The market has given a thumbs up to the Budget as it has a clear focus on infrastructure and government spending. The government has increased capital expenditure, undertaken financial reforms, set up developmental financial institutions with ₹22,000-crore capital and reforms in insurance sector. As expected, there has been a slippage of financial consolidation but they have given a road map for achieving it in the future.
Despite plans to make huge infrastructure investments, fiscal deficit has remained at 6.8 per cent. The net borrowings of the government for next fiscal is lower. This will stimulate growth and boost the economy. Last year, the government has borrowed ₹10.80 lakh crore and for the next fiscal it is estimated at ₹9.57 lakh crore as they plan to finance from national savings and other methods. Import duty cut will not lower steel prices. The domestic steel prices have gone up because of firm global prices.
Currently, domestic prices are at a discount to international prices. Now the duty has been reduced from 12.5 per cent to 7.5 per cent. The China steel price has come down from $710 a tonne to $680 a tonne in last two weeks. Importers incur $25 for freight and will now pay 7.5 per cent duty. Then the overall cost becomes $758 a tonne and in rupee terms it will be about ₹55,325 apart from ₹1,250 as port charges. The landed cost is about ₹56,575 and the domestic prices are lower than this. Today, 60 per cent of the imports are from FTA countries which are not affected by these duty changes as they incur zero per cent duty. Incidentally, these FTA countries build the duty in their quoted prices.
The cost of imports from these countries are higher than that of China. Japan and Korea will not sell steel to India at $680 a tonne but add 7.5 per cent import duty to their quoted price. Not only steel, Indian consumers are at the receiving end when they are importing any metal from Japan and Korea. When we buy zinc from Hindustan Zinc they include 5 per cent import duty and the same is levied true when we import from Japan and Korea.
Indian consumers will never get the benefit of lower import duty. Steel prices in Europe is $800 a tonne while in the US it is $1,150 a tonne. The reduction in duty will not is not going to make any difference for Indian producers. Steel companies margins will depend on the domestic price and raw material cost. Scrap duty has been reduced to zero. India imports about 6.5 million tonne of scrap every year. We do not have enough scrap as there are no scrapping policy. Though the scrap policy is announced today compliance is voluntary.
The Budget has also revoked the anti-dumping duty and countervailing duty for six months. The customs duty on coal has been reduced to 1 per cent and introduced 1.5 per cent infrastructure cess. LIC going for IPO with huge value is a major boost for the market. Disinvestment of two public sector banks and one general insurance company is a great initiative. The government has announced plans to bring down its stake below 51 per cent for the first time ever. The government has also identified companies for divestment. The target of ₹1.75 lakh crore from disinvestment is tall order. The government should work from day one to achieve this target.
When the nominal GDP growth is assumed at 14.4 per cent as compared to the previous fiscal, we have to calculate what will be the increase in tax revenue. The FM has assumed that corporate and personal tax revenue will go up by 23 per cent which is on the optimistic side. Corporate tax in FY’21 is pegged at ₹4.46 lakh crore and this is expected to touch ₹5.47 lakh crore in next fiscal. Personal tax was ₹4.59 lakh crore which is expected to touch ₹5.61 lakh crore for the next fiscal. The FM has assumed GST collection of ₹6.30 lakh crore for the next fiscal as against ₹5.15 lakh crore in FY’21. The buoyancy in tax revenue has been assumed without no increase in tax rates.