5 Sectors affected by the Union Budget
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- 1. Sectors affected by the Union Budget5
- 2. The finance minister presents his budget in 2 parts: Broad Policy Tax Proposals
- 3. Broad Policy Policy initiatives indicate the stance of the budget. If the budget is allocating resources for spending on infrastructure, a lot of related businesses are affected.
- 4. Tax Proposals Similarly, when tax rates or duties are changed, they affect individuals or companies accordingly. The ability of these companies to pass on changes in tax rates to customers determines their future profitability.
- 5. The Sectors Here are some sectors that have been impacted, more often than not, by past budgets: Power Real Estate Infrastructure Automobiles Oil and Gas
- 6. #1 Power
- 7. Power • Power production requires fuel. Any changes in taxes on fuel could make or break a project. • Similarly, excise and customs duties on power equipment also affect the power sector. • Free power supply to farmers in many states puts state electricity boards at a disadvantage.
- 8. #2 Real Estate
- 9. Real Estate • Low-cost housing and urbanization influences the real estate sector. The budget is watched very closely for incentives offered towards this. • Successive governments have always focused on low cost and affordable housing for the masses and hence, have normally announced schemes to help the sector.
- 10. #3 Infrastructure
- 11. Infrastructure • This is perhaps the most affected sector in the budget. • The government spending on rural and urban infrastructure leads to a significant business for companies that build it. • The finance minister announces allocation to rural and urban infrastructure and to build roads, bridges, metro train and transport, airports in the budget.
- 12. #4 Automobile
- 13. Automobile • Excise duty on manufacturing of cars in India changes in every other budget. • While the duty on vehicles with smaller engines is less, it is more on vehicles that have a powerful engine. The differentiation is also based on the length of the vehicle (passenger vehicles). For high-end vehicles, there is customs duty on parts imported and assembled in India. • The consumer decision to buy or sell vehicles is influenced by taxes announced in the budget.
- 14. #5 Oil and Gas
- 15. Oil and Gas • Petroleum subsidies keep prices of diesel, kerosene or LPG low. • Since fuel prices to retail customers and profitability of companies are determined by the amount of subsidies, investors listen to the finance minister’s budget speech for a stance on fuel pricing going ahead. • The companies which are most impacted are the state-owned oil marketing companies that sell diesel and LPG to consumers as well as the upstream companies which have to bear a part of the subsidies. • India spends about 0.6% of its GDP on fuel subsidies.
- 16. Final note • Subsidies form a significant chunk of the Government’s expenditure. Any cut in subsidies is good news for the relevant companies and hence, for the investors. • In a nutshell, the five sectors listed above affect shareholders and consumers alike. Budget is an important event that determines future pricing of products and services sold in these sectors. • To learn more about the union budget, click here.
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