S HIGHLIGHTS
• Goods and Services Tax (GST) to be implemented from 1 April
2016
• INR 75 crore investment to benefit electric vehicles along with a
waiver of duty on electric and hybrid vehicles
• Effective tariff rate on imported commercial vehicles increased
from 10% to 20%, in line with the “Make in India” initiative
• Road infrastructure to get a boost with a proposal of 1 lakh kms to
connect smaller regions of the country
Auto sales in general have been under pressure for the last few
months with the economy yet to show signs of a recovery. Vehicle
sales around the festive season too, have not been satisfactory.
Further, the withdrawal of the excise cut that was introduced in the
new year has forced auto makers to increase prices, affecting sales.
While the overall budget looks positive, there is no direct short-term
benefit to the sector.
• Goods and Sales Tax: The big news out of this Budget 2015 is
the implementation of GST from April 1, 2016, one of the auto
industry’s top demands. Direct taxation will simplify vehicle
pricing and will see a standardization of prices across the country.
• 75 crore for electric vehicles: An investment of INR 75 crores has
been proposed under the Faster Adoption and Manufacturing
of Electric Vehicles (FAME) scheme for FY’16, along with other
benefits such as import of select parts for electric and hybrid
vehicles. However, for the industry to realize sizeable growth in
sales of electric vehicles or better infrastructure like charging
stations, the investment proposed may not match up. It may
however, benefit the growth of small bicycle and electric two
wheeler makers to increase electric mobility inside closed
campuses.
• Imported commercial vehicles to be more expensive: Tariff rate
on commercial vehicles has been increased from 10% to 40% -
primarily borne out of a 10% increase in tariff rate, and a 20% hike
on import duties. As a result, the effective tariff rate on imported
commercial vehicles has gone up from 10% to 20%. This move
is to encourage local manufacturing of commercial vehicles and
provide an equal playing field for all companies in the market.
RAJESH NAGAREASSOCIATE DIRECTOR NIELSEN INDIA
SANDEEP PANDE ASSOCIATE DIRECTOR NIELSEN INDIA
19Copyright © 2015 The Nielsen Company
• Infrastructure boost: The govt has proposed to add 1 lakh kms to
India’s road network to connect smaller regions of the country.
This step will have a positive impact on sales of cars in smaller
towns as well as commercial vehicles. However, this will be
dependent on quick execution and timely completion of the
projects.
WHAT IT MEANS
While the budget does not promise any immediate benefits, the
revitalization of PPP model and development of 1 lakh km of new
roads will have a significant impact on the commercial vehicles
segment.
This budget has the potential to raise consumer sentiment as a
result of the higher investment across primary, secondary and tertiary
sectors by driving liquidity, demand and employment.
In the near-to-long term, the passenger vehicles industry could derive
support from reducing cost of ownership with softening fuel prices
and declining inflation. Increasing disposable income in rural areas
with credit of INR 8.5 lakh being offered to farmers, will indirectly
boost the agricultural equipment and tractors followed by the two-
wheeler segment.
CONCLUSION
An extension or reduction in excise duty would have given immediate
boost to the sector, but it seems the industry has to wait for some
more time to receive any major sops.
The increase in duty of imported commercial vehicles will not have any
positive impact on domestic CV players, as they primarily operate in
the lower HP category. The size of the imported commercial vehicles
market is also minuscule compared to the mass segment.
With no major direct benefits in place, auto sector will have to hope
that the economy improves, which in turn may lead to a boost in
demand. The industry will also look forward to special packages from
the government in the near future to support a sector that has been
contributing to the country’s GDP significantly.
20 BUDGET 2015: THE PRUDENT PATH TO GROWTH
K E Y I N D U S T R I A L S E C TO R SHIGHLIGHTS
• Stable and forward-looking budget sans populism
• Postponement of General Anti Avoidance Rules of Taxation
(GAAR) by two years a respite for foreign investors
• A bankruptcy code to be rolled out in the next fiscal making it
easier for investors to exit their investments
• Additional spending on infrastructure backed by funding and
equity commitments
The budget addresses the issue of what ails India – lack of
investments. The decline in growth rates in the past four years can be
attributed mainly to a 6% drop in investments as a percentage of GDP
that stalled several large infrastructure and manufacturing projects.
Around INR 8.5-9 lakh crores worth of projects are either in stasis
or stopped. This prolonged policy paralysis also kept investors away
impacting business sentiment and growth.
The proposed additional INR 70,000 crore spending in infrastructure,
equivalent to around 0.5% of the GDP, should help rope in reluctant
investors particularly in roads, ports, power and railways. India needs
to spend much more than this on infrastructure to achieve 8%+
growth in the next three years. The budget proposes to mop-up extra
revenues through increase in excise duty and service tax.
The renewed focus on funding infrastructure investments at the
expense of fiscal consolidation is noteworthy. The government’s
promise of an infrastructure fund to provide equity for projects is
a tangible commitment that investors will take note of. The plan to
reduce corporate tax to 25% over four years and the commitment
to introduce Goods and Services Tax from next year will make
manufacturing more competitive. Any efforts to reduce tax uncertainty
are bound to encourage investors.
ANUP SP KUMARASSOCIATE DIRECTOR NIELSEN INDIA
“THE GOVERNMENT’S PROMISE OF AN INFRASTRUCTURE FUND TO PROVIDE EQUITY FOR PROJECTS IS A TANGIBLE COMMITMENT THAT INVESTORS WILL TAKE NOTE OF.”
21Copyright © 2015 The Nielsen Company
WHAT IT MEANS
The budget’s focus on reviving investments in a phased manner
reflects the shifting priorities away from populism and towards public
and private investment. While it lacks sweeping changes and pro-
market reforms, measures taken to attract investment and restore
investor confidence is quite visible. The additional investment in
infrastructure will provide a fillip to the manufacturing sector that has
seen a decline in recent years.
However, actionable measures for the ‘Make in India’ programme are
still largely missing. The government has more or less ignored several
recommendations from the industry and government departments
with respect to counter vailing duties (CVD) on imports, investments
to build a robust digital network infrastructure, tax amendments
in the CST to fuel e-commerce, a clear policy framework for small
and medium enterprises (SME) to embrace innovation and adopt
technology and the green energy sector. Additionally, the PSU stake
sale though part of the government’s plan to generate revenue, seems
lower than what the industry anticipated and is yet to have a firm
roadmap. It’s time to translate the intent to action.
22 BUDGET 2015: THE PRUDENT PATH TO GROWTH
M E D I ABudget 2015 has been mostly neutral for the Media and Entertainment
(M&E) industry. None of the major expectations that the industry was
hoping for have been met in this year’s budget like deduction of tax
at source, parity with the manufacturing industry so that tax benefits
are applicable to the service industry, broadcasters and content
production companies, rationalization of indirect taxes, increase of
FDI in News up to 49%, etc. There are neither concessions nor any
incentives offered for the M&E industry in the current budget.
At an overall level the industry will be impacted due to some other
provisions in the budget. Increase in service tax plus education cess
from 12.36% to 14% is likely to have an impact on marketing spends
and other service related expenses.
Now service tax is to be levied on service provided by way of access
to amusement parks like water parks, theme parks, bowling alleys,
amusement arcades, entertainment events or concerts, pageants,
non-recognised sporting events amongst others, and consumers will
have to shell out more for these entertainment options. Till now these
services have been exempted from service tax – thus the increase in
tax to 14% is likely to impact footfalls unless companies can absorb
the increase without affecting their offering.
Internet/ Cable / TV/ DTH are considered services and any increase
in service tax would mean an increase in the monthly bills that the
consumers will have to pay. Service tax increase will also impact the
pay-out for consumers on multiple entertainment fronts. Ticket prices
at cinemas are likely to increase marginally. In the short term service
tax increase is likely to impact advertising revenues and hence impact
Broadcasters and Publishers as well.
Basic custom duty on OLED TV panel and black light unit module
used in LCD/ LED TV panel has been reduced from 10% to nil. This
reduction in taxes on OLED and LCD/ LED TV panel will help in
reducing prices of flat screen televisions. This may result in increasing
penetration of television in lower penetrated markets and possibly
help convert CRT TV households to flat screen TV households – in
the process enhancing TV viewing experience. Improved viewing
experience may lead to higher trial and possibly adoption of digital
connectivity. However, immediate impact of this reduction in taxes
will be felt more by the Durables category than the Media and
Entertainment industry, which might have a deferred impact in the
long term.
UMESH JHADIRECTOR NIELSEN INDIA
DHARNIDHAR BAPAT ASSOCIATE DIRECTOR NIELSEN INDIA
23Copyright © 2015 The Nielsen Company
The total budget of the I&B Ministry has been raised to INR 3,711.11
crore for 2015-16. Additionally, the grants-in-aid for Prasar Bharati
have also been raised to INR 2,824.55 crore for 2015-16, apart from an
investment of INR 200 crore by the government in the pubcaster.
The budget proposes a Centre for Film Production, Animation, &
Gaming in Arunachal Pradesh for the North Eastern states, which is
likely to benefit the region provided the state implements these plans,
as no specific budgetary provisions have been made.
There’s also a proposed reduction in corporate taxes from 30% to 25%
over the next 4 years, which will benefit all media companies just as it
will benefit the rest of companies.
WHAT THIS MEANS
Service tax increase is likely to increase marketing spends for the
industry and this in turn will impact product pricing. The only silver
lining for the M&E industry is the reduction duties on flat screens/
panels, which will result in reducing flat screen TV prices. A long
shot positive fall out might be observed in East India. This may help
coverage of television in media dark areas of states like Bihar and
West Bengal - if ‘Ache Din’ reaches these parts faster.
This year the budget has not been encouraging for the Media and
Entertainment industry as none of the industry expectations have
been met but some of the other aspects of the budget might have an
indirect impact on the industry.
24 BUDGET 2015: THE PRUDENT PATH TO GROWTH
HIGHLIGHTS
• Increase in the limit of deduction of health insurance premium from
INR 15,000 to INR 25,000 annually and from INR 20,000 to INR
30,000 for senior citizens
• To enhance media facilities, AIIMS (All India Institute of Medical
Sciences) to be set up in J&K, Punjab, Tamil Nadu, Himachal Pradesh
and Assam
• Visa on arrival scheme extended to 150 countries to have a positive
impact on medical tourism
• Accident insurance of Rs. 2 lakh for a premium of just Rs. 12/- per year
under the soon-to-be-launched Pradhan Mantri Suraksha Bima Yojana
• Social safety net – INR 50,000 deduction (Pension scheme)
• Corporate tax reduction
• Service tax increased from 12.36% to 14%
In tandem with the ‘Swachh Bharat’ campaign, the government’s focus
is clearly on preventive healthcare. This is evident from the setting up
additional centres of excellence – AIIMS, additional tax deduction up to INR
25,000, accidental insurance, social safety net etc.
The visa on arrival scheme will be extended to 150 countries over a period
of time and this move would have a positive impact on medical tourism.
Experts estimates that a medical tourist brings in 5X more revenue/foreign
currency in comparison to tourist on leisure.
RISE IN HEALTHCARE INSURANCE: Increased tax exemption would boost
penetration of health insurance. Also, increased penetration could persuade
insurance companies to decide inclusion of drugs in the reimbursement
list.
Deductions under expenditure towards specified diseases of a serious
nature, would see the launch of more disease specific insurance.
Additionally, affordability of drugs will rise given the insurance coverage.
HOSPITAL INFRASTRUCTURE: The ambitious plan of setting up additional
AIIMS would help in timely and accurate early diagnosis.
Growth in medical infrastructure – corporate hospitals like Apollo, Fortis
etc., should be quick to expand in smaller towns and rural areas. There
could be a lot of activity in the area of acquisition or consolidation of local
hospitals in the near future.
PHARMACEUTICALS
PATTABHIRAMAN IYERASSOCIATE DIRECTOR NIELSEN INDIA
25Copyright © 2015 The Nielsen Company
This dramatic rise in hospital infrastructure would have several
implications including a positive impact on the workforce – physicians
and paramedics, number of medical colleges are likely to increase, mode
of engagement of pharmaceutical companies with hospitals will go
beyond the hygiene contracting and negotiation towards setting treatment
protocols, products specifically catered to hospitals. The rise in hospital
infrastructure also heightens the engagement with the consumer by
increasing patient footfalls, relevance, OPD to IPD conversion and patient
satisfaction.
While the medical infrastructure will help in augmenting diagnosis,
treatment rate and early detection, patient compliance continues to be a
challenge.
CONSUMER CENTRIC APPROACH
• Rise in prevalence and treatment of chronic diseases is reported
to be one of key attributes associated with growth for the Indian
pharma industry. However, this growth is plagued by poor adherence
to treatment.
• Poor adherence to medication is a major problem both in terms of
loss of human lives and huge drain in revenues.
• Pharmaceutical companies increasingly feel the need to simplify
the complex patient treatment journey thereby identifying key
intervention points improving patient compliance and adherence to
chronic ailments.
• Manufacturers are particularly interested in understanding the
challenges faced with regards to disease management like daily
routine monitoring, doctor visits and drug compliance. It will also
be beneficial to draw a pen-portrait of a chronic ailment sufferer
outlining demographics, beliefs, knowledge levels etc.
• Understanding the end-consumer would help in developing
marketing strategies, be it doctor communication (talking science
with a focus on the patient) and patient specific intervention viz.
familiarity/knowledge levels with regard to the condition.
• Pharmaceutical producers are making a conscious effort in inducing
“PLAY/JOY” in the life of a sufferer by exhibiting relevance of their
product offerings/tailor patient adherence program.
CONCLUSION
While government initiatives in the area of healthcare are welcome,
the industry was expecting impetus and concessions in the area of
manufacturing, policy reforms/guidelines in the area of clinical trials.
India, with a billion plus population, is a major destination for clinical
trials. Clear guidelines to boost and encourage this industry could greatly
benefit the industry.
26 BUDGET 2015: THE PRUDENT PATH TO GROWTH
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27BUDGET 2015: THE PRUDENT PATH TO GROWTH Copyright © 2015 The Nielsen Company