Budget Special

January 14, 2021

Index
Union Budget 2021-2022 Preview

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 Budget Special
Union Budget 2021-2022 Preview
High on expectations

The Union Budget comes on the backdrop of an unprecedented pandemic, which has changed the
economic landscape materially. This is the first instance where India has seen an economic contraction
in the last many decades, and also the first GDP decline since the country began publishing quarterly
numbers in 1996. Hence, the budgeted estimates for FY2021 alter dramatically. However, as the scenario
(GDP decline) is mirrored across the world it has been already factored in by the markets. Hence, the
revised deficit figures for FY2021 are unlikely to be a major surprise. In fact, the government is expected
to limit fiscal deficit to ~7% of GDP, despite higher expenditure and lower revenues for this fiscal. Yet,
the economic recovery has surprised pleasantly and is set to turn positive in Q3 FY2021 itself after the
massive decline of 23.8% in Q1 FY2021.

In FY2022, the government is likely to see tax collections surge on the back of the expected 14-15% growth
in nominal GDP (real GDP + inflation). However, expenditure would remain elevated. The government
is likely to continue with counter-cyclical measures to support an economic recovery by enhancing
public expenditure, providing incentives to employment-generating sectors (like construction, textiles,
etc) and boosting demand. Moreover, there is a huge cost related to rollout of a nationwide COVID-19
vaccination program and investment in healthcare infrastructure.

At the same time, there is a compulsion to curtail fiscal deficit and limit government borrowings to avoid
crowding out of the private sector, thereby pushing up interest rates. We expect the government to project
an improvement of 150-200 bps in fiscal deficit for FY2022 as compared to FY2021. Privatisation, asset
sales (hard assets or equity offerings of public sector units like LIC) and off-balance sheet borrowings
could be the highlight of fiscal management measures in the forthcoming Budget. Overall, expectations
are running high though the government has limited elbow room to provide the required fiscal boost to
the economy.

A salve to soothe COVID pains: The Union Budget 2021- 2022 would likely focus on investments that create
jobs and therefore infrastructure, construction and significant incentives for high employment-generating
sectors (like textiles, affordable housing, MSME, etc) are key areas, which may get priority focus from the
government end. We believe that the pandemic has caused significant business and livelihood disruptions
and the focus of the Union Budget will be to soothe and support the economy with a special focus on the
common man. An accommodative fiscal policy with a focus on government spending on infrastructure,
healthcare, etc may keep fiscal deficit elevated in FY22, but we expect that a pick-up in the domestic
economy will be rightfully be given due priority. The current account is likely to return to a deficit in FY22
as growth returns and imports pick up and global trade normalises.

Limited fiscal room, but India not alone: The combined fiscal deficit (central + state) could shoot up to
11.5-12% in FY2021, due to the combined impact of an increase in deficit balance and a reduction in world
output. India is no exception. Therefore, the FY22 budgetary assumptions, particularly on revenue and
borrowing fronts will be keenly watched. The central fiscal deficit is expected to be at around 7% in FY2021
and the government is likely to project an improvement of 150-200 basis points in FY2022. Even though
the government’s gross borrowings are almost entirely met through domestic sources, going forward, as
the government plans to raise a part of its borrowings in foreign currency, sovereign ratings and financial
markets become important. Hence, it would be a tightrope walk.

Key sectors to watch out for: We believe that it is imperative for the Centre and states to continue with
counter-cyclical fiscal measures to sustain the momentum of the recovery. Hence, the government may
maintain its focus on development of infrastructure (roads, water and affordable housing) that would give the
economy a much-needed earnings / employment stimulus. Further extension / granularity of PLI schemes
to spur manufacturing might also be announced in the Budget. There could be some initiatives to support
urban poor especially form the disruption in the MSME sector. Infrastructure, Real Estate, Construction, and
Railways are some sectors, which may be in focus in the upcoming Budget 2021.

January 14, 2021 2

 Budget Special
Capital markets: We expect positive announcements on reforms viz. key reforms in labour laws & judicial
reforms, which will support a recovery and re-ignite animal spirits. Measures to help iron out bottlenecks
and boost industry and employment will be positive. Moreover, a multi-year roadmap for the economy and
a policy framework to boost GDP and exports is likely to be shared. However, expectations are running
high, which is never good news before any event.

Pre-Budget Picks

Large-caps: L&T, Hero MotoCorp, UltraTech Cement, Ashok Leyland, M&M, HPCL, IGL, SBI

Mid-caps: BEL, Coromandel International, KEC International, KNR Constructions, Century Plyboards,
Carborundum Universal

Budget summary (Rs ‘00 crore)

Particulars FY16 FY17 FY18 FY19BE FY19RE FY20BE FY20RE FY21BE

Gross tax revenues 14,556.5 17,158.2 19,190.1 22,712.4 22,481.8 24,612.0 21,634.2 24,230.2

% change y-o-y 16.9% 17.9% 0.4% 16.7% 17.2% 9.5% -12.1% 12.0%

Net tax revenues 9,433.2 11,013.7 12,424.9 14,806.5 14,844.1 16,495.8 15,045.9 16,359.1

% change y-o-y 4.4% 16.8% 1.3% 16.7% 19.5% 11.1% -8.8% 8.7%

Non tax revenues 2,517.1 2,728.3 1,927.5 2,450.9 2,452.8 3,131.8 3,455.1 3,850.7

Total expenditure 17,907.8 19,751.9 21,419.8 24,422.1 24,572.4 27,863.5 26,985.5 30,422.3

% change y-o-y 7.6% 10.3% -0.2% 10.1% 14.7% 13.4% -3.2% 12.7%

Fiscal deficit 5,327.9 5,356.2 5,910.6 6,242.8 6,344.0 7,037.6 7,668.5 7,963.4

as % of GDP 3.9 3.5 3.5 3.3 3.4 3.4 3.7 3.5

Revenue deficit 3,427.4 3,163.8 4,436.0 4,160.3 4,109.3 4,850.2 4,995.4 6,092.2

as % of GDP 2.5 2.1 2.6 2.2 2.2 2.3 2.4 2.7

Primary deficit 911.3 549.0 621.1 484.8 468.3 432.9 141.7 881.3

as % of GDP 0.7 0.4 0.4 0.3 0.2 0.2 0.1 0.4

Source: Budget documents, Sharekhan Research

January 14, 2021 3

 Budget Special
Sectoral wishlist
Sector Current status Budget expectation View Impact on companies
Reduction in personal income To provide relief by reducing income- Positive If income tax rate is reduced, it will
tax rates tax liability enhance disposable income in the
hands of customers and boost demand
especially for two-wheelers and
passenger vehicles.
Incentive-based scrappage Provision of incentives for replacing Positive Positive as it would support vehicle sales,
scheme for older vehicles old vehicles with new ones especially commercial vehicles in the
long run.
GST rate on vehicles is at 12- Expectation is for a reduction in GST Positive Positive as it would help to increase
28% by 10% on new vehicles and 8-14% on demand due to lower prices. There has
pre-owned vehicles been significant price hikes in last 1-2
years, driven by BS-VI transition and rise
in prices of key raw materials.
GST rate on auto components Expectation to reduce GST by 10 Positive Positive if implemented as it would lower
Automobiles &
is at 28% percentage points from 28% to 18% cost of vehicles and spur demand.
Ancillaries
on auto components.
Income tax deduction of Expectation is to further incentivise Positive Augurs well for increasing demand for
Rs. 1.5 lakh on interest paid on the facility electric vehicles.
loans taken to purchase electric
vehicles.

Export incentives through Expectation to get clarity on
production-linked incentive (PLI) incentives to be provided to
Boosting rural income
Measures already implemented
- PSU mergers, recapitalisation
package of Rs. 70,000 crore
announced for FY20
Shallow debt market
High NPAs in banking system
Banks & NBFCs Low CRAR of PSU banks
Already 350 million new PMJDY
accounts have been opened,
and are being used for direct
benefit transfer (DBT), savings
and payments, etc.
Fresh NPA recognition has been
under standstill (under Court
orders) so far.
The limit prescribed under
section 36(1) (via)(a) for
deduction for provision for bad
and doubtful debts for Indian
banks currently stands at 8.5%
Positive Positive for export-reliant companies
automobile OEMs and auto-ancillary
companies for exports
Enhance agri-credit and launch Positive Stronger farm incomes would benefit
schemes to raise farmer productivity tractor OEMs, select two-wheeler and
four-wheeler OEMs and auto ancillary
companies supplying to such OEMs.
Road-map ahead for capital infusion, Positive RBI has repeatedly stressed on the need
strengthening of PSU banks which for capital augmentation, and hence is
are lagging, measures to boost much needed. Will also help Balance
competition & credit growth Sheet clean up for respective PSU banks.
Allow Insurance and pension funds Positive Long-term positive for financial sector.
to invest in bonds rated above
‘A’, subject to risk evaluation;
Encourage Credit Default Swaps
(CDS) as a risk management tool.
Clarify and relax existing regulations.
Introduce steps to improve liquidity
of corporate bonds and reduce
dependency on brokers.
Measures to facilitate creation of a Positive The government may set up a bad bank
Bad Bank to takeover NPAs from the PSU Banks,
however, the capitalization will need to
be seen
Measures to facilitate creation of a Positive The government may create a bank
Bank investment company investment company to consolidate its
holdings in PSU banks.
Financial inclusion - Further Positive Long-term positive for financial sector
functionalities under or leveraging
Jan-Dhan Accounts
The government (in consultation with Negative Sentimentally Negative for Banks, NBFCs
RBI) may choose to provide relief to (if credit discipline is impacted)
specific sectors / class of borrowers
(especially PSU borrowers) in light of
the challenges faced by them.
Government may allow the Positive Positive for Banks, NBFCs; Will reduce Tax
deductions for provisions for bad and outgo
doubtful debts for Indian banks to
increase to 15%

January 14, 2021 4


Sectoral wishlist
Sector Current status
Fiscal deficit as per the FRBM
glide path may be impacted
due to GDP contraction
At present in case of banks,
the interest on NPA which has
become overdue for more than
90 days is taxable on accrued
basis.
Despite steps, securitisation
volume had plunged 80% in
the first six months of FY21
from the year-ago period and
challenges continue
Few incentives for private
pension plans
Insurance FDI Cap in Insurance is at 49%- Govt may allow the FDI Cap in
Railways’ outlay for capital With the recently-unveiled National
expenditure was Rs. 161,000 Infrastructure
crore in Budget for 2020-21.
Defence outlay for capital
expenditure was Rs. 337,553
crore (Rs 471,378 crore includes
pension) in Budget 2020-21.
Government approved
production-linked incentive
Capital goods (PLI) scheme in 10 new sectors
(offering sops of over Rs.
11,200 crore for manufacturing
IT products such as laptops,
Internet of Things (IoT) devices,
desktops and servers, white
goods like air-conditioners
and LED products, amongst
other products) in November,
wherein the fine print is work
in progress with different
implementing ministries still
holding consultations with
industry bodies.
Free trade agreements (FTAs)
with countries namely Japan,
Singapore, South Korea, etc.
enabling duty-free imports is
resulting in disadvantage to
Indian manufacturers who have
to pay Customs duty on raw
materials.
Budget expectation
Higher-than-expected market
borrowings due to fiscal slippage
may put pressure on bond yields.
In case of banks, amendment may
be done so that the interest on NPA
which has become overdue for more
than 90 days is excluded from the
total income and be taxed only on
receipt basis.
Easing guidelines to promote
securitization across asset classes;
providing support to enable pickup in
volumes.
Provide level playing field for pension
plans of life insurance companies vis-
à-vis the NPS.
Insurance to 74%, with checks /
measures to ensure the control
remains within India
Pipeline and
government stress to strengthen
railway and urban infrastructure.
Higher allocation of capital
expenditure is expected in current
budget FY2021-22.
Amid ongoing military standoff
with China and also for promoting
indigenous manufacturing of defence
equipment there is expectation
of a higher allocation of capital
expenditure in Budget FY2020-21
Expectation of tweaks in PLI schemes
wherein industry players seek
level playing field, more sops for
local manufacturers and the entire
value chain of manufacturers must
get benefits of interest subvention
scheme which is currently benefiting
the direct exporter of goods.
Duty exemption under FTAs should
be limited to raw materials and not
for finished goods
Budget Special
View Impact on companies
Negative Higher fiscal deficit will be negative for
investment portfolio; higher borrowing
can also lead to rise in cost of funds.
Positive Long term positive for financial sector.
Positive Long-term positive for financial sector
Positive Insurance companies who manage
pension solutions to benefit
Positive Insurance sector to benefit
Positive This will provide further momentum
to railway expenditure and fasten the
government initiatives to strengthen the
railway infrastructure (electrification
of railways, more of Rapid Regional
Transport System, modernisation of
railway station, dedicated freight corridor
etc.) Positive for L&T, KEC International,
Kalpataru Power Transmission, etc.
Positive A reasonable hike would provide
necessary support for forces deployed
in eastern Ladakh including India’s
Atmanirbhar Bharat Abhiyaan, under
which the government has announced
a number of far-reaching measures to
promote the indigenous manufacture of
defence equipment.
Positive for L&T, Bharat Electronics Ltd.
Positive This would further boost the incentives for
local manufacturers and provide a level
playing field compared to new players
wherein the scheme in its present form tilts
the scales more toward new companies
entering India compared to incumbents.
Further it expects to boost outsourcing.
Positive for Dixon technologies, Amber
Enterprises
Positive The move will provide a level-playing field
to domestic manufacturer of the finished
goods. Positive for L&T, KEC International,
Kalpataru Power Transmission, etc.

January 14, 2021 5


Sectoral wishlist
Sector Current status
Rural Economy: The
government’s continuous
focus is on improving the
rural economy by increasing
allocation to rural development
schemes and infrastructure
projects. Total allocation under
MNREGA was Rs. 61,500 crore
in Union Budget 2020-21
(additional Rs. 40,000 crore
pumped in COVID-led relief
package).
Personal income tax: Standard
deduction currently stands at
Rs. 50,000
Consumer Goods
Cigarettes: - Tax rate on an
average was increased by ~10%
as the government increased
natural calamity contingent
duty on cigarettes.
Budget Special
Budget expectation View Impact on companies
Agriculture stood strong during the Positive Greater incentives and higher investment
pandemic environment. To provide for improving rural economy will be
continuous support for improvement positive for rural-centric companies such
of agrarian and rural economy, the as Hindustan Unilever, Dabur India,
government may increase allocation Emami and Jyothy Labs.
under the MNREGA scheme as
compared to Union Budget 2020-21.
The government could also spend
more on improving warehousing and
cold storage facilities for farmers.
Standard deduction for salaried Positive Lower tax outgo would boost consumers’
employees should be increased to disposable incomes and will improve
Rs. 1,00,000. Tax rates under various buying decisions. It will help consumers
slabs could be reduced. to shift largely towards branded products
in key consumer goods categories.
The government might increase cess Increase in If the cess on cigarettes is increased by
rate on cigarettes in double digits in rate 10-15%, it would affect sales volumes of
the upcoming Budget to improve its by 0-10% ITC’s cigarette business in subsequent
revenue. - Neutral; quarters, as the company will pass on any
Increase increase in tax rate to consumers through
in rate by price hikes. However increase in tax rate
10-15% will in the range 0-10% would have marginal
be negative. impact. However, the street will be
No increase positively surprise if there is no increase
in tax rate in the tax rate on cigarettes.
will be
Positive

Personal income tax/ GST credit Standard deduction for salaried Positive
on holiday packages employees should be increased by
Rs. 1, 00,000. Tax rebate of Rs1.5 lakh
per employee for domestic tourism.
GST credit to individual with in-
come-tax filing on specified white
goods and a hotel stay or holiday
package.
• Time: FY22
• Value: Maximum value of goods
should be Rs. 1 lakh.
• Taxpayer should submit GST bill to
claim deduction
Retail: Sector was badly Industry body has proposed for Positive
affected post demonetisation imposition of a special tax of 5% on
and the implementation of online retailers’ businesses.
Consumer complex GST system. The
Discretionary growing e-Commerce business
has further affected the brick
and mortar business model.
Textile Industry: Indian textile The government needs to provide Positive
exports are costlier compared incentives or provide duty-free
with exports by Bangladesh, access to key markets (including
Pakistan and Vietnam European nations and the US) in
the up-coming Union Budget to take
advantage of low-cost labour.
Jewellery: Customs duty on Jewellers have proposed a significant No Hike
gold stands at 12.5% reduction in import duty on gold to - Neutral;
counter a spike in gold prices. Hike in
duty will be
negative.
Reduction
in rate will
be Positive
Higher standard deduction and tax
benefits would reduce income tax
outgo, boosting savings in the hands of
the consumer. GST credit to individual
along with income-tax filing on specified
white goods and a hotel stay or holiday
package would drive up discretionary
spends and will be positive for all
consumer discretionary companies
(including branded apparel & retail
companies and hotels & restaurants).
Imposition of 5% tax would result in lower
discounts on e-Commerce platforms
providing level-playing field for big
retailers. If a special tax is imposed it will
be positive for companies such as Avenue
Supermarts, Shoppers Stop and other
large format and retail stores.
If incentives or free access is provided in
key markets for textile exporters it will be
positive for companies such as Arvind,
Raymond, KPR Mill and Welspun India,
etc.
If import duty is reduced by 1-2%, it will
be positive for jewellery companies
including Titan. However any increase in
the customs duty on Gold will be negative
in the backdrop of higher gold prices.

January 14, 2021 6

 Budget Special
Sectoral wishlist
Sector Current status Budget expectation View Impact on companies
Tourism sector: To be brought Tourism industry should be brought Positive Tourism would benefit by being placed
under the concurrent list under the “concurrent list” by under the concurrent list to create a
amending Schedule VII of the more enabling and cohesive approach
Constitution in formulating policy measures. It would
be ideal for each state to remove certain
regulatory and licensing requirements
that are currently in place to ease costs
and process of doing business. Thus, a
more defined approach will be adhered
to for the tourism sector, which would be
driven by the unique needs of each state.
Hotel Industry: Grant of Hotels above with capital expenditure Positive If the hotel industry is granted infrastructure
infrastructure status - Hotel above Rs. 25 lakh should be grant status, it can avail loans at lower rates for
industry has an asset heavy infrastructure status. Further the greenfield projects. It will also help hotel
model. Loans made available CII has proposed registration fees companies to get water and electricity
to hotel industry at the rate of of 1% of the overall lease amount at industrial rates. If industrial status
15-20% payable annually from the existing is granted it will be Positive for Indian
10% and one-time relation of any Hotels Company, Chalet Hotels, Lemon
penalty or arrears to the hotels or Tree Hotels, Jubilant FoodWorks and
restaurants whose lease agreement Speciality Restaurants etc.
is unregistered till date. This would
encourage most leased hotels/
restaurants to register their lease
deed and ensure compliance.
Tourism Sector: The sector was Industry has suggested deferral for Positive Deferment of taxes and various
out of business during the peak twelve months of all statutory dues charges would ease out pressure on
of the COVID-19 pandemic and at the state government level like the profitability on tourism, aviation
the recovery has been very the excise fees, levies, taxes, power and hotel companies. It will be positive
slow. Hence, the government and water charges, and deferred for companies such as Indian Hotels
is focusing on reviving sectors/ renewals periods for all permits, Company, Lemon Tree Hotels, SpiceJet
industries which were badly licenses, bank guarantees & security and InterGlobe Aviation, etc.
affected by the pandemic. deposits across the tourism, travel,
hospitality and aviation industry.
Fertiliser subsidy of Rs. 71,300 Increase fertiliser subsidy to Rs. Positive Positive for Gujarat Narmada Valley
crore for FY2021 85,000-90,000 crore Fertilizers & Chemicals Limited, Rashtriya
Chemical and Fertilizers, National
Fertilisers Limited, Madras Fertilisers,
Chambal Fertilisers and Deepak
Fertilisers.
Fertilizer subsidy is given to Implement DBTL for fertilizer subsidy Positive Gujarat Narmada Valley Fertilizers &
Chemicals &
companies and there is no Chemicals Limited, Rashtriya Chemical
Fertiliser
DBTL scheme and Fertilizers, National Fertilisers Limited
and Madras Fertilisers as it would reduce
dependency of fertiliser companies on
government payment for working capital
requirement.
Import duty of 5% on phosphoric Lower import duty on phosphoric Positive Positive for Coromandel International,
acid and 2.5% on ammonia acid and ammonia Chambal Fertilisers
Additional tax benefit of Rs. 1.5 Extension of time limit for buying Positive Positive for improving demand
lakh available u/s 80EEA for environment in housing sector- Positive for
purchase of affordable homes DLF, Godrej Properties, Prestige Estates,
between April 1, 2019 and Oberoi Realty, Brigade Enterprise,
March 31, 2020. Ashiana Housing among others. Also
positive for building material players like
Kajaria Ceramics, Century Plyboards,
Astral Poly Technik and Supreme
Real Estate/ Industries
Building
materials
Rs. 2 lakh rebate on housing Increasing limit of rebate to at least Positive Positive in improving demand environment
loan interest rates under section Rs. 5 lakh in housing sector - Positive for DLF, Godrej
24 of the IT Act. Properties, Prestige Estates, Brigade
Enterprise, Ashiana Housing among
others. Also positive for building material
players like Kajaria Ceramics, Century
Plyboards, Astral Poly Technik and
Supreme Industries

January 14, 2021 7

 Budget Special
Sectoral wishlist
Sector Current status Budget expectation View Impact on companies
GST rate on under-construction Waive GST even for a limited period Positive Improvement in housing demand -
properties is 5% minus the ITC Positive for DLF, Godrej Properties,
benefit for premium homes Prestige Estates, Oberoi Realty, Brigade
(over Rs. 45 lakh) and 1% for Enterprise, Ashiana Housing among
affordable homes (less than Rs. others. Also positive for building material
45 lakh) players like Kajaria Ceramics, Century
Plyboards, Astral Poly Technik and
Supreme Industries
Deduction under section 80C Deduction limit to be increased. The Positive Improvement in housing demand -
for principal repayment of deduction for principal repayment Positive for DLF, Godrej Properties,
housing loan is Rs. 1.5 lakh and can be considered as a separate or Prestige Estates, Oberoi Realty, Brigade
deduction is clubbed with other standalone exemption. Enterprise, Ashiana Housing among
tax savings others. The move would also be positive
for building material players like Kajaria
Ceramics, Century Plyboards, Astral Poly
Technik and Supreme Industries.
No provision for deduction for Investment up to Rs. 50,000 in REITs Positive Aid in capital raising for REITs – Positive
investment in REITs should be allowed as a deduction for IRB InvIT, Embassy Office Parks REIT
under Section 80C
Sector 80JJAA – This provides Proposal is to raise deduction to Positive Positive for general staffing and
a deduction of 30% on salary Rs. 50,000 per month to encourage recruitment companies such as Quess
paid to new employees, which employment in high-skilled jobs. Corp and Teamlease.
can be claimed for three years.
Maximum deduction available
Recruitment & is up to Rs. 25000/month.
Employment Labour Jobs/reforms - Bring Fixed-term employment must be Positive Increase in fixed term employment in
some flexibility in hiring legislated and this can provide various fields would be positive for
constraints. some support and flexibility to the recruitment companies such as Quess
industry for hiring and can help allay Corp and Teamlease.
some concerns over incremental
employment creation.
Budgetary support to transport To increase budgetary support to Positive Improvement in project awards in the
ministry and NHAI stood at Rs. transport ministry and NHAI road sector - Positive for companies like
91,823 crore and Rs. 42,500 KNR Constructions, Sadbhav Engineering,
crore, respectively for FY2020 Ashoka Buildcon, PNC Infratech and
JMC Projects. Also positive for cement
sector in incremental demand. Positive
for Ultratech, Shree Cement, The Ramco
Cements, JK Lakshmi Cement.
Infrastructure/
Cement No dedicated percentage of Dedicated financing of 1% of GDP Positive Improvement in project awards in the
investments in infrastructure for infrastructure sector. A part of infrastructure sector especially big ticket
sector recent increase in excise duties can size projects - Positive for companies
be earmarked for infra investments like L&T, KNR Constructions, Sadbhav
to finance infra investments, in Engineering, Ashoka Buildcon, PNC
particular for roads and railways Infratech and JMC Projects. Also positive
for cement sector in incremental demand.
Positive for Ultratech, Shree Cement, The
Ramco Cements, JK Lakshmi Cement.
Tax benefits under section Extension of tax benefits under Positive Will help hospital chain companies such
35AD - Currently available only Section 35AD as Apollo Hospitals, Fortis Healthcare
to hospitals with a minimum and Narayan Hrudayalaya to set up
capacity of 100 beds. hospitals with minimum beds in tier-2 and
-3 towns.
Infrastructure set-up for fight Weighted deduction (150% of Positive Hospital chain and diagnostics companies
COVID-19 pandemic capital expenditure) be allowed such as Fortis Healthcare, Apollo
to healthcare providers/hospitals Hospital, SRL Logistics, Metropolis and Dr.
for capex incurred for fighting Lal Path Labs would stand to benefit.
COVID-19 pandemic (significant fresh
Hospitals/
investments in medical equipments
Diagnostics
such as CT scans, laboratory
apparatus, setting up of ICUs, etc).
Deduction under section 80D Increase in deduction under section Positive Will improve penetration to avail better
mediclaim premium -current Rs. 80D of mediclaim premium to be healthcare facilities at top hospitals as
25,000 (for self and spouse) increased to Rs. 50,000 (for self and quantum of mediclaim amount will rise
spouse) and will remain at Rs. 50,000 at a higher premium. If the deduction
(for dependant parents). is increased, it will be positive for
major hospital companies such Fortis
Healthcare, Apollo Hospitals and
Narayana Hrudayalaya.
January 14, 2021 8
 Budget Special
Sectoral wishlist
Sector Current status Budget expectation View Impact on companies
A lower corporate tax rate for A concessional corporate tax rate Positive A competitive tax regime would attract
new units in SEZs, similar to the of 15% for all new units incorporated investment in the IT-BPM sector.
reduced corporate tax rate for in SEZs that commenced operation
new manufacturing companies within a prescribed period
Direct tax benefits for SEZ units Extension of tax benefits for the SEZ Positive If the sunset clause is extended, it will be
under sunset clause expired in units by a few more years, as they positive for IT/ ITeS companies as it would
March 31, 2020 commit to employ a certain minimum retain the advantage of both direct and
number of employees indirect tax incentives.
Tax rate is in line with other Revival of tax holiday/allocate Positive If tax incentives are provided, it will be
large corporates additional funds for firms that do positive for R&D companies in the IT
R&D in niche areas such as artificial space.
intelligence (AI) and robotics
Information Companies opting for a 22% tax The expectation is to allow claiming Positive IT-BPM companies have huge un utilised
Technology and rate will not be able to claim of unutilised credit of MAT to entities, MAT credit owing to tax holidays.
services accumulated MAT credits for which opt for a lower tax regime
taxes paid under MAT during
the earlier tax holiday period
Majority of the employees, Clarify that work-from-home by SEZ Positive If WFH does not cause unwarranted tax
including contractual employees would not affect eligibility litigation, it would be positive for the IT-
employees, are working from of tax holiday BPM sector.
home (WFH)
/ remote locations, away from
SEZs.
A buyback Tax was introduced Abolition of the buyback tax Positive Introducing of taxing capital gains in the
to curb tax avoidance by hands of shareholder would help foreign
companies which were resorting investors to be eligible for credit of tax in
to buyback of shares their home countries and improve their
return on investment.
No major tax incentive or tax India is an underpenetrated market Positive Companies in multiplex business like
holiday period as of now and in order to increase penetration Inox Leisure and PVR, etc, will benefit
of the exhibition industry in Tier-2 as the proposal if implemented will
and -3 cities the multiplex industry boost investment in the space and more
expects single-window clearance properties and screens will be added in
mechanism for setting up screens tier-2 and tier-3 cities.
and a tax holiday for setting up new
multiplexes or conversion of single
screens to multiplexes.
Impacted significantly due to Require low cost of capital, stimulus Positive This would help them in speedy recovery
Media & COVID-19 or incentives for Multiplexes to of profitability
Entertainment recover
The media and entertainment Looking for industry status, besides Positive Getting industry status will help the sector
(M&E) sector need to be given demanding infrastructure status for get cohesive policies, special schemes
industry status broadcasting and subsidies. Infrastructure status for
broadcasting would support to get access
to funds at a lower rate for laying cables
and building and maintenance of towers.
Non-theatrical rights of films The rate of withholding tax on Positive This would come as a huge respite to the
such as those for digital and domestic royalty payments towards industry, particularly for small production
satellite platforms are currently non-theatrical rights be brought houses
subject to a 10% tax down to 2%
Cess on oil production - 20% of Change in formula to fixed cess/ Positive If the cess is reduced, it will be positive
realised oil price tonne for Upstream Companies (ONGC, Oil India
and Vedanta Ltd).
Domestic gas price of Domestic gas pricing reform with Positive Positive for ONGC and Oil India. Neutral
$1.79/mmBtu based on the floor gas price for CGD players as they have enough
Rangarajan formula headroom to pass on higher gas price to
customers
Service tax on royalty for oil & Removal of service tax on royalty on Positive If removed will be positive for upstream
Oil & Gas gas production oil & gas. companies (ONGC, Oil India and Vedanta Ltd).
Inclusion of jet fuel and natural Direction on potential inclusion of Positive Inclusion of gas under GST will be
gas under GST gas under GST positive for Gujarat Gas, Mahanagar Gas,
Indraprastha Gas and GAIL (India)
Import duty of LNG at 2.5% Exemption of import duty on LNG Positive Positive for entire gas value chain - GAIL,
GSPL, IGL, MGL and Gujarat Gas.
Fuel subsidy provisioning Lower fuel subsidy from FY2021 Neutral Neutral for OMCs (IOCL, BPCL and HPCL),
levels of ~Rs. 40,915 crore given low as they do not bear fuel subsidy.
oil price

January 14, 2021 9

 Budget Special
Sectoral wishlist
Sector Current status Budget expectation View Impact on companies
Privatisation of discoms on Roadmap for privatisation of discoms Positive Positive for entire sector as private
Union territories (Chandigarh). in other UTs and states and focus on participation would increase and reduce
smart metering discom losses
Power sector relief package of Increase allocation for relief fund as Positive Positive for power generators and
Power Rs. 90,000 crore no significant process is visible to distributors like NTPC Ltd, Power Grid and
improve financial position of discoms. CESC Ltd
Renewable energy/gas-based Higher policy push in term of import Positive Positive for entire sector
power plants duty on solar modules and subsidy
scheme for LNG usage
GST on certain life-saving drugs The industry expects GST on all Positive Lowering of GST would result in increased
is currently at 5% and 12%, while lifesaving drugs to be reduced to NIL affordability of medicines. Positive for the
some drugs are exempt from while GST on other drugs should be sector at large.
tax. lowered to 5%
R&D expenses are currently The industry expects the tax Positive The measures would incentivize the
100% tax deductible deduction on R&D expenses to Indian Pharma companies to boost the
increase to 150 to 200%, especially R&D spends. Positive for companies such
for novel drug discovery as Cipla, Divis Labs, Biocon, Aurobindo,
Dr. Reddy’s, among others.
The government has approved The industry expects the scope Positive This would be positive for API
Rs. 10,000 crore of incentives for this scheme to extend to other manufacturers like Divis Laboratories,
towards setting up bulk drug import-dependent APIs to boost the Solara Active Pharma Sciences.
parks and PLI schemes for APIs. local manufacturing
Pharma The scheme covers 53 critical
APIs, which have a dependence
on China for imports.
No allocation currently for a Budget allocation of ~Rs. 30,000 Positive Vaccine manufacturing companies such
vaccination drive crore towards procurement of as Cadila Healthcare are likely to benefit,
vaccine to meet at least 50% of the if their vaccine is approved by regulators.
population.
The healthcare expenses as a Industry expects allocation for Positive Increased allocation is expected to lead
percentage of GDP is at 1-1.5% healthcare expenses to see a record to better health infrastructure as the
increase as the Government aims to government is likely to look at public-
double healthcare expenses (as a private partnerships and hence could
percentage of GDP) to 2.5% by 2025. be positive for diagnostics companies
– Metropolis Lab, Dr Lal Pathlabs,
Thyrocare, etc.
Out of the 8% licence fee paid, A temporary halt in collection of Positive If USOF contribution is put in abeyance or
5% is a universal USOF or lowering to 3% of the licence reduced to 3% will be positive for telcos
services obligation fund fee fee. (Bharti Airtel) as it would improve liquidity.
(USOF) levy
Telcos pay 3-5% of their Effective rate of SUC should be Positive The reduction in effective rate of SUC
adjusted gross revenue (AGR) reduced by 3% for all service would provide relief to incumbents
as spectrum usage charge providers
Telecom (SUC)
Bharat Net programme Government could allocate further Positive This would strengthen digital
has been targeting internet capital to the Bharat Net programme infrastructure across the country.
connectivity in local bodies to boost digital connectivity.
TDS on recharge vouchers Suggest withholding tax rate of 1% on Positive This would result in reduction of TDS
discount extended to the distributors on recharge vouchers for telecom
of pre-paid service products. companies.
Source: Industry report and Sharekhan Research

January 14, 2021 10

 Budget Special
Financing of the Fiscal Deficit – Picture So far – Sharp rise in Market Borrowings

Financing of Gross Fiscal Deficit of Central Government

Component April- April- April- April- April- April-
September September September September September September
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
External Financing 0 0.1 0.1 -0.1 0 0.4
Market Borrowings 4 4 4.3 3.6 4.9 13
Securities Against Small Savings 0 0 0.2 0.3 0.6 0.6
National Small Savings Fund 0.6 0.8 0.7 0.7 0.5 0.9
Cash Balance {Decrease(+)/Increase(-)} 0.1 0 0.1 0 0.1 0.1
Investment (-) / Disinvestment (+) of 1.4 2 0.8 1.8 0.9 -3
Surplus Cash
Ways & Means Advances - - - 0.3 - -
Others -0.4 -0.7 -0.1 -0.1 -0.4 -1.3
Total GFD / Financing 5.7 6.1 6.1 6.5 6.6 10.7
Sources: CGA; Ministry of Statistics and Programme Implementation (MOSPI); and RBI.
Nos are as Per cent of H1 GDP at current price

January 14, 2021 11

 Budget Special
Revenue side – Picture so far
Total Receipts Total Expenditure
47.8 56.3 55.4
53.7
41.9 40.6 42.6 42.9 48.6
39.5
42.8 43.2 40.9
30.6 35.4
25.2

FY 2017-18 FY 2018-19 FY 2019-20 H1 2020-21 FY 2017-18 FY 2018-19 FY 2019-20 H1 2020-21

Center States Center States

Sources: Controller General of Accounts (CGA); and Comptroller and Sources: Controller General of Accounts (CGA); and Comptroller and
Auditor General (CAG). Auditor General (CAG).

Centre’s Receipts for Q1 and Q2: 2020-21

Sources: CGA

Expenditures side – Picture so far

Expenses dominated by Revenue expenses

Sources: CGA and Union Budget Documents

January 14, 2021 12
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