INFRASTRUCTURE: ROADS

STATE OF THE INDUSTRY: Both awarding of projects by the National Highways Authority
of India and their execution have picked up significantly. New projects are expected to average
4,600km in 2016-17 and the next financial yearup from 3,091 km in 2014-15. Execution is
expected to reach 2,300km to 3,100km from 1,576 km. Traffic's increased 5-6% in the current
financial year.
BUDGET IMPACT: The sector would get a big boost as investment in development of national
highways has increased 49% year-on-year to Rs 1.03 lakh crore, of which Rs 44,000 crore is the
budgetary outlay. The dividend distribution tax will not be applicable on distribution made from
special purpose vehicles to infrastructure investment trusts.
This will help developers interested in listing their assets through this route to do so quickly and
clean their leveraged balance sheets. The public utility bill will speed up resolution of disputes at
a time when several developers have considerable claims pending.
AUTOMOBILE
STATE OF THE INDUSTRY: The current financial year will see car and utility vehicle sales
grow 11-13%, aided by higher disposable incomes, seventh pay commission payouts and
competitively priced launches. Twowheeler sales will grow 10-12% on higher farm incomes.
Commercial vehicle sales will increase 7-9%, driven by improved industrial growth, steady
replacement demand from large truck operators and higher private consumption and finance.
BUDGET IMPACT: The impact is expected to be neutral. While rural focus is a long term
positive, levy of infrastructure cess would be a negative for passenger vehicles.
A cess of 1% on small/CNG/LPG and petrol cars, 2.5% on small diesel cars, 4% on big sedans
and SUVs, along with a 1% additional luxury tax on cars priced above Rs 10 lakh, would drive
up prices and reduce demand for passenger vehicles (except taxis). CVs get a boost with a
targeted Rs 1,03,286 crore spend on national highways. Rural schemes will indirectly aid
motorcycle and tractor sales.
POWER
STATE OF THE INDUSTRY: The power generation segment is plagued by weak demand,
considering the poor financial health of distribution companies (discoms) and aggressive project
bidding. The government's thrust on improving transmission and distribution (T&D)
infrastructure is expected to boost investments in the segment.
BUDGET IMPACT: Doubling of clean energy cess on coal to Rs 400 a tonne will increase
generation cost by 10-12 paise per unit. Project returns, though, are expected to remain intact as
the cost will be passed on even for projects bid competitively, in accordance with the National

Tariff Policy amendments.

A 92% increase in outlay for distribution schemes to Rs 8,500 crore would improve rural power
demand, increase investments in the distribution segment and lower losses Allocation of Rs
3,000 crore per annum towards nuclear power projects aims to diversify fuel mix and lower
power purchase costs (Rs 2.5-3.5 per unit).
OIL & GAS
STATE OF THE INDUSTRY: Crude oil prices are expected to remain subdued and range
between $33 and $38 a barrel in 2016 due to oversupply and muted demand globally.
Upstream companies could witness sharp erosion in profititability. Oil PSUs and the
government are expected to benefit from lower subsidies. Domestic gas prices could fall
25% year-on-year in 2016-17 to $3.5-4/mmBtu due to subdued global gas demand and
falling crude prices.
BUDGET IMPACT: An additional 15 million rural connectionsequivalent to 55% of rural
connections added over the last five yearswill see LPG demand rise 3% in 2016-17
yearon-year. Ad valorem cess on crude oil would improve realizations of upstream
companies by $2 a barrel and reduce government receipts by Rs 4,000 crore.
A budgeted subsidy of Rs 27,000 crore for petroleum products for 2016-17 would be
sufficient to cover under-recovery in LPG and kerosene. The proposal to grant marketing
freedom for gas produced in a difficult terrain is a step in the right direction.
TEXTILES
STATE OF THE INDUSTRY: Domestic apparel sales are expected to grow 6% in 2015-16
while demand for exports is seen shrinking. Cotton yarn sales are likely to slow down due to
a slump in yarn exports. Demand for man-made fibre (MMF) could grow a moderate 3.54.5%. In 2016-17, improvement in domestic consumption would boost apparel sales by 6.57% year-on-year. Demand for cotton yarn and MMF would, in turn, improve. Yarn exports
have fallen to 100 million kgs a month now from 140 million kgs earlier due to demand
slump in China.
BUDGET IMPACT: The excise duty on branded garments retailing at Rs 1,000 and above
has been increased from zero to 2% (without Cenvat credit) and from 6% to 12.5% (with
Cenvat credit). Additionally, tariff value (presumptive) for excise/countervailing duties on
readymade garments and other textile materials has been increased to 60% from 30% of
the retail sale price which will increase prices.
Basic customs duty on specified fibres and yarns has been reduced to 2.5% from 5%
though the implication isn't clear as the specified fibres have not been spelled out.

PHARMACEUTICALS
STATE OF THE INDUSTRY: Domestic formulation revenues are expected to grow 13-14%
in 2016-17 on the back of anti-diabetic and cardiovascular drugs. Exports are likely to grow
9-11%, spurred by regulated markets such as the US. Profitability across the industry is
expected to be unchanged as higher research and development (R&D) spend and
regulatory compliance would limit benefits from rising exports and lowered raw material
expenses.
BUDGET IMPACT: Lowering weighted R&D deduction to 150% from the current 200%
would increase tax outgo by 2-4% from 2017-18. A new health cover of up to Rs 1 lakh
would improve insurance penetration from 3.3% (as on 2014), and aid growth of hospital
care and diagnostic services. Setting up of 3,000 aushadi stores to sell generics will
improve poor patients' access to medicines.
Supply issues that affected earlier schemes, though, would need to be addressed. The
proposed National Dialysis Services Programme is a positive at improving patients' access
to affordable treatment in renal diseases.