The Hindu Business Line : Consumption boost, but no market triggers

Select sectors such as automobiles have received significant largesse and may be marked up quickly in the stock markets. But with the rationalisation of excise and Customs duty rates largely over, the only big trigger for India Inc as a whole, could have come from a cut in corporate tax rates, but this has been left untouched. The reduction in Cenvat rate (from 16 to 14 per cent) and Central Sales Tax (from 3 to 2 per cent), could provide marginal relief for India Inc, from input cost pressures.

Populist leanings

The proposal to hike tax on short-term capital gains, though not unreasonable, may deal a blow to market sentiment in the short term, keeping traders on the sidelines for some more time.

The populist leanings in this Budget are clear from three factors — the massive loan waivers on agricultural credit, infrastructure outlays that go mainly into areas such as agriculture and the reduction in personal tax rates.

The size of agricultural loans proposed to be waived and the lack of clarity on how PSU banks will be compensated for the write-offs are a negative signal on the business prospects for PSU banks in general, raising fresh doubts on the degree of autonomy truly enjoyed by this sector.

New demand drivers

On the plus side, the Budget has several proposals that could keep the Indian consumer in an expansive mood. The sharp reduction in personal taxation rates and the slew of fillips to farmers should create new demand drivers for consumer goods makers.

Sectors such as FMCGs, durables, vehicles as also consumer finance may be the key ones to benefit.

Rural offtake of consumer goods has already been on an uptick in recent times due to buoyant income levels. The decided rural push to this budget may help FMCG companies with a significant rural exposure such as Hindustan Unilever, Colgate and Dabur India capitalize on stronger demand trends. Companies making a wide range of agri-inputs will also be indirect beneficiaries of this Budget’s rural thrust.

Promise for India Inc.

The excise duty cuts on small cars may drive upgradation to compact cars and benefit companies such as Maruti Suzuki and Tata Motors.

But two-wheeler majors, despite excise benefits, may be faced with heightened competition from cars for their premium offerings.

Overall, this is a budget that may have no near-term triggers for the market. But it could hold promise for India Inc, if the demand drivers that it has set in motion begin to kick in.

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