India Budget Aims to Sway Voters

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• banking transaction tax is withdrawn.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 - commentary - Cramer's Take), which has an ADR in the U.S., and all other major auto OEMs in India.

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At the time of publication, Somaney was long TTM in India, although positions may change at any time without notice.

Jay Somaney is a partner and fund manager with TSG Capital Partners, a hedge fund based in Plano, Texas, and founder of GlobalTechStocks.com, a subscription site that focuses on technology and Indian stocks (including ADRs), providing information, news and chatter. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback; click here to send him an email.