Key Features of Indian Budget 2016- 2017

·  TAXATION

o   Will not resort to retrospective taxation in future; one time tax dispute resolution proposed for retrospective taxation

o   To rationalise corporate tax for new manufacturing companies

o   To implement general anti avoidance tax rule from April 1, 2017

o   Security transaction tax on options raised to 0.05 percent

o   Proposes to levy infrastructure cess of 1-4 percent certain  models of cars  (1 % on small petrol, LPG, CNG cars, 2.5% on diesel  cars of certain capacity and 4% on other higher engine capacity vehicles

o   Raises factory gate tax on various tobacco products by 10-15 percent.

o   Proposes to abolish 13 different levies

 INVESTMENT

o   100 percent foreign direct investment to be allowed in food processing industry

o   Promises further reforms in foreign direct investment policy in insurance, pension, asset recast companies

DISINVESTMENT

o   Total stake sales in 2016/17 seen at 565 billion rupees

o   To encourage central public enterprises to divest own assets for raising resources for new projects

o   Strategic divestment seen at 205 billion rupees

 FISCAL DEFICIT

o   Fiscal deficit seen at 3.9 percent of GDP in 2015/16

o   Fiscal deficit seen at 3.5 percent of GDP in 2016/17

o   Plan expenditure seen at 5.5 trillion rupees in 2016/17

o   Proposes to set up panel to review fiscal responsibility management act

 RURAL ECONOMY

o   Rural jobs programme allocated 385 billion rupees ($5.61 billion) in 2016/17

o   Farmer welfare budget to total 359.84 billion rupees

o   Rural road development to get 190 billion rupees

o   Target of agriculture credit at 9 trillion rupees

o   Interest subvention towards farm loans at 150 billion rupees

o   To set up dedicated irrigation fund worth 200 billion core

o   Allocates 55 billion rupees for crop insurance programme for 2016/17

 POLICY REFORMS

o   Bankruptcy code for financial firms to be introduced in parliament in 2016/17

o   RBI act is being amended for implementing monetary policy framework

o   To list general insurances companies on stock exchanges

BANKING REFORMS

o   Government to infuse 250 billion rupees capital into state-run banks in 2016/17; will find resources for additional capital for banks if required

 INFRASTRUCTURE

o   Allocates 2.21 trillion rupees for infrastructure development for 2016/17

o   Allocation for roads and highways development at 550 billion rupees

o   Capital expenditure on roads and rail development at 2.18 trillion rupees

 Budget Highlights :  Click  to download.

Oil Prices drops Below $30 a Barrel

Since  the new year, the price of oil has surprised even the most bearish punters, plunging  below $30 a barrel, its lowest level since 2003.  ( Lost almost 70% in last eighteen months) Turmoil in Chinese markets and the expected increase in Iranian crude exports added to concerns that a global glut will linger.

The trouble is that apart from India and a shaky China ( consumes about 12% and second only after US of total  global oil demand), demands are not looking promising anywhere  else this year.  Europe is unlikely to see  strong oil-demand.  Although America’s economy continues to grow, tightening fuel-efficiency standards,  caps the upside.  In  Middle East, where fuel use rose last year,  however citizens are more likely to keep their cars off the road after their governments raised petrol prices/ eliminated fuel subsidies altogether to shore up  their public finances.

Selective  oil  & allied  industries  has began  big cutbacks. But as of now they are not yet enough to reduce the glut. Global inventories are at record highs. An estimated 2,50,000 oil workers have lost their jobs,  manufacturing of drilling and production equipment has also fallen sharply. About 40 companies in North America have gone into bankruptcy protection.

Goldman Sachs said this week, it is sticking to its call that oil prices could fall to $20 a barrel but added that it is still not the bank’s base-case forecast.  Such low prices  seems possible as we   expect  a  surge  in Iranian  oil ( likely to add about 500,000 barrels within weeks of the sanctions relief)  to the already oversupplied global market.

Largest U.S. chemical companies to combine in megamerger. Could spark more deals!!

Two American  Chemical giants and possibly among the oldest,  DuPont and Dow Chemical  have agreed to combine in an all-stock merger valued at $130 billion  which  would be the 18th largest deal ever.

 

Dow Chemical Co. and Dupont Co. that are 118 and 213 years old, respectively, announced the blockbuster, tax free  deal that would take two years to complete.  Following the completion of the deal's in 2016, the  merged entity  would eventually    will  break up  into  3 separate, publicly-traded entities focusing on Agricultural products, Material sciences, and Specialty products.

The deal, the fifth-largest corporate merger of 2015, would certainly receive scrutiny from federal regulators, especially regarding the new companies  place in global agricultural production, including seeds, insecticides, and pesticides. Executives from both companies  however said the agrochemicals businesses have little overlap and any asset sales would likely be minor.

By revenue, the material sciences company – which makes products for the packaging, transportation, and infrastructure industries, to name a few – will be the largest. Its combined revenue in 2014 was around $51B on an adjusted basis. It will compete with the likes of corporate titans BASF, Honeywell, and 3M.

The specialty products company, with a combined revenue of $13B in 2014, would sell materials to the electronics and communications industries, among others.

The agriculture company, focusing on seeds and chemicals, would have a combined adjusted revenue of $19B overtaking BASF as the leader in agrochemicals. In the seed industry, DowDupont is pitted against behemoth Monsanto.

Dow shareholders would own 52 percent of the new company after preferred shares are converted, the companies said. The agreement includes a $1.9 billion termination fee under specified circumstances, such as rejection by shareholders.

The biggest impact will certainly be in the agriculture market, where the seeds and crop chemical industries are to undergo rapid consolidation

Prior to the merger, Dupont said in a statement it will slash $700 million in costs, with ten percent of its workforce "impacted" by the move, while Dow is expected to drop $300 million in costs.

As per Dealogic , this   merger would represent the 18th largest corporate deal of all-time. It would trail the 2015 deals made by Allergan and Pfizer, Anheuser-Busch InBev and SABMiller, BG Group and Royal Dutch Shell and Time Warner Cable and Charter Communications.

Dow and Dupont have a combined annual revenue of around $83 billion, with operating profit of about $15 billion.