The upcoming Budget 2004-05 is likely to bring concrete measures for a few listed sectors, while indirectly impacting some. In a detailed pre-budget report prepared by InvestCap, analysts foresee positive budgetary measures for commercial banks, textile, synthetic, consumer goods, and cement sectors.
According to the report, the insurance, telecom, fertiliser, OMCs, IPPs, and oil & gas sectors there would not be any major policy change in the upcoming budget.
The political government's second budget is likely to focus on increased development and social spending with focus on agriculture, housing, and infrastructure development.
The report says the emphasis would be laid to maintain a 6 percent plus GDP growth rate along with measures for poverty alleviation and employment generation, the two key challenges still facing the country.
For banks, a 3 percent reduction in tax rate and rationalisation of National Saving Scheme bodes well. Measures to boost industrial growth and SMEs may result in further credit growth for the banks.
The government's higher bank borrowing target in the next year will also affect banks import duty (of 10-15 percent) on some textile machinery may also be reduced to encourage continuing BMR.
This bodes well for the local textile companies that are now prepared for the WTO challenges.
The GST on PSF, charged at 20 percent, may be brought down to 15 percent, as is the case for most of the goods and services in the economy.
The 5 percent reduction in the GST rate, if carried out, would be positive in generating slightly higher demand for the PSF.
This would help the industry, which is currently facing oversupply. On the face of it, this would result in a loss of Rs 2-3 billion to the national exchequer. However, reduction in refunds for textile exporters will compensate the government for this loss in revenues, says the report.
For the cement industry the brokerage believes that the government plans to phase out CED on cement by FY07.
A reduction of Rs 150-250 a ton in the budget is likely. Moreover, a further relaxation of import duty on steel is also expected, as prices are still higher than last year.
The Public Sector Development Programme (PSDP) budget, a portion of which is spent on construction-related activities, is expected to be increased to Rs 200 billion as compared to last year's amount of Rs 160 billion.
These measures, if announced, will generate good demand for cement in the next year, and will support the bottom line of cement firms.
The local cement sector was the largest beneficiary of measures announced in the last budget to support the construction sector.
The government had looked to initiate a housing & construction boom to stimulate the country's economy.
A consensus on building of a dam is likely to be reached soon. The odds are in favour of building smaller dams in the future. Besides, feasibility of Bhasha Dam is likely to be completed by the end of FY04.
The government may allocate funds for construction of dams in the budget. The local cement sector has been demanding some increase in rebate on exports (currently at Rs 54/ton) and reduction in import duty on coal from current rate of 10 percent to 5 percent.
However, the chances of these materialising are minimal keeping in view unprecedented profits being earned by the sector.
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