the prudent path to growth - nielsen€¦ · the prudent path to growth . adrian terron . executive...

1Copyright © 2015 The Nielsen Company

BUDGET 2015

THE PRUDENT PATH TO GROWTH

2 BUDGET 2015: THE PRUDENT PATH TO GROWTH

C O N T E N T S

OVERVIEW ......................................................................................... 03

TELECOMMUNICATIONS ................................................................. 05

FMCG ................................................................................................ 07

INFORMATION TECHNOLOGY ........................................................ 09

FINANCIAL SERVICES ........................................................................ 12

RURAL AND AGRICULTURE ...............................................................16

THE AUTOMOBILE SECTOR...............................................................18

INDUSTRIAL CORE SECTORS ........................................................... 20

MEDIA................................................................................................22

PHARMACEUTICALS ......................................................................... 24


With the hype and hoopla that has come to surround the Union

Budget in India out of the way, the more substantive business

of rebuilding industry, investor and consumer confidence has

resumed. While it may not have whetted the hungry stock market

investor’s appetite for the pomp that usually accompanies dramatic

moves to stimulate market sentiment, the new government wins

on account of its consistency with stated goals. By clearly outlining

a growth path, it has reassured ratings agencies, international

investors, domestic business and individual tax-payers that it will

play the balancing act that long term growth and stronger fiscal

health demands.

Our sectoral experts have enumerated the developments and

announcements that most closely impact individual sectors.

Overall, the move towards rebuilding the economy and setting

it on a path of sustainable growth are bigger positives that

underscore the continued move towards inclusive development. At

the same time, realistic revenue goals while also retaining a focus

on supporting the agricultural and manufacturing sector have been

made possible by levying a gradually rising burden on the service

sector to reflect its proportionate share of GDP, focusing on

divestment proceeds and a reduced fuel subsidy bill on account of

sliding crude prices.

That said, the economy will have to wait for a slower recovery

given the budget’s focus on infrastructure investment rather than

a one-sided preference for stimulating demand through tax cuts.

This shows a more mature stance and a leaning towards longer

term reform rather than short term populism. In the following

pages, each of these announcements are listed and their sectoral

linkages outlined. In addition to the sector specific announcements

whose implications for government revenues and industry are

self-evident, our assessment is that the following developments are

also far-reaching with a bearing on the future:

THE PRUDENT PATH TO GROWTH ADRIAN TERRON

EXECUTIVE DIRECTOR NIELSEN INDIA

BUDGET 2015 SHOWS A MORE MATURE STANCE AND A LEANING TOWARDS LONGER TERM REFORM RATHER THAN SHORT TERM POPULISM – EVIDENT FROM THE FINANCE MINISTER’S FOCUS ON INFRASTRUCTURE INVESTMENT RATHER THAN A ONE-SIDED

PREFERENCE FOR STIMULATING DEMAND THROUGH TAX CUTS.


Devolution of decision making to states: The tenfold increase in

disbursement to states equates to nearly 1% of GDP that will result

in the government spending nearly half of its fiscal stimulus through

the states. This is a dramatic shift that could change the way an

electorate interacts with its government. Provided state governments

focus on key investments like power distribution, affordable housing,

health and sanitation and infrastructure, instead of freebies doled to

appease vote banks, this can transform the way consumers perceive

tangible change and progress. This in turn can help tax payers feel

more confident about the future and consequently, spending.

Funnelling of savings into investments rather than consumption: By creating tax free bonds to attract private investment into

infrastructure, incentivising investments in health and life insurance

and pensions and creating initiatives to monetise the Indian penchant

for storing value in metal gold, the budget has initiated a move

towards productive savings. The creation of a social security net that

includes both insurance for those most in need of it and a pension

scheme to cater to the longer term needs of India’s burgeoning

elderly population, can help envision a very different future for India’s

citizens.

Incentivizing non-cash transactions: Though thin on details, the

Finance Minister’s explicit focus and proposal to introduce several,

yet-to-be detailed measures to incentivizing credit and debit card

transactions is a slow-burn revolution in the making. Combined with

the impetus to payment banks, the creation of bank accounts for 125

million unbanked households, a surging telecom infrastructure and

a continued focus on bringing more money into the formal economy

through clamps on black money, this may mark the beginning of a

very different consumer economy. With consumers empowered to

carry and transact more easily, this bodes well for the way in which

consumers across the income spectrum purchase goods and services.

Admittedly, some of the moves to stimulate the economy sustainably

over the long term need greater detailing and a hard-nosed focus

on execution to realise their benefits fully. Nonetheless, the Union

Budget manages the tight rope walk with aplomb in a well-intentioned

roadmap to economic growth, albeit with a slightly longer time-frame

than businesses would have hoped. If patience is a virtue, now will be

the time for Indian industry to test themselves on it.

THE UNION BUDGET MANAGES THE TIGHT ROPE WALK WITH APLOMB IN A WELL-INTENTIONED ROADMAP TO ECONOMIC GROWTH, ALBEIT WITH A SLIGHTLY LONGER TIME-FRAME THAN BUSINESSES WOULD HAVE HOPED.


HIGHLIGHTS

• Maximisation of revenues from spectrum sales will have a positive

impact on reducing the fiscal deficit. However, there would be a

negative impact on debts on telecom operators who are already

struggling.

• The government’s special focus on the “make in India” initiative

will benefit SMEs in the sector.

• Reduction in corporate tax rates from 30% to 25% over the

next four years will help free-up additional cash for the telecom

industry.

• The digitisation of money at lower level and the ‘JAM’ trinity (Jan

Dhan, Aadhaar and Mobile Access including Payment banks) will

play a very important role in promoting cashless transactions and

usage of digital money.

• Increase in service tax from 12% to 14% will pinch mobile users

directly and also handsets, hands-free devices and memory

cards could become costlier with the proposed duty structure

rationalization.

The sale of spectrum is one of the crucial sources of funds which

will help the government bring down fiscal deficit. With the Finance

Minister announcing a reduced fiscal deficit target going forward,

it becomes all the more important to maximise revenues from the

spectrum sale.

All the 3 initiatives announced under “Make in India” should boost

local manufacturing:

a. Announcement to free SMEs from “prior permit raj” with the

aim of increasing the chances of “Make in India” and also

improving India’s ranking in “ease of doing business.”

b. Continued special additional duty on printed circuit boards (PCB)

c. Duty structure on imported mobile handsets doubled from 6%

with CENVAT credit to 12% with CENVAT credit.

ABHIJIT MATKARDIRECTOR NIELSEN INDIA

T E L E C O M M U N I C AT I O N S


Moving corporate tax rates from 30% to 25% in the next four years

should further free up cash for companies to invest in CAPEX/OPEX

to improve quality and services for both voice as well as in the rapidly

increasing area of mobile internet services.

The Govt’s positive approach on financial inclusion using mobile

access for digitisation of money will play an important role in

promoting cashless transactions (i.e. launch of payment banks

services) and usage of digital money. Our studies indicate that

close to 75% of consumers are considering opening a payment bank

account with their telecom service providers, who are well placed in

terms of distribution, reach and depth. But their next opportunity lies

in building trust with customers.

WHAT IT MEANS

With cut throat competition expected in the bidding process for the

precious 900 MHz spectrum slot, debts of the telecom companies

are expected to go up and it may also lead to hikes in mobile voice

and data tariffs. At the same time, this may trigger consolidation in

the industry (although this could be slightly difficult given the current

complex M&A norms)

Given the rapid increase in smartphone penetration in India (from

17% in Mar ’13 to 30% in Dec ’14), it’s yet to be seen if the increase in

costs of importing handsets will be passed on to consumers given the

fierce competition that exists between foreign and local players in the

handset category.

The increase in the service tax rate to 16% (inclusive of Swachh Bharat

cess) would also result in the services getting costlier for subscribers.

CONCLUSION

The industry, however, continues to wait for clarification on several

issues including a clear roadmap on the implementation of reduction

in corporate tax and simpler guidelines for mergers and acquisitions.

The industry had also requested for the compliance requirements

under GST to be made uniform, user-friendly and simple for

businesses and other stakeholders – but this remains unaddressed.


HIGHLIGHTS

• Boost to the rural economy

• Rollout of the goods and services tax (GST) from April 1, 2016

• Increased focus on infrastructure with investments

• Focus on employment generation, benefits to salaried community

by raising tax exemptions

• Service Tax increased and excise duty hike on tobacco

• Swachh Bharat campaign gets support

Rural economy to get a f illip: The focus on MNREGA, newer schemes

to boost rural farm yields, investment in infrastructure, creation of

National Agricultural mission to ensure better prices for both farmers

and consumers, electrification of 20,000 villages - all these will have

a favourable impact on disposable incomes and boost FMCG growth

in rural areas.

Power to Swachh Bharat: India seems to be headed for a health and

hygiene revolution with the Govt planning to build six crore toilets.

Enter GST: Introduction of GST will add buoyancy to the economy

by developing a common Indian market and reducing the cascading

effect on the cost of goods and services.

Essentials for all: Ambitious target to provide underprivileged Indians

with shelter, water, electricity and employment (minimum one per

household) under the Amrut Mahotsav by 2020. This coupled with

direct transfer of subsidy into beneficiaries’ Aadhaar -linked bank

account, will ensure benefits reaching rural consumers.

Service Tax up: Service tax has been increased from 12.36% to 14%.

Precooling ripening, retail packing and labelling of packaged fruits

and vegetables have been exempted from ST. Service tax exemption

to transportation of ‘food stuff ’ by rail, sea or road, will be limited to

foodgrain including rice and pulses, flours, milk and salt.

Smokers hit: 25% increase in excise duty on cigarettes of length not

exceeding 65 mm and by 15% for cigarettes of other lengths, cigars,

cheroots and cigarillos. The budget has also increased the excise duty

on cut tobacco from Rs 60 per kg to Rs 70 per kg.

Costlier beverages: The excise duty on aerated, flavoured drinks

and packaged water has been hiked from 17.5% to 18%. It will be

interesting to see how manufacturers deal with this increase.

DOLLY JHA EXECUTIVE DIRECTOR NIELSEN INDIA

FA S T M O V I N G C O N S U M E R G O O D S


WHAT IT MEANS

The 2015 Budget is pro-consumer, pro-farmer and pro-poor. The fast-

moving consumer goods industry is battling with stagnant volumes,

and slow growth, but 2015 promises to be one of hope, with experts

expecting double-digit growth for the sector as:

• Inflation has lost some of its bite.

• Announcement of several policies focussing on India’s rural/farm

growth.

• Development of roads and railways will lead to improved reach for

manufacturers.

• Tax exemption on Swachh Bharat-related schemes may induce

major FMCG players spend towards this scheme in addition to

their CSR activities. This will also lead to increased sensitization

on health and hygiene issues and FMCG categories in this space

like soaps and disinfectants are likely to grow.

• LPG subsidy will significantly ease the stress on the homemaker

and will help in bringing down household expenditure.

• The budget provides clear intent to ensure that the intended

subsidy reaches the poor via the Jan Dhan initiative. This will

improve the direct cash in hands of the masses both in urban and

rural India. FMCG companies can leverage this opportunity to

further drive penetration of branded consumer products as India

is still an under-served and under-penetrated market .

• The long-term agenda of focusing on improvement in

infrastructure – both rail and road as well as providing for basic

amenities and social security should do well for the FMCG

companies.

CONCLUSION

While the budget gave benefits in terms of saving tax, the increase in

service tax is likely to curb consumer spending. Overall, the benefits

of the budget will be seen in the medium run; quick gains in the short

term will be limited. The finance minister has presented a balanced

budget, walking the fine line between fiscal prudence and populist

reforms. While far from the game-changing budget of 1991 which

ushered in India’s economic liberalisation, the budget with its focus

on investments is a path to an investor-friendly India.


I N F O R M AT I O N T E C H N O L O G Y• Smart Country not just smart cities: INR 2510 crore allocated for

‘Digital India Programme and Telecommunications and Electronic

Industries.’

• Enterprising Entrepreneurs: Sanction for INR 1000 crore to

enable IT start-ups

• Enablers: Ease of doing business and e-governance initiatives,

favourable taxation and policy changes to encourage local

manufacture of digital devices like tablets.

SMART COUNTRY NOT JUST SMART CITIES

The smart city endeavour initiated in the July 2014 interim budget

(INR 7000 cr sanctioned) did not see a follow-up this year. The focus

was more on sustained uniform development and digitization drives.

‘Digital India’ is a 1.13 lakh crore initiative for all encompassing

digitization in the country by ushering in investments in electronics

manufacturing sector and make India a more connected economy.

• Open Wi-Fi would be made available at 400 railway stations

across the country

• Railways given the nod for digitised mapping of land to counter

encroachment

• Online booking of retiring rooms at select major stations

• The National Optical Fibre Network (NOFN) of 7.5 lakh kilometres

in nearly 2.5 lakh villages is being expedited by allowing favouring

states to undertake its execution on reimbursement of cost as

per DoIT. Besides, the reduction of customs duty on HDPE (High

density polyethylene) for use in the manufacture of optical fibre

cables from 7.5% to nil under customs duty will benefit the sector.

• Draft cabinet note finalization on e-Kranti, the circulation of a

note on national information infrastructure (NII) and the near

finalization of a note on common services centres.

• To improve enforcement, the Central Board of Direct Tax (CBDT)

and the Central Board of Excise and Customs (CBEC) will leverage

technology and have access to information in each other’s

databases. This would provide fresh opportunities to Indian IT/

ITeS players to provide IT solutions to this cause.

• The government has envisioned steps to make India a cashless

society. This would encourage more cashless transactions and is

expected to provide a significant boost to IT vendors.

KUNDAN KUMAR DIRECTOR NIELSEN INDIA


ENTERPRISING ENTREPRENEURS

The Finance Minister has announced several measures that will

provide a platform for start-ups and IT firms to expand and grow.

Some of the key ones include the sanction of INR 1000 crore to

enable IT start-ups, an initial sum of INR 150 cr to create a world-

class IT hub, mitigate credit availability issues faced in the micro

small and medium enterprises (MSME) sector by Microfinance Unit

Development Refinance (MUDRA) - a micro units development

refinance agency, Mudra Bank with a corpus of 20,000 crore and

credit guarantee corpus of INR 3000 crore.

EASE OF DOING BUSINESS – THE ENABLERS

• Reduced taxes on technical services from 25% to 10%

• Proposal to set-up an IT-based student financial aid system under

the PM Vidya Laxmi scheme

• To cut income tax on royalty fee on tech services to 10%. This

means that the tax on royalty will come down from 25% to 10%.

Reduction in withholding tax rates for payments royalties and

technical services fees will help the IT/ITeS sector use the latest

global technologies to improve their offerings.

• Removal of special additional duty on IT products and

components and concessional structure of 2% without CENVAT

(Central Value Added Tax) credit which is a big positive for

domestic manufacture of tablets.

• Reducing tax on R&D and innovation investments to 10% is

another positive move, both from the point of view of facilitating

technology transfer as well as incentivising companies to invest

more in driving innovation.

• Single-window clearance and increasing role of E-governance

to fast-track infrastructure projects need to be clearly spelt out.

Direct benefit transfer leading to better e-governance, will again

likely to benefit IT vendors.

WHAT IT MEANS

The focus of this year’s Budget is clearly on giving a boost to

the entrepreneurial environment in the country. The various

announcements will go a long way in encouraging growth among

start-ups and MSMEs in India. This will have a rub-off effect on IT-

enabled services enabling start-ups to evolve and compete effectively

with established players. Some key developments to be expected in

the ecosystem are:


• Cloud solutions for effective IT infrastructure in MSMEs

• IT and financial solutions ecosystem for relative favourability and

intervention strategies

• Bigger IT players will foster start-up developments and push their

own solutions and services to them as a win-win combination

The digitization drive will lead to higher internet penetration, higher

mobile internet usage and boost many of the traditionally offline

activities like tax-filing, online ticket booking and so on. Ventures

like cashless merchandizing will further promote m-commerce and

e-commerce in India.

The Prime Minster is also looking to Indian IT companies to offer

effective solutions like ‘cloud godowns’ and ‘digital lockers’ for on-

the-go information and document access.

CONCLUSION

On the whole, the IT/ITes industry is positive about Budget 2015 but

there are some aspects which have not been addressed:

• Clarity on rules regarding exemption of custom duty on telecom

goods manufactured in SEZs

• Excise duty on white goods were expected to come down

• Incentivizing creation of tax free export-oriented zones did not

find a mention in the Budget

• Address transfer pricing issues in IT/ITeS

• Clarity on tax implication on cloud computing on issues like

tax and regulatory obligations and risks arising from multiple

jurisdictions, especially since the service providers, service

recipients, infrastructure providers, etc. operate across geographic

boundaries.


F I N A N C I A L S E R V I C E SFinance Minister Arun Jaitley has released a budget aimed at high

growth, saying the pace of reducing fiscal deficit would slow down as

he seeks to boost investment and ensure that ordinary citizens can

benefit. The country’s fiscal deficit target for the 2015-’16 fiscal year

was set at 3.9% of the gross domestic product (GDP). Jaitley said the

government will work towards reducing the target gradually to 3% by

2017-‘18, one year later than previously expected.

TAXATION AND THE INDIVIDUAL TAX PAYER

HIGHLIGHTS

• Abolition of Wealth Tax

• Additional 2% surcharge for the ‘super-rich’ with income of over

INR 1 crore per annum

• Total exemption of up to INR 4,44,200 can be achieved for

individual tax payers

• Service tax increased to14%

• 100% exemption for contribution to Swachh Bharat, apart from

CSR

• Transport allowance for salaried increased to INR 1600 per month

The government’s goals since the last year’s Budget, has been

focussed on increasing savings. India’s savings rate needs to go up

by at least 5 percentage points to 36% if the country wants to sustain

a GDP growth of 7-8%. The government has also taken a pragmatic

view of increase in travel expenses and made changes to the transport

allowance which allows individuals to save a maximum of INR 9600 in

taxes.

The tax exemption of INR 4,44,200 might not be beneficial for

everyone since this also includes the interest on the housing loan

component. With a vast majority of the population not owning a

house, the key task is to reduce interest rates to make buying a house

easier. The RBI’s monetary policy this year seems to be moving in the

right direction. However, the industry and consumers are expecting

more measures on this front.

The impact of the increase in service tax will be felt on insurance

premiums being paid by consumers.

ANAND PARAMESWARAN DIRECTOR NIELSEN INDIA


FINANCIAL SECTOR

HIGHLIGHTS

• Non-Banking Financial Companies (NBFC) registered with the

RBI and having an asset size of INR 500 crore and above will be

considered as a ‘financial institution’ under the SARFAESI Act

2002 (Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act), enabling them to fund small

and medium-sized enterprises and mid-corporate businesses.

• Sovereign gold bond as an alternative to purchasing metal gold.

New scheme for gold depositors to earn interest and jewellers to

obtain loans on their metal accounts.

• To develop an Indian gold coin which will carry the Ashok Chakra on

its face. The move aims to reduce the demand for foreign coins and

recycle the gold available within the country.

• Increase in deduction for health insurance premium from Rs. 15,000

to Rs. 25,000. For senior citizens, this limit has been increased from

Rs 20,000 to Rs 30,000.

• Additional deduction of Rs 50,000 for contribution to pension.

• Mutual Fund (MF) distributors and financial advisors to pay service

tax on commissions.

The number of mutual fund distributors had dropped to 40,000

post the financial crisis in 2008. However, the industry is witnessing

seeing a gradual increase in the numbers over the past one year. This

move is a setback for the MF distributor who is already reeling under

low commissions. The only silver lining has been the impressive

stock market performance over the last 12 months leading to higher

investments by the retail sector.

Inflation on medical expenses and treatment has been rising sharply

than overall inflation. The need to incentivise individuals to buy a policy

to take care of these expenses is important. With the advent of new

life-threatening diseases, getting quality treatment becomes imperative.

Individuals without a policy tend to compromise on treatment costs

leading to higher mortality. There is also a drain on financial savings.

Right steps have been taken by raising the exemption limit.

India has 100 million elderly at present and the number is expected

to touch 323 million by 2050 -roughly about 20% of the population.

Factoring in inflation, today’s youth would need to save for his/her

future where costs will rise drastically. The government has given

additional tax benefits to individuals investing through the National

pension Scheme (NPS).

With access of NBFCs to the SARFAESI Act, such companies will be able

to better manage their loan assets along with smoother loan recovery.


UNIVERSAL SOCIAL SECURITY SYSTEM

HIGHLIGHTS

• Pradhan Mantri Suraksha Bima Yojana will be launched to cover

accidental death risk of Rs 2 lakh for a premium of just Rs 12 per

year.

• Atal Pension Yojana, which will provide a defined pension,

depending on the contribution and its period. To encourage people

to join this scheme, the government will contribute 50% of the

beneficiaries’ premium limited to Rs. 1000 each year for five years.

• Pradhan Mantri Jeevan Jyoti Bima Yojana introduced, which covers

both natural and accidental death risk of Rs 2 lakh. The premium will

be Rs 330 per year, or less than one rupee per day, for the age group

18-50.

• Housing for all - building six crore ‘pucca’ houses for poor in the

country by 2022.

A key growth driver of the Indian banking sector includes financial

inclusion which will help the banking sector achieve its aim of expansion

and growth. With the bank accounts now opened under Jan Dhan

which will aid in direct subsidy transfer, the government is also looking

at increasing the security net of the poor. In a bid to help weaker

sections of the society in the event of disease or accident, the Bima

Yojana will help overcome these adversities and aid in improving their

overall savings potential. This also means not relying on traditional

moneylenders and the unorganised sector for loans with high interest in

the case of any eventuality.

The govt. aims to construct 20 million houses in urban areas and 40

million houses in rural areas. This move will also benefit banks and

housing finance companies thanks to the projected increase in the

number of home loans availed.

BUDGET IMPACT ON EMPLOYEES

With respect to Employees Provident Fund (EPF), the employee will be

provided two options. First, the employee may opt for EPF or the New

Pension Scheme (NPS). Second, for employees earning below a certain

monthly income threshold, contribution to EPF would be optional,

without affecting or reducing the employer’s contribution.

The take home salary has been a concern for the Indian salaried

class. With multiple taxes (income and professional), EPF and other

deductions like bonus and gratuity, the net pay is far lower than what

individuals expect. This has a greater impact on the younger population

staying as tenants since a substantial amount is diverted towards

payment of rent. The government has taken a bold step in proposing

a new legislation to make these changes. Care should be taken that

employee social security fund is not compromised and this should be

capped to a certain age or income limit.


WHAT IT MEANS

It is clear the government has presented a balanced budget taking into

account all sections of the society. The budget focusses on:

1. Increasing the savings rate by focussing on savings rather than

just increasing consumption

2. Financial inclusion and social security to reduce the dependence

of poor on other sources

3. Focus on health and pension which can hinder growth if not

addressed now

4. Utilize vast reserves of gold currently lying with individuals

CONCLUSION

There are a few aspects that the industry continues to expect. These

include a further increase in tax exemptions to increase forced

savings, extending additional benefit on investing for pension to life

insurance policies and a consistent policy by each financial regulator

to avoid course correction.

Apart from the Budget, consumers and the industry will be keeping

a close watch on the RBI monetary policy since a lower interest

regime is required to spur growth of financial products. With EMIs

constituting a major pie of the payouts every month, savings and

consumption would get triggered in case of a rate cut.


R U R A L A N D A G R I C U LT U R EThe budget for Rural and Agriculture this year prepares the sector for

the future. There is a roadmap for developing the rural economy and

improving the country’s agriculture productivity.

By 2022, the 75th year of India’s independence, the government wants

to increase agricultural output and establish optimum prices for

agricultural produce. The government is also committed to increasing

the irrigated area and improve the efficiency of existing irrigation

systems. There are plans to promote agro-based industries for value

addition and increasing farm incomes by ensuring reasonable prices

for farm produce.

A Soil Health Card Scheme has been launched to improve soil fertility.

‘Per Drop More Crop’ seems to be the aim of the government, with

them focussing on various micro-irrigation schemes. There’s an

allocation of INR 5,300 crore to support micro-irrigation, watershed

development, and the Pradhan Mantri Krishi Sinchai Yojana. The

budget aims to create a Unified National Agriculture Market, which

will have the incidental benefit of moderating price rises.

Another aim of the government is electrification of the remaining

20,000 villages in India by 2020, including off-grid solar power

generation where necessary.

Infrastructure will also play a huge role in developing rural India.

The government plans to connect each of the 1,78,000 unconnected

habitations by all-weather roads. This will require completing

1,00,000 km of roads currently under construction, plus sanctioning

and building another 1,00,000 km of roads.

To provide effective and hassle-free agriculture credit, the budget

proposes to allocate INR 25,000 crore in 2015-16 to the corpus of

Rural Infrastructure Development Fund (RIDF) set up in NABARD;

INR 15,000 crore for Long Term Rural Credit Fund; INR 45,000 crore

for Short Term Cooperative Rural Credit Refinance Fund; and INR

15,000 crore for Short Term RRB Refinance Fund.

The budget also aims to provide the quality and effectiveness of

activities under MGNREGA with initial allocation of INR 34,699 crore

for the programme.

RITESH SAHUDIRECTOR NIELSEN INDIA

BUDGET 2015 PROVIDES A ROADMAP FOR DEVELOPING THE RURAL ECONOMY AND IMPROVING THE COUNTRY’S AGRICULTURE PRODUCTIVITY.


WHAT IT MEANS

The government is cognizant of the fact that agricultural incomes are

under stress. Along with increased investments in MGNREGA and

rural credit, a firm roadmap for uplifting the rural economy is being

chalked out.

More money in the hands of the rural masses by way of schemes

like farm credit, rural infrastructure funds allocation, MGNREGA

allocation, and increasing agricultural productivity would translate into

increasing purchasing power of rural India, making rural an important

sector for the growth plans of various companies.

In a study conducted by Nielsen in 2014, 42% of rural consumers

indicated lack of information on output price as an area of

dissatisfaction. Addressing this need through a unified market, would

help in increasing rural satisfaction and confidence.

CONCLUSION

The government has pressed the right buttons to effectively address

the condition of the current rural economy. Soil, water, credit and

finally right price realisations are the key focus of the government

this year for improving India’s agricultural productivity. Effective

implementation of credit, irrigation, and unified market would bring

the country’s rural economy to a different platform than what it is

today.

Addressing infrastructure needs like electrification and roads also

form a part of the government’s vision towards making a better rural

India. Effectively addressing these needs would definitely lead to a

stronger, more confident rural sector.

We would look forward to the implementation of the plans put forward

in the budget. The speed of execution and the percolation of benefits

to the desired level will play an important role towards improving the

rural economy - a significant aim for the government in this budget.


A U TO M O B I L E S HIGHLIGHTS

• Goods and Services Tax (GST) to be implemented from 1 April

2016

• INR 75 crore investment to benefit electric vehicles along with a

waiver of duty on electric and hybrid vehicles

• Effective tariff rate on imported commercial vehicles increased

from 10% to 20%, in line with the “Make in India” initiative

• Road infrastructure to get a boost with a proposal of 1 lakh kms to

connect smaller regions of the country

Auto sales in general have been under pressure for the last few

months with the economy yet to show signs of a recovery. Vehicle

sales around the festive season too, have not been satisfactory.

Further, the withdrawal of the excise cut that was introduced in the

new year has forced auto makers to increase prices, affecting sales.

While the overall budget looks positive, there is no direct short-term

benefit to the sector.

• Goods and Sales Tax: The big news out of this Budget 2015 is

the implementation of GST from April 1, 2016, one of the auto

industry’s top demands. Direct taxation will simplify vehicle

pricing and will see a standardization of prices across the country.

• 75 crore for electric vehicles: An investment of INR 75 crores has

been proposed under the Faster Adoption and Manufacturing

of Electric Vehicles (FAME) scheme for FY’16, along with other

benefits such as import of select parts for electric and hybrid

vehicles. However, for the industry to realize sizeable growth in

sales of electric vehicles or better infrastructure like charging

stations, the investment proposed may not match up. It may

however, benefit the growth of small bicycle and electric two

wheeler makers to increase electric mobility inside closed

campuses.

• Imported commercial vehicles to be more expensive: Tariff rate

on commercial vehicles has been increased from 10% to 40% -

primarily borne out of a 10% increase in tariff rate, and a 20% hike

on import duties. As a result, the effective tariff rate on imported

commercial vehicles has gone up from 10% to 20%. This move

is to encourage local manufacturing of commercial vehicles and

provide an equal playing field for all companies in the market.

RAJESH NAGAREASSOCIATE DIRECTOR NIELSEN INDIA

SANDEEP PANDE ASSOCIATE DIRECTOR NIELSEN INDIA


• Infrastructure boost: The govt has proposed to add 1 lakh kms to

India’s road network to connect smaller regions of the country.

This step will have a positive impact on sales of cars in smaller

towns as well as commercial vehicles. However, this will be

dependent on quick execution and timely completion of the

projects.

WHAT IT MEANS

While the budget does not promise any immediate benefits, the

revitalization of PPP model and development of 1 lakh km of new

roads will have a significant impact on the commercial vehicles

segment.

This budget has the potential to raise consumer sentiment as a

result of the higher investment across primary, secondary and tertiary

sectors by driving liquidity, demand and employment.

In the near-to-long term, the passenger vehicles industry could derive

support from reducing cost of ownership with softening fuel prices

and declining inflation. Increasing disposable income in rural areas

with credit of INR 8.5 lakh being offered to farmers, will indirectly

boost the agricultural equipment and tractors followed by the two-

wheeler segment.

CONCLUSION

An extension or reduction in excise duty would have given immediate

boost to the sector, but it seems the industry has to wait for some

more time to receive any major sops.

The increase in duty of imported commercial vehicles will not have any

positive impact on domestic CV players, as they primarily operate in

the lower HP category. The size of the imported commercial vehicles

market is also minuscule compared to the mass segment.

With no major direct benefits in place, auto sector will have to hope

that the economy improves, which in turn may lead to a boost in

demand. The industry will also look forward to special packages from

the government in the near future to support a sector that has been

contributing to the country’s GDP significantly.


K E Y I N D U S T R I A L S E C TO R SHIGHLIGHTS

• Stable and forward-looking budget sans populism

• Postponement of General Anti Avoidance Rules of Taxation

(GAAR) by two years a respite for foreign investors

• A bankruptcy code to be rolled out in the next fiscal making it

easier for investors to exit their investments

• Additional spending on infrastructure backed by funding and

equity commitments

The budget addresses the issue of what ails India – lack of

investments. The decline in growth rates in the past four years can be

attributed mainly to a 6% drop in investments as a percentage of GDP

that stalled several large infrastructure and manufacturing projects.

Around INR 8.5-9 lakh crores worth of projects are either in stasis

or stopped. This prolonged policy paralysis also kept investors away

impacting business sentiment and growth.

The proposed additional INR 70,000 crore spending in infrastructure,

equivalent to around 0.5% of the GDP, should help rope in reluctant

investors particularly in roads, ports, power and railways. India needs

to spend much more than this on infrastructure to achieve 8%+

growth in the next three years. The budget proposes to mop-up extra

revenues through increase in excise duty and service tax.

The renewed focus on funding infrastructure investments at the

expense of fiscal consolidation is noteworthy. The government’s

promise of an infrastructure fund to provide equity for projects is

a tangible commitment that investors will take note of. The plan to

reduce corporate tax to 25% over four years and the commitment

to introduce Goods and Services Tax from next year will make

manufacturing more competitive. Any efforts to reduce tax uncertainty

are bound to encourage investors.

ANUP SP KUMARASSOCIATE DIRECTOR NIELSEN INDIA

“THE GOVERNMENT’S PROMISE OF AN INFRASTRUCTURE FUND TO PROVIDE EQUITY FOR PROJECTS IS A TANGIBLE COMMITMENT THAT INVESTORS WILL TAKE NOTE OF.”


WHAT IT MEANS

The budget’s focus on reviving investments in a phased manner

reflects the shifting priorities away from populism and towards public

and private investment. While it lacks sweeping changes and pro-

market reforms, measures taken to attract investment and restore

investor confidence is quite visible. The additional investment in

infrastructure will provide a fillip to the manufacturing sector that has

seen a decline in recent years.

However, actionable measures for the ‘Make in India’ programme are

still largely missing. The government has more or less ignored several

recommendations from the industry and government departments

with respect to counter vailing duties (CVD) on imports, investments

to build a robust digital network infrastructure, tax amendments

in the CST to fuel e-commerce, a clear policy framework for small

and medium enterprises (SME) to embrace innovation and adopt

technology and the green energy sector. Additionally, the PSU stake

sale though part of the government’s plan to generate revenue, seems

lower than what the industry anticipated and is yet to have a firm

roadmap. It’s time to translate the intent to action.


M E D I ABudget 2015 has been mostly neutral for the Media and Entertainment

(M&E) industry. None of the major expectations that the industry was

hoping for have been met in this year’s budget like deduction of tax

at source, parity with the manufacturing industry so that tax benefits

are applicable to the service industry, broadcasters and content

production companies, rationalization of indirect taxes, increase of

FDI in News up to 49%, etc. There are neither concessions nor any

incentives offered for the M&E industry in the current budget.

At an overall level the industry will be impacted due to some other

provisions in the budget. Increase in service tax plus education cess

from 12.36% to 14% is likely to have an impact on marketing spends

and other service related expenses.

Now service tax is to be levied on service provided by way of access

to amusement parks like water parks, theme parks, bowling alleys,

amusement arcades, entertainment events or concerts, pageants,

non-recognised sporting events amongst others, and consumers will

have to shell out more for these entertainment options. Till now these

services have been exempted from service tax – thus the increase in

tax to 14% is likely to impact footfalls unless companies can absorb

the increase without affecting their offering.

Internet/ Cable / TV/ DTH are considered services and any increase

in service tax would mean an increase in the monthly bills that the

consumers will have to pay. Service tax increase will also impact the

pay-out for consumers on multiple entertainment fronts. Ticket prices

at cinemas are likely to increase marginally. In the short term service

tax increase is likely to impact advertising revenues and hence impact

Broadcasters and Publishers as well.

Basic custom duty on OLED TV panel and black light unit module

used in LCD/ LED TV panel has been reduced from 10% to nil. This

reduction in taxes on OLED and LCD/ LED TV panel will help in

reducing prices of flat screen televisions. This may result in increasing

penetration of television in lower penetrated markets and possibly

help convert CRT TV households to flat screen TV households – in

the process enhancing TV viewing experience. Improved viewing

experience may lead to higher trial and possibly adoption of digital

connectivity. However, immediate impact of this reduction in taxes

will be felt more by the Durables category than the Media and

Entertainment industry, which might have a deferred impact in the

long term.

UMESH JHADIRECTOR NIELSEN INDIA

DHARNIDHAR BAPAT ASSOCIATE DIRECTOR NIELSEN INDIA


The total budget of the I&B Ministry has been raised to INR 3,711.11

crore for 2015-16. Additionally, the grants-in-aid for Prasar Bharati

have also been raised to INR 2,824.55 crore for 2015-16, apart from an

investment of INR 200 crore by the government in the pubcaster.

The budget proposes a Centre for Film Production, Animation, &

Gaming in Arunachal Pradesh for the North Eastern states, which is

likely to benefit the region provided the state implements these plans,

as no specific budgetary provisions have been made.

There’s also a proposed reduction in corporate taxes from 30% to 25%

over the next 4 years, which will benefit all media companies just as it

will benefit the rest of companies.

WHAT THIS MEANS

Service tax increase is likely to increase marketing spends for the

industry and this in turn will impact product pricing. The only silver

lining for the M&E industry is the reduction duties on flat screens/

panels, which will result in reducing flat screen TV prices. A long

shot positive fall out might be observed in East India. This may help

coverage of television in media dark areas of states like Bihar and

West Bengal - if ‘Ache Din’ reaches these parts faster.

This year the budget has not been encouraging for the Media and

Entertainment industry as none of the industry expectations have

been met but some of the other aspects of the budget might have an

indirect impact on the industry.


HIGHLIGHTS

• Increase in the limit of deduction of health insurance premium from

INR 15,000 to INR 25,000 annually and from INR 20,000 to INR

30,000 for senior citizens

• To enhance media facilities, AIIMS (All India Institute of Medical

Sciences) to be set up in J&K, Punjab, Tamil Nadu, Himachal Pradesh

and Assam

• Visa on arrival scheme extended to 150 countries to have a positive

impact on medical tourism

• Accident insurance of Rs. 2 lakh for a premium of just Rs. 12/- per year

under the soon-to-be-launched Pradhan Mantri Suraksha Bima Yojana

• Social safety net – INR 50,000 deduction (Pension scheme)

• Corporate tax reduction

• Service tax increased from 12.36% to 14%

In tandem with the ‘Swachh Bharat’ campaign, the government’s focus

is clearly on preventive healthcare. This is evident from the setting up

additional centres of excellence – AIIMS, additional tax deduction up to INR

25,000, accidental insurance, social safety net etc.

The visa on arrival scheme will be extended to 150 countries over a period

of time and this move would have a positive impact on medical tourism.

Experts estimates that a medical tourist brings in 5X more revenue/foreign

currency in comparison to tourist on leisure.

RISE IN HEALTHCARE INSURANCE: Increased tax exemption would boost

penetration of health insurance. Also, increased penetration could persuade

insurance companies to decide inclusion of drugs in the reimbursement

list.

Deductions under expenditure towards specified diseases of a serious

nature, would see the launch of more disease specific insurance.

Additionally, affordability of drugs will rise given the insurance coverage.

HOSPITAL INFRASTRUCTURE: The ambitious plan of setting up additional

AIIMS would help in timely and accurate early diagnosis.

Growth in medical infrastructure – corporate hospitals like Apollo, Fortis

etc., should be quick to expand in smaller towns and rural areas. There

could be a lot of activity in the area of acquisition or consolidation of local

hospitals in the near future.

PHARMACEUTICALS

PATTABHIRAMAN IYERASSOCIATE DIRECTOR NIELSEN INDIA


This dramatic rise in hospital infrastructure would have several

implications including a positive impact on the workforce – physicians

and paramedics, number of medical colleges are likely to increase, mode

of engagement of pharmaceutical companies with hospitals will go

beyond the hygiene contracting and negotiation towards setting treatment

protocols, products specifically catered to hospitals. The rise in hospital

infrastructure also heightens the engagement with the consumer by

increasing patient footfalls, relevance, OPD to IPD conversion and patient

satisfaction.

While the medical infrastructure will help in augmenting diagnosis,

treatment rate and early detection, patient compliance continues to be a

challenge.

CONSUMER CENTRIC APPROACH

• Rise in prevalence and treatment of chronic diseases is reported

to be one of key attributes associated with growth for the Indian

pharma industry. However, this growth is plagued by poor adherence

to treatment.

• Poor adherence to medication is a major problem both in terms of

loss of human lives and huge drain in revenues.

• Pharmaceutical companies increasingly feel the need to simplify

the complex patient treatment journey thereby identifying key

intervention points improving patient compliance and adherence to

chronic ailments.

• Manufacturers are particularly interested in understanding the

challenges faced with regards to disease management like daily

routine monitoring, doctor visits and drug compliance. It will also

be beneficial to draw a pen-portrait of a chronic ailment sufferer

outlining demographics, beliefs, knowledge levels etc.

• Understanding the end-consumer would help in developing

marketing strategies, be it doctor communication (talking science

with a focus on the patient) and patient specific intervention viz.

familiarity/knowledge levels with regard to the condition.

• Pharmaceutical producers are making a conscious effort in inducing

“PLAY/JOY” in the life of a sufferer by exhibiting relevance of their

product offerings/tailor patient adherence program.

CONCLUSION

While government initiatives in the area of healthcare are welcome,

the industry was expecting impetus and concessions in the area of

manufacturing, policy reforms/guidelines in the area of clinical trials.

India, with a billion plus population, is a major destination for clinical

trials. Clear guidelines to boost and encourage this industry could greatly

benefit the industry.


ABOUT NIELSEN Nielsen N.V. (NYSE: NLSN) is a global performance management

company that provides a comprehensive understanding of what

consumers Watch and Buy. Nielsen’s Watch segment provides

media and advertising clients with Total Audience measurement

services across all devices where content — video, audio and text

— is consumed. The Buy segment offers consumer packaged goods

manufacturers and retailers the industry’s only global view of retail

performance measurement. By integrating information from its Watch

and Buy segments and other data sources, Nielsen provides its clients

with both world-class measurement as well as analytics that help

improve performance. Nielsen, an S&P 500 company, has operations

in over 100 countries that cover more than 90 percent of the world’s

population. For more information, visit www.nielsen.com.

the prudent path to growth - nielsen€¦ · the prudent path to growth . adrian terron . executive...

Documents