RealMoney Silver - India Budget Aims to Sway Voters

India Budget Aims to Sway Voters
By Jay Somaney
RealMoney.com Contributor
3/18/2008 3:46 PM EDT

The Indian budget for fiscal 2009 (ending March) was unveiled a little over two weeks ago. It was a populist budget, meant to appease the hundreds of millions of voters who will be turning out for national elections toward the end of the year.

The budget's macro highlights include:

major relief for small farmers with a debt relief package that will benefit 40 million of the country's smallest farmers;
an increase in the education budget by 20%;
grants for irrigation benefit programs increased by almost 300%;
defense sector spending increased by 10% to more than $1 trillion rupees, or a hair under $25 billion for this coming fiscal year.

The budget also had a range of other smaller goodies, including:

the tax-exempt status for personal income tax increased to $3,750/year from about $2,750/year (might not sound like much here but per capita income/year is India is still less than $1,000);
corporate and dividend taxes left unchanged;
excise duty cut to 14% from 16%;
stock transaction tax unchanged but can now be claimed as an expense vs. a deduction earlier; and
banking transaction tax is withdrawn.

Let's go through a broad Indian sector-by-sector impact:

Auto: Excise duties has been reduced on two- and three-wheelers to 12% from 16%, passenger cars (12% from 16%), hybrid vehicles (14% from 24%), electric cars (0% from 8%), and on buses and commercial vehicles (12% and 14% respectively). This should stimulate the entire auto industry and its supply chain. Major beneficiaries include Tata Motors (TTM) , which has an ADR in the U.S., and all other major auto OEMs in India.

Banking: The banking cash transaction charge will be removed effective April 1, 2009, which will reduce customer costs. However, in the near term this budget was neutral for the entire banking sector.

IT:The government has increased education spending, significantly improving the prospects for IT and ITES training companies in India. However, the budget had a largely neutral impact overall on ITES companies. The finance minister didn't even touch upon the possibility of an extension of the STPI tax holiday.

Telecom: There have been no changes levied on license fees, though spectrum charges have been announced. The 2009 budget was largely neutral for Indian telcos both in the wireline and wireless areas.

Pharma: This was the big winner in this budget with a variety of excise and duties being lowered to zero, tax incentives on research and development raised significantly, and increased allocation for HIV/AIDS-related treatment initiatives. Major beneficiaries include Dr. Reddy's (RDY) , Ranbaxy, Novartis (NVS) , Eli Lilly (LLY) and GlaxoSmithKline (GSK) .

In summary, the budget was disappointing on a personal front in many ways, but it will hold sway with India's majority voting population, most of which survive on farming and related industries for its sustenance and livelihood.

Until the next time, happy investing.

On a personal note, I have been swamped with a trip to England and starting our Indian real estate investment fund, which has kept me AWOL off these pages the last three weeks or so.

Full speed ahead now!