Power: - (Positive gains)

a) Five ultra mega power projects on card of 4000 MW each.

b) De-blocking coal reserves of 20 billion tones for power projects.

c) 39500 MW of power to go on stream within three years.

d) Electrification of 40,000 Villages in FY07 against 10,000 Villages in FY06.

e) Reduction in import duties of naphtha from 10 to 5 per cent.

f) Tax holiday under section 80 IA has been extended upto 2010.

Power sector has been high on the Finance minister's priority list. Why not-the kind of power shortage as well as high power cost that affects cost competitiveness of India Inc. cannot be undermined. Recognizing these urgent needs, for the first time government has mulled to invite bids for five ultra mega power projects of 4000 MW each - two of which would be pit - head while three coastal. It also plans to award these contracts before December 2006 to expedite the process besides focusing on durable reforms in transmission and distribution too.

This is likely to benefit some of the large power companies like Reliance Energy, Tata Power NTPC, CESC etc. This in turn would help key power equipment players like BHEL, ABB, Alstom Projects, Siemens, Crompton Greaves, EMCO etc. Further the government plans to de-bottle coal reserve to the tune of 20 billion tones exclusively for power projects - the key input for power generation. This move is likely to benefit companies like Neyveli Lignite, NTPC etc.

The cut in import duties from 10 per cent to 5 per cent (exempt from CVD of 4 per cent) would also reduce cost of power for naptha-fired power plant. Torrent Power SEC, Torrent Power AEC, GIPCL, CESC etc may marginally benefit from this move. Keeping the focus on rural economy, the government mulls to electrify almost 40,000 villages in FY07 as compared to 10,000 villages in FY06. These would help companies catering to power cable, KEC International etc.

Further, to enhance the private participation in power sector, the FM has extendedthe tax holiday under section 80 IA (which allows for a 10 yrs tax holiday) upto 2010 for power projects, which would help the companies that are planning for new power plants including ultra mega power projects. Further, the 54 per cent hike in rural spending by the government towards infrastructure would also to some extent help the power utilities companies. Thus, the government has tried to expedite the process of power reforms, which was moving in slow pace and was largely positive for power sector.

Shipping: - (Short-sighted sops)

a) Plan allocation for Department of Shipping increased by 37 per cent to Rs. 735 crore.

b) Detailed study proposed by the ministry for identifying for a new deep draft port in West Bengal.

c) Industry demand for exemption from service tax purview overlooked.

The government is taking the building of port infrastructure quite seriously as the plan allocation for Department of Shipping has been increased 37 per cent to Rs. 735 crore. Currently the work is in progress in 101 projects covering deepening of channel in Kandla, JNPT and Paradip. Dredging Corporation of India is one such company, which would be benefited by this going forward. According to the Union Minister for Shipping, T.R. Baalu Dredging Corporation of India could bag more chunks of dredging work in the Sethusamudram canal and the bids for this are likely to be awarded by September this year.

The other positive for the industry is the reduction of the FBT for crew hospitality to 5 per cent from 20 per cent, which will give some relief to the sector. But the increase of service tax to 12 per cent has only increased the concerns for the industry. The long going demand of the industry to keep them out of the purview of service tax has not received any attention from the ministry. The input services for industry are not subject to tax globally. However, instead of towing the line with global trend, the budget has not given them any relief. The increased MAT to 10 per cent would mean that the profit on sale of ships would attract higher MAT rate. Other issues pertaining to custom duty have not been looked into by the budget this year.

Telecom: - (Mixed Connections)

a) Provision of Rs. 1500 crore for Universal Services Obligation Fund in 2006-07.

b) Tele-density stood at 11.75 per 100 at end-January 2006.

c) Target to reach 250 million connections by December 2007.

d) More than 50 million rural connections expected in more than 3 years.

e) Bill in budget session to amend Indian Telegraph Act for financial support to infrastructure in cellular telephony in rural areas.

Although the government has given ambitious target figures on telephone connection the increased service tax of 12 per cent would have a bit of negative impact on the industry, as it would increase subscription costs. The increase in the Minimum Alternate Tax (MAT) to 10 per cent from 7.5 per cent of book profits, while hamper the company earnings. However, an extension to avail MAT credit for paying companies to 7 years from 5 years as well as adjusting MAT credit while calculating interest liability is a positive.

The budget however, has focused on bridging the gap between the urban and rural tele-density by setting target of more 50 million rural connections in next 3 years after which a connection will be available on demand. Apart from that the provision of Rs. 1500 crore for Universal Services Obligation Fund in 2006-07 for rural telephony is commendable. A proposal to amend the Indian Telegraph Act to support cellular telephony in rural area is also welcome step. The government's initiative to build strong and effective PSE would continue this year as they have allocated equity support of Rs. 16,091 crore and loans of Rs. 2,789 crore.

This will see Indian Telephone Industries getting continued benefit it got previously. We feel that the budget for telecom has been favourable barring the increase in service tax and the MAT, which will hit companies such as Bharti Tele-Ventures, and MTNL etc.

Textiles: - (Fillip to man-made sector)

a) Allocation under TUFs increased from Rs. 435 crore to Rs.535 crore in FY07.

b) Much needed reductions in excise duties from 16 to 8 per cent on all man-made yarns like PSF, PFY, acrylic, viscose etc.

c) Import duties on DMT, PTA, MEG etc reduced from 15 to 10 per cent.

d) Import duties on specified textile machinery reduced from 15 to 10 per cent.

For the first time textiles have been recognized by the FM as a sector which, with appropriate incentives can throw up huge job opportunities. Consequently, the resources under TUFs (Technology Upgradation Funds) have been enhanced from Rs. 435 crore in FY06 to Rs. 535 crore in the coming financial year. Although the demand from the industry was to the tune of Rs. 750 crore given the heavy expansion going on in the industry. This is a positive step for the all the textile companies going in for expansion plans. However the existing capital subsidy of 10 per cent over and above the TUFs available on weaving and processing machinery stands to be phased out by April 2006, which can be detrimental for the entire textile industry as weaving and processing, is relatively weaker area of the textile value chain. Hence companies wanting to expand their operation into weaving to expand their operation into weaving and processing would have to chalk out their capex plans before and should be eligible before April end this year.

Further looking at the shortages of spinning machinery in India, the FM has reduced import duties on specified machineries (largely on spinning machineries) and parts from 15 to 10 per cent subject to CVD of 4 per cent (however companies paying VAT can claim CENVAT credit). Meanwhile, the much-needed anomaly in the tax structure of the man made fibre is been addresses through this year budget. the excise duties on PSF (polyester staple fibre), POY (polyester filament yarn), viscose, acrylic have been reduced from erstwhile 16 to 8 per cent.

Further, the government has also slashed import duties on man-made fibre, filament yarns and spun yarn along with the duty on raw materials for man-made fibre sector such as DMT, MEC and PTA from 15 to 10 per cent. This should prove to be the main growth driver for the textile industry going forward. FM has also reduced and should help players operating in man-made fibre like Mahavir Spinning, Vardhman Polytex, Sangam India, Indo Rama Synthetic. In fact earlier the tax on inputs was higher than taxes on the finished products making is difficult for spinning players to avail full credit on excise on finished products. This much demanded issue has been addressed. Thus on an overall basis, the government has given a fillip to the man-made sector, which should bring down the cost of finished synthetic products as well as enable it to compete globally. As far as for cotton yarn is concerned the excise remains unchanged.

Travel and Tourism: - (Indirect gains)

a) To increase the amount of plan allocation from Rs. 786 crore to Rs.830 crore in 2006-07.

b) Ministry of Tourism to take up 15 tourist destinations and circuits for development, following an integrated area development approach.

c) Identify 50 villages with core competency in handicrafts, handlooms and culture, close to existing destinations and circuits, and develop them for enhancing tourists' experience.

d) Establish 4 new institutes of hotel management in the states of Chhattisgarh, Haryana, Jharkhand and Uttaranchal.

Even though there are no direct and immediate gains, there are few indirect benefits lined up for the industry. The foreign tourist arrivals in India has increased to 3.92 million in 2005, and it is still a fraction of India's potential. The growth in tourist arrivals has really helped the hospitality industry last year, resulting in increased per room revenues. With higher demand and less availability, per room income is expected to increase in future also. The step to develop 15 tourist destinations and circuits is definitely a welcome move for hospitability industry. Even the fringe benefit tax will now consider 5 per cent of tours and travel expenses tobe taxable as compared to earlier levels of 20 per cent. This will indirectly help the travel and tourism industry, which is already in the fast lane.