Budget 2013: Inflation to offsets 22% rise in healthcare allocation

Finance Minister P Chidambaram earmarked Rs 37,330 crore for the sector in the next financial year 2013-14 budget, up from Rs 30,702 crore in the current fiscal, thus a rise of 22% in allocation.

AUTOMOBILE
In 2013-14, with GDP growth expected to be higher, concerns over income growth are also likely to ease. Moreover, an expected decline of 8-10 per cent in in petrol prices will drive a recovery in small car sales, which in turn will aid a 9-11 per cent growth in passenger vehicle sales. Higher rural incomes owing to normal monsoons will also drive up two-wheeler sales by 9-11 per cent. However, MHCV sales growth is expected to lag GDP growth and remain weak at 5-7 per cent (despite a low base), until transporters utilisation levels improve. LCV sales will however continue to grow by 14-16 per cent. Operating margins of automobile manufacturers are estimated to decline sharply in 2012-13 due to lower capacity utilisation and firm input cost. However, in 2013-14, margins are likely to slightly improve as prices of raw materials like steel decline and sales volumes recover
LCV: Light commercial vehicles; MHCV: Medium and heavy commercial vehicles
Additional duty of 3 per cent will be charged on cars and utility vehicles exceeding length of 4000 mm and which are of 1500 cc

Automobiles
Budget marginally negative for utility vehicles; neutral for other segments
Company Impact Impact factors Maruti Suzuki Ltd Tata Motors Ltd A, B, C, D Ashok Leyland Ltd B,D Bajaj Auto Ltd E Hero Motocorp Ltd E Mahindra & Mahindra Ltd B, E Note: Company list is classified as per sector classification Source: CRISIL Research

Impact factors
A. Demand for high-end imported luxury cars (with CIF value exceeding $40,000 and an engine capacity of over 3000 cc for petrol-run vehicles and 2500 cc for diesel-run vehicles) will be impacted as the basic customs duty has been

raised to 100 per cent from 75 per cent. Similarly, sales of motorcycles (with an engine capacity of 800 cc or more) will be impacted by an increase in the basic customs duty to 75 per cent from 60 per cent. However, these high-end vehicles constitute a miniscule portion of the industrys overall sales. B. The excise duty on cars, two-wheelers and commercial vehicles remains unchanged at 12 per cent. Demand for non-taxi sports utility vehicles (defined as a motor vehicle of length exceeding 4,000 mm and having a ground clearance of 170 mm and above) with an engine capacity above 1500 cc, will be marginally affected by the increase in excise duty to 30 per cent from 27 per cent. Sales of such vehicles, which account for 10-12 per cent of total domestic passenger vehicle sales, grew by about 16 per cent during April 2012 to January 2013. A reduction in excise duty on truck chassis to 13 per cent from 15 per cent will marginally benefit commercial vehicle sales. C. Surcharge of 10 per cent on annual incomes exceeding Rs 1 crore could marginally impact demand for luxury vehicles. Currently, these vehicles account for less than 3-4 per cent of industry sales. D. An increase in allocation under JNNURM will aid purchase of 10,000 buses and will benefit bus manufacturers. E. Extension of interest rate subvention to farmers, focus on rural development schemes like the Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA), Pradhan Mantri Gram Sadak Yojana (PMGSY) and Indira Awaas Yojana (IAY), coupled with a 22 per cent increase in agri-credit allocation to Rs 7,000 billion is expected to have a marginally positive impact on sales of tractors and two-wheelers