Credible Budget to build Incredible India: ICICI Securities

"Union Budget 2020-21 has carried forward the government’s vision of developing India as a key manufacturing hub and was pragmatic in addressing the economic and social objective of promoting investments, generating jobs and improving ease of living for Indian citizens", says the Union Budget Review 2020 report released by broking firm ICICI Securities.

The report said that credibly, the fiscal balance was maintained with fiscal deficit for FY20E pegged at 3.8% of GDP. Requisite infrastructure push was provided through 21% YoY hike in capital expenditure at Rs. 4.2 lakh crore while taxpayers were incentivised through increase in deposit insurance coverage (Rs. 1 lakh to Rs. 5 lakh) as well as the option to switch to a new simplified personal income tax regime. Abolition of dividend distribution tax is positive for the listed space leading to increase in earnings or dividend payouts and is positive for Indian equity markets. The Budget has also addressed the issue of an inverted duty structure with customs duty increase on sectors such as automobile parts, footwear, etc, to generate domestic employment. Greater infrastructure spend is positive for the domestic cement as well as capital goods domain. Recommitting to doubling farm income through Rs. 2.83 lakh crore allocation towards agricultural and rural development amid an increase in agricultural credit to Rs. 15 lakh crore will further boost consumption and is positive for domestic consumption oriented sectors like FMCG and consumer durables.
On the infra side, the government continued its higher capital expenditure despite fiscal constraint after unveiling its National Infrastructure Pipeline (NIP) worth Rs. 102 lakh crore over the next five years. The government’s capital expenditure gross budgetary support increased 13.4% YoY to Rs. 3.48 lakh crore vs. budgeted Rs. 3.38 lakh crore in FY20E and is expected to grow 18% YoY to Rs. 4.1 lakh crore in FY21E. Out of total, 80% of capex is planned towards five core sectors viz. power, roads, housing, railways and irrigation.
With the aim of tapping the rich demographic dividend i.e. high number of working population by 2030, Union Budget 2020-21 focused on job creation through support to the Indian start-up ecosystem, correcting inverted duty structure, raising allocation to tourism sector and increasing customs duty on labour intensive sectors like footwear, toys, etc.
To reduce dependency on imports and simultaneously make India a manufacturing hub (for mobile handsets) of the world in the next few years, the government has introduced a Phased Manufacturing Programme (PMP). As extension of this programme, the government has increased the customs duty on various mobile accessories. Curbing imports through higher customs duty would help increase the market share of organised players.
Abolition of Dividend Distribution Tax (DDT)
The Budget has abolished DDT. Now, dividend shall be taxed in the hands of recipients at their applicable rate. Currently, companies are required to pay dividend distribution tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits, totalling 17.65%. For holding companies, abolition of DDT leads to increase in cash flow to the extent of 17.65% of dividend given by subsidiaries (for example: Rs. 130 crore is anticipated to be additional cash flow for Bajaj Holding). This translates to ~3-17% positive impact on profitability on consolidated basis. PSU players like Coal India, which receive large dividends from subsidiaries, are expected to witness substantial gain on an absolute basis.
New Income Tax Regime
For the first time ever, individual taxpayers have been given the option whether to continue in the existing tax regime or shift to the new tax regime. Individuals/HUFs opting to pay tax under the new income tax regime will have to forego almost all tax breaks they are claiming in the current tax structure like Section 80C (investments in PF, NPS, life insurance premium, principal repayment on home loan, etc), medical insurance premium, tax breaks on HRA, LTA and on interest paid on housing loan.
(Share Manthan, February 02, 2020)