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The FM did not announce any big cut in social spending either that could have gone against consumer companies. Non-plan expenditure consisting of salaries & wages, subsidies and expenditure on welfare schemes is projected to grow nearly 14 per cent next fiscal. This means more cash in the hands of consumers in smaller towns and villages. This is good news for companies that sell low-ticket items such as soaps, personal care products, garments and small consumer goods.
Not surprisingly, many experts are relieved. "It being a pre-election year, there was a big risk of the finance minister adopting a populist stance, but he resisted the temptation and stayed on course and didn't deliver any big negative surprises," says Madan Sabnavis, chief economist, CARE Ratings.
The Budget did deliver some negative news though, such as the five per cent additional surcharge on corporate taxes and dividends by big companies, higher taxes on royalty payments by Indian subsidiaries to their global parents and withholding tax on dividend distributed by unlisted companies to their shareholders. Besides, chief executives and promoters will have to pay higher income tax next fiscal if they earn more than Rs 1 crore and sports utility vehicles and high-end mobile phones will now cost more. Overall, gains for India Inc far outweigh the pains.
"There are no big surprises in the Budget and moves such as incentives for the textile sector and investment allowance are positive moves. Income tax surcharge is dampener but its real impact will be limited," says K K Maheshwari, managing director of Grasim Industries.
The balance act will help the FM to achieve the fiscal deficit target without upsetting India's growth prospects in the short-term. "High fiscal deficit is the root cause of India's economic slowdown. The FM took that very seriously and looks set to meet his fiscal deficit target for next year," says Raju Bhinge, chief executive, Tata Strategic Management Group. This will put India back on a growth path but with a lag of few quarters, he says. The Budget has tried to hasten it by giving investment allowance at the rate of 15 per cent for investments of Rs 100 crore or more in plant and equipment in the next two years. It will cut capital cost by around five per cent and is good news for companies, such as ITC, Havells, Grasim, Shree Cement and Maruti Suzuki, among others, that have the resources to invest now. "We plan to invest around Rs 1,500 crore over the next two years in a greenfield project. We will now save minimum of Rs 60 crore which is a big incentive given high interest rates and a tough economic environment," says Shailesh Bhandari, chief financial officer, Shree Cement. Tthe two-year time limit to avail of the incentive however, goes against power, metal and infrastructure companies, projects of which take longer to complete.
Some experts however warn that the Budget arithmetic may go haywire if assumptions on economic growth and revenue buoyancy do not materialise. "The FM has budgeted for six per cent plus GDP growth and 19 per cent rise in revenues next year. If it doesn't materialise, he may be forced to cut expenditure to meet the fiscal deficit target that will hurt economic growth in the short-run," says Devendra Pant, chief economist at India Ratings.
That will inflict more pain on India Inc. That is however, at least six months away. Right now it time to make the most of incentives on the table.
