Cut in excise duties a positive for manufacturing: Religare

Shachindra NathReligare

The interim budget for FY15 was expected to spring no surprises, stick to fiscal discipline as a theme, as macro fundamentals turn around in a gradual recovery. To that extent, the budget has delivered on the whole, with a 4.6% FY14 fiscal deficit improving to 4.1% FY15, albeit on optimistic tax revenue estimates. The tax revenues for FY15 are pegged at 986,417 crore rupees – an ambitious growth of nearly 18% over FY14. Overall subsidy burden has remained largely flat vis-à-vis the revised figures for FY14 of Rs2.45trn, with food subsidy rising sharply to Rs1.15trn as the food security bill comes into effect. Fertilizer and oil, the other two major heads, remain largely in control, even as they subsume deferrals.  Oil subsidy of 35,000 crore rupees, for example, has been rolled over to the next financial year. The revised estimate for planned expenditure, used to create productive assets, is lower by almost 80,000 crore rupees. The huge reduction in planned expenditure coupled with rolling over of 35,000-rupee oil subsidy to FY15 largely explains fiscal deficit at 4.6% versus target of 4.8%. 

The cut in excise duties on capital goods, consumer durables, and vehicles including cars, two-wheelers and commercial vehicles is a positive. It may give some much-needed boost to the manufacturing sector if duty cut is passed-on to consumers by way of reasonable price correction. This is especially true in the case of automobile sector where the duty cut in case of SUVs, small cars, two-wheelers and commercial vehicles has been in the range of 4-6%. While the window of excise duty reduction is limited and valid only till June 30, 2014, it is likely that the new government will not do away with these cuts to ensure a meaningful pickup in growth in these sectors. Barring surprises in the fine print, we do not expect the market to react negatively, given that the expected trajectory of fiscal consolidation seems to be on track.”