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What The Budget Means For Private Equity’s Hottest Themes

16 March, 2012

After the results of state elections last week and the controversial railway budget, expectations were low for the Union Budget 2012-13. India Inc was expecting higher corporate taxes and populist measures from the budget, presented by Finance Minister Pranab Mukherjee on Friday. Mukherjee has said that India’s GDP growth in 2012-13 is expected to be 7.6 per cent (+/-0.25 per cent). The 2011-12 GDP is estimated at 6.9 per cent after growing at the rate of 8.4 per cent in each of the two preceding years.

But the budget stayed away from enacting measures like the Food Security Bill right now and the disinvestment target has also been lowered. The market is also reading the budget as realistic. But what does the current budget mean for sectors witnessing high deal activity, both in terms of M&A and private equity fundraising? Read on to know more.

Infrastructure

During the 12th Five year Plan starting next fiscal year, infrastructure investment will go up to Rs 50 lakh crore, with half of this expected from the private sector. The budget also includes provision for increasing tax free bonds to raise Rs 60,000 crore in 2012-13 for financing infrastructure projects. The amount proposed is double the amount of the previous fiscal. Mukherjee has also proposed to allow external commercial borrowings (ECBs) to part-finance the rupee debt of existing power projects.

The Finance Minister has announced a target of covering 8,800 km under NHDP (National Highways Development Project) next year and an increase in the allocation of the Road Transport and Highways Ministry by 14 per cent to Rs 25,360 crore in 2012-13. Relief in indirect taxes to infrastructure has also been announced.

According to Mukherjee, Japan has announced $4.5 billion for the Delhi-Mumbai Industrial Corridor, which is being developed on either side of the Western Dedicated Rail Freight Corridor.

“The extended tax incentives, the decision to allow ECBs, and reinforcement of intention to introduce DTC and GST in the near future should create a positive investment climate. The waiver for thermal power companies will be beneficial for upcoming projects. The removal of customs duty on imported coal, natural gas, LNG, and the incentives for the mining sector will marginally improve coal supply, but is still a far cry from achieving adequate fuel security,” Anil Sardana, Managing Director of Tata Power.

Agriculture

The outlay for the Department of Agriculture and Cooperation in 2012-13 has been increased 18 per cent to Rs 20,208 crore and for Rashtriya Krishi Vikas Yojana (RKVY) to Rs 9,217 crore.

To increase timely, affordable credit to farmers, the Finance Minister has also proposed to raise the target for agricultural credit by Rs 1,00,000 crore to Rs 5,75,000 crore. A new, centrally sponsored scheme titled National Mission on Food Processing will be started in the states in 2012-13.

Also, a task force headed by Nandan Nilekani has designed a mobile-based fertiliser management system to provide end-to-end information on movement of fertilisers and subsidies. This system will have a nation-wide rollout this year. This direct transfer is expected to plug the leaks in the system.

Mukherjee also proposes to enhance the allocation under Rural Infrastructure Development Fund to Rs 20,000 crore with Rs 5,000 crore exclusively earmarked for creating warehousing facilities. He has also announced relief in indirect taxes for the agriculture sector.

“National mission for food processing is also a welcome step. So is also higher deduction for R&D and skill development. Though there was urgent need to exempt food processing completely from taxes and treated it at par with agriculture government has chosen to increase taxes which is counterproductive to the development of agriculture,” Piruz Khambatta, chairman of Rasna Private Limited.

E-commerce

The government is moving towards implementation of Goods and Services Tax (GST) by August 2012. The move will help streamline the tax structures across the country and reduce supply chain costs for e-commerce firms, which may lead to lower prices of goods. It is also expected to be beneficial for the larger retail industry, but there was no commitment in terms of FDI in the sector.

“It is disappointing that there has been no consensus on the FDI in multi-brand retail as it would have enhanced the expansion of the sector. This would have increased employment opportunity, better quality standards and competitive pricing only to benefit the masses,” Vijay Bobba, MD & CEO of PAYBACK India, which is backed by Peepul Capital and ICICI Venture.

Education

The Finance Minister proposed 21.7 per cent increase in allocation for Sarva Shiksha Abhiyan, which will amount to Rs 25,555 crore, and 29 per cent rise in allocation for Rashtriya Madhyamik Shiksha Abhiyan, amounting to Rs 3,124 crore.

Healthcare

Mukherjee has increased the allocation for National Rural Health Mission (NRHM) to Rs 20,822 crore in 2012-13. A National Urban Health Mission is also being launched. The budget has also granted relief in indirect taxes to health and nutrition sector.

Banking & Financial Services

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What The Budget Means For Private Equity’s Hottest Themes

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