How India's 2008 Budget is going to affect Indians?

By Vipin Agnihotri

With today’s budget, plenty of things in India have gone cheaper while others have become expensive. If you are a chain smoker, there is bad news for you. P Chidambaram has raised duty on non-filter cigarettes. So it will obviously cost you more from now on. As Finance Minister has not proposed anything regarding liquor prices, you do not need to worry about the price of your favorite drink.

In case if you are planning to buy a new car, wait till April 1. This is because of the fact that P Chidambaram has proposed a reduction in the customs duty on small and hybrid cars. Auto manufacturers of hybrid cars are quite happy as Finance Minister has lower the excise duty on them from 24 per cent to 14 per cent. Hybrid cars are presently not on sale in India but come April, likes of Honda Siel, Toyota India and Mahindra & Mahindra is going to launch their vehicles.

If you are interested in buying new washing machine or refrigerator then there is good news for you. Indian Finance Minister believes that the manufacturing sector is the backbone of Indian economy and that is why he has given a 2 per cent general cut in excise duty on all consumer goods.

Brilliant news for Indian students, Chidambaram has announced a 20 per cent hike in education budget this year from Rs 28,674 crore (Rs 286.74 billion) to Rs 34,400 crore (Rs 344 billion). However, for mobile phone industry, news is not that encouraging. In my opinion, mobile phone users would now have to shell out more money for buying new handsets, with Indian government all set to levy one per cent excise duty on them.

Chidambaram has proposed to lower customs duty on specified life saving drugs from 10 per cent to 5 per cent. Furthermore, Anti-AIDS drugs have also got excise duty exemption. News is not that good for software industry, as Finance Minister has increased the excise duty on packaged software from 8 per cent to 12 per cent.

Suggested Reading:

• Exclusive: Insider Information on the New India Budget

• Future of Indian consumer durables market

Real Estate Perspective of the Finance Budget by Jones Lang LaSalle

This budget has not given much direct attention to the needs of the real estate sector, except in peripheral ways. While the focus on upliftment of the common man is definitely positive, it would seem that a general waking-up to the sector’s potential and ongoing contributions to the country’s economy is still pending. There has been no mention on granting the sector industry status.

• The fact that no decisive announcement has been made on the extension of the STPI scheme is discouraging, and of definite concern to and IT/ ITES occupiers and developers, given that a large number of SEZs will take beyond 31^st March ’09 to be fully functional.

• The industry expected that service tax on rent would be scrapped.

• There are no specific direct benefits available for the retail industry in this budget. However, reduced overall taxation in various areas will result in higher disposable incomes and will have some positive effects for this sector

• The fact that short term capital gains tax has been raised to 15% will not have a significant bearing on future investments in real estate, which in any case is not a suitable route for investment horizons below 3-5 years.

• The budget seems to have overlooked affordable housing in urban areas

However, there are some positives:

• The fact that Green development has been given a special focus is positive. It indicates that sustainable real estate development has now been recognized as the wave of the future in real estate. The introduction of an institutional mechanism in this field is a step in the right direction.

• The increase of rural infrastructure funding will help alleviate the burden on urban areas by boosting development in rural areas and therefore reducing migration to the urban cities, and the burden on urban infrastructure.

• The raising of allocation for the Bharat Nirman Yojana to Rs 31,280 crore is a step forward. This project, meant to develop infrastructure, was way behind schedule and definitely needed a shot in the arm. We can anticipate increased supply of land across all sectors of real estate as a result of this investment in infrastructure, which will open up large parcels of land for development in the mid-to-long term.

• Commercial space will benefit from the fact that there is a focus on national knowledge centres. The weightage given to knowledge outsourcing spells good news, since it will encourage manpower for the KPO sector, thereby propagating KPO business and hence office real estate demand.

• The special focus on education and healthcare is encouraging. It will have a positive impact on the inherent value of townships developing in many parts of the country. The availability of educational and healthcare facilities always adds great value to such projects, and to any location in general. Moreover, better education results in higher professionalism and more opportunities in every sector, including real estate. However, what we need is an increased focus on vocational skills, and we see no time-bound prospects in terms of implementation in this regard.

• We see value for the real estate sector in the fact that a 5-year tax holiday has been granted to Tier II/III city-based hospitals and 2/3/4 star hotels in UNESCO-specified heritage districts.

• Reverse mortgage will not amount to transfer of property and is therefore not taxable. This will help popularize the very progressive concept of reverse mortgage and encourage purchase of property by/for senior citizens.

• It is laudable that the Finance Minister has advanced the concept of rationalization of Stamp Duty across all states. However, he has not clarified how this rationalization will be structured.

• The Budget is good news for Tier II/III cities, where infrastructural development will ensure that they continue to boom. We must remember that Indian real estate is, after all, not only about the metros but to a significant extent also about anonymous areas that are transforming into new real estate destinations.

Salient features of Indian budget 2008

By Vipin Agnihotri

Indian Finance Minister P Chidambaram today presented his fifth annual budget. All through out the day, The India Street analyzed this year budget for their readers. Find below some of the salient features of Indian budget.

• First and foremost, threshold of exemption for all Income Tax assesses increased from Rs 1,10,000 to Rs 1,50,000.

• Indian government will provide five-year tax holiday for setting up hospitals in tier II and tier III regions in rural areas from April this year.

• Short-term capital gains increases to 15 per cent.

• On the lines of Securities Transaction Tax, Commodities Transaction Tax to be introduced.

• There is going to be no modification in corporate income tax.

• Plan expenditure fixed at Rs 2,43,000 crore and non-plan expenditure at 5,74,000 crore.

• Fiscal deficit pegged at 3.1 per cent and revenue deficit at 1.4 per cent.

• In terms of statistic, Tax to GDP ratio increased from 9.2 per cent in 2004-05 to 12.5 percent 2007-08.

• Excise duty on small cars has been lowered to 12 per cent from 16 per cent and hybrid cars to 14 per cent.

• Asset management service under mutual funds, services by stock exchanges to be brought under Services Tax net.

• Risk Capital Fund to be set up in SIDBI.

• Eleventh Plan started on a robust growth.

• Gross budgetary support to be raised to Rs 2,43,386 crore. This by the way is an increase of more than Rs 38,000 crore from the present level.

• It has come to the notice that GDP growth has slowed down to 8.4 per cent during quarter ended December 31, 2007 as compared to 9.1 per cent a year ago.

• Services and manufacturing sectors expected to grow by 10.7 per cent and 9.4 per cent.

Suggested Reading:

• Exclusive: Insider Information on the New India Budget

• Future of Indian consumer durables market

CNBC India: India Finance Budget 2008

We're starting to add some of the local India CNBC investment channel video to the India Street as we come up on our new website release this month. Below, we have added a recent CNBC segment on the Finance Budget for your enjoyment.

Some Highlights:

*No changes for Corporate Income Tax * Small cars and Hybrid incise tax cut