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Saturday, February 28, 2015

Pre-budget expectation
~Mr. Hareesh V, Research Head, Geofin Comtrade Ltd
Photo: Fort Worth
The Union budget 2015-16 will be tabled in Lok Sabha by Honorable Finance Minister Mr. Arun Jaitley on Saturday, 28th February. There is a wide anticipation from various sectors that the government will take suitable steps to fire up the economic growth. Anyhow market participants are expecting a positive action, especially considering the interest of the public and traders and not just economics and policy in the budget. The major anticipation from the commodity sector is as follows.

SEBI-FMC MERGER

Expectations are high in the market that the government may announce SEBI and FMC merger in the upcoming budget as recommended by BN Srikrishna, head of Financial Sector Legislative Reforms Commission. Earlier, in 2009, Raghuram Ranjan Committee on financial sector reforms had suggested consolidation of market regulation and supervision under SEBI. The FMC-SEBI merger is likely to bring convergence in regulation of various financial markets like securities, commodity and currency derivatives. It may also facilitate easier tracking of cross linkage of money flow into such markets. Once implemented, this will also pave way for the passage of the long pending FCRA amendment bill. There will be amendments in SCRA as well WRDA Acts too. Meanwhile, substantial savings in transaction costs for the client side are anticipated as brokers will not require separate setups for regulatory compliances.

ABOLITION of CTT

Abolition or reduction of Commodities Transaction Tax - Introduction of CTT in the budget of 2013-14 had a dampening impact on commodities futures market which was already reeling under NSEL issues. Volumes have been affected severely since its introduction.

BULLION

India, the world's largest consumer of gold, imports around 800-900 tonnes of gold annually. High imports had widened our current account deficit earlier, which prompted the government to take stringent measures to curb gold import to the country. Increasing customs duty and restricting gold importing agencies by executing various schemes were the major actions initiated by the government to curb consumption. Though consumption declined, it resulted in drying up of official gold imports and raised smuggling. Also, these measures adversely affected the gems and jewelry industry in India. The budget expectation of the gold and gem industry is largely on bringing down the import duty of gold from the present 10 percent to 2 percent, which is anticipated to boost the domestic consumption of the yellow metal. The industry body submitted their recommendation to the Union Finance Ministry requesting to formulate a comprehensive gold policy to make India a global jewellery hub. Excluding all the bilateral or multilateral free trade agreements with other countries is the another recommendation. This is proposed due to severe damages to the indigenous jewellery manufactures on account of cheap imports from Thailand under Free Trade Agreement. Also, re-introduction of the gold loan with interest rates at par with international rates, and setting up of notified zones are the other suggestions which are expected to boost the manufacturing of gold and jewellery, one of the sectors identified in the Make in India programme of Prime Minister Narendra Modi. Report says gold smuggling attempts through land and air have intensified massively during the period. World Gold Council earlier reported that one-third of the annual Indian gold demand is likely to be contributed by smuggled gold. The Council has observed that around 200 tonnes of gold would be supplied through unofficial channels, constituting around 28% of the country's gold demand in 2014. The low duty will reduce illegal gold imports and increase affordability of gold jewellery in the domestic market, enhancing the cost-competitiveness of gold jewelry manufacturing in the export market. The gem and jewellery sector in India accounted for almost 13 percent of exports in 2013-14 and employs about 3.5 million people. So, the government may hike the import duty on gold and silver jewellery to boost local manufacturing. It is anticipated to increase the duty on gold jewelry to 20 percent and silver jewellery to 25 percent from the present 15 percent. This move will protect the interest of small artisans and provide an incentive to the local jewellery manufacturers. Steps for giving support to the domestic diamond trading industry, especially to small diamond polishing units in India is also anticipated in the budget.

In the meantime, since the CAD narrowed significantly, by November 2014 RBI had scrapped the 80:20 scheme of gold import and in February 2015 the central bank had lifted ban on the import of gold coins and medallions and allowed banks to lend gold loan to jewelers.

AGRICULTURE WAREHOUSING

Warehouse facilitate not only reduces the post harvest losses, but also prevent distress selling by many farmers, especially at the time peak production. Moreover, it can reduce the supply side bottlenecks such as unnecessary speculation and illegal hoarding that are directly threatening the farmers because most of the intermediaries are fetching eighty percent of prices that farmers were produced.

AGRICULTURE INSURANCE

Monsoon vagaries have created havoc to the farmers while looking on to both extreme side of the situation like flood and drought. Hence, the requirement of agriculture insurance is an important concept to support the farmers if any natural disaster occurs.

RUBBER

Increasing the import duty on natural rubber is anticipated. With a view to protest the domestic growers against cheap import, the Finance Ministry is likely to increase the duty on natural rubber from the current 20 percent to 30 percent. Since the international rubber prices dropping, imports to India has been increased several folds which forcing domestic prices to multi year lows.

OTHERS

1. Cut in oilseed import duty
2. Increase in import duty on pulses
3. Increase in Minimum Support Prices of various farm commodities.
4. Exemption of CTT for processed agricultural commodities
5. Exemptions of Service Tax in services relating to agri-sectors like warehouse management services, laboratory testing etc.
6. Re-imposition of customs duty on crude oil
7. Increase in customs duty on copper and reduction in copper concentrates.
8. Imposition of export duty on Alumina and increase in basic customs duty on aluminium products
9. Increase in basic customs duty on zinc and lead ingots, alloys, scraps etc.

Courtesy: Equity Bulls
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