Capital goods sector, which asked for redressal of inverted duty structure as well as removal of 0% import duty of project imports/ capital goods has disappointed with the Budget ignoring its demands. To its disappointment, the budget has extended 0% customs duty for some more project imports and equipments. Similarly the wishes of removal of exemption from payment of 4% special CVD for capital goods/ project imports has not come through.

Select Duty Structure Changes relevant to Capital Goods Sector
Items	Excise Duty (%)		Customs+ CVD +SCVD
	2009-10	20010-11	2009-10	20010-11
Mega Power Projects (9801)	8	10	NIL+NIL+NIL	NIL+NIL+NIL
UMPP	Nil	Nil	Nil	Nil
Nuclear Power projects of capacity 440 MW or more (9801)	8	10	NIL*+NIL+NIL	NIL*+NIL+NIL
Projects financed by World Bank / Asian Development Bank / other International Organisations	Nil	Nil	NIL+NIL+NIL	NIL+NIL+NIL
Specified goods for petroleum exploration under NELP, specified contracts, lease renewal (84 or any other chapter)	8	10	NIL*+NIL+NIL	NIL*+NIL+NIL
LNG facility project of Ratnagiri Gas & Power for power project at Dabhol (9801)	8	10	NIL*+NIL+NIL	NIL*+NIL+NIL
Drinking water supply projects (9801)	Nil	Nil	NIL*+NIL+NIL	NIL*+NIL+NIL
Water supply projects for agricultural and industrial use (9801)	Nil	Nil	NIL*+NIL+NIL	NIL*+NIL+NIL
Specified goods for coal bed methane operations (84 or any other chapter)	8	10	NIL*+NIL+NIL	NIL*+NIL+NIL
Capital goods, material handling equipment etc. for repair of ocean-going vessels (84 or any other chapter)	8	10	NIL*+NIL+NIL	NIL*+NIL+NIL
Power generation projects including gas turbine power projects (excluding captive power) (9801)	8	10	5*+8+4	5*+10+4
23 specified equipment for high voltage transmission projects (84 or any other chapter)	8	10	5*+8+4	5*+10+4
Goods required for setting up of a project for power generation using non-conventional materials.	Nil	Nil	5*+NIL+4	5*+NIL+4
Barge mounted power plants (9801)	8	10	5*+8+4	5*+10+4
Fertilizer projects (9801), Coal mining projects (9801)	8	10	5*+8+4	5*+10+4
Specified goods for setting up crude petroleum refinery (84 or any chapter)	8	10	5*+8+4	5*+10+4
LNG re-gasification plant projects (9801)	8	10	5*+8+4	5*+10+4
Power transmission, sub-transmission or distribution projects (9801)	8	10	5*+8+4	5*+10+4
Project Imports (9801)	8	10	5*+8+4	5*+10+4
Machinery for packaging (8422 30 00, 8422 40 00)	8	10	5*+8+4	5*+10+4
Food processing machinery (8438)	8	10	5*+8+4	5*+10+4
General Machinery not covered by any notification (84, 85)	8	10	7.5+8+4	7.5+10+4
Truck Refrigeration unit	8	10	7.5+8+4	0+10+4
21 Specified machinery and equipment for installation of cold storage or refrigerated vehicles for preservation, storage of agri produce	Nil	Nil
Refrigerated Motor Vehicles	4	4	NIL *	NIL *
Complete equipment such as excavators / dozers / shovel loaders / mechanical shovels etc. (8429, 8430)	8	10	7.5+8+4	7.5+10+4
Mechanical shovels and excavators-self propelled under GSTP Agreement (8429 52 00, 8429 59 00)	8	10	6*+8+4	6*+10+4
Parts suitable for use solely or principally with the machinery (8431)	8	10	7.5+8+4	7.5+10+4
21 specified equipment for construction of roads - list 18 (84 or any other chapter)	8	10	NIL *	NIL *
Plastic & Rubber Components (39, 40)	8	10	10+8+4	10+10+4
Complete Off-highway dumpers (8704 10)	8	10	10+8+4	10+10+4
Raw Materials
Non alloy steel plates (72)	8	10	5+8+4*	5+10+4*
Alloy steel plates (72)	8	10	5+8+4*	5+10+4*
Steel Tubes (73)	8	10	10+8+4	10+10+4
Parts and Accessories (8708)	8	10	10+8+4	10+10+4
* by notification; CVD = Countervailing Duty; SCVD = Special CVD

Budget provisions

Major junk of the total plan outlay that is about 46% amounting Rs 173552 crore is provided for infrastructure development.

Budgetary allocation for the power sector excluding RGGVY is more than doubled to Rs 5130 crore for 2010-11 up from Rs 2230 crore in 2009-10.

The allocation for road transport has been increased by over 13% from Rs 17520 crore to Rs 19894 crore. And that for Railways was provided at Rs 16752 crore.

The allocation for urban development has been increased by more than 75% to Rs 5400 crore in 2010-11. Similarly the allocation for housing and urban poverty alleviation raised from Rs 850 to Rs 1000 crore in 2010-11.

Rural infrastructure including RGGVY under Bharat Nirman has been allotted Rs 48000 crore.

Resale of specified machinery for road construction projects which are not allowed to sales for 5 years from date of import is now allowed on payment of import duty at depreciated value at a rate applicable at the time of import.

Goods supplied to mega power projects under ICB is currently fully exempted from central excise duty and this was extended to goods supplied to mega power projects from which power supply has been tied up through tariff-based competitive bidding. The exemption would also be available where the mega power project has been awarded through tariff-based competitive bidding.

Project import status to 'Monorail projects for urban transport' at a concessional basic duty of 5% granted.

Provide a concessional customs duty of 5% to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units and also exempt them from Central Excise duty.

Full exemption from basic customs duty and special CVD is provided for ground source heat pumps used to tap geo-thermal energy.

Full exemption from basic customs duty and CVD is being provided to tunnel boring machines used for hydro-electric projects.

Exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.

Provide project import status with a concessional import duty of 5% for the setting up of mechanized handling systems and pallet racking systems in 'mandis' or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment.

Provide project import status at a concessional customs duty of 5% with full exemption from service tax to the initial setting up and expansion of - 1) Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce; and 2) Processing units for such produce.

Provide full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.

Customs duty on specified agricultural machinery not manufactured in India is being reduced to 5% from 7.5%.

Concessional customs duty of 5% on specified plantation machinery, which was available up to July 6, 2010, is being extended up to March 31, 2011 along with CVD excemption.

To ease the cash flow position for small-scale manufacturers, they would be permitted to take full credit of Central Excise duty paid on capital goods in a single installment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly, basis.

Competitive bidding process will be introduced in allocation of Coal blocks for captive mining for power plants so as to ensure greater transparency and increased participation in production from these blocks.

IIFCL's disbursement are expected to touch Rs 9000 crore by end March 2010 and to more than double to Rs 20000 crore by March 2011.

Financing to the tune of Rs 25000 crore would be provided through take out financing in the next 3 years.

Deduction of additional amount of Rs 20000 allowed over and above the existing limit of Rs 1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government.

The surcharge on corporate tax has been reduced from 10% to 7.5% while MAT has been hiked from 15% to 18%.

Excise duty on cement (produced by non mini cement plants) is increased to Rs 290/ tonne (from Rs 230/ tonne) if retail sale price is not exceeding Rs 190 for 50/ kg bag or Rs 3800/ tonne or 10% of retail sale price (from 8%) for cement if retail sale price exceeding Rs 190 per Rs 50 kg bag or Rs 3800/ tonne. In case of cement sold other than packaged form 10% or Rs 290 per tonne which ever is higher compared to 8% or Rs 230/ tonne.

Excise duty on steel increased from 8% to 10%.

Stocks to watch

Gujarat Apollo Equipments, Greaves cotton, BHEL, Crompton Greaves, Suzlon Energy

Impact & outlook

The increased budgetary allocation for roads, rural infrastructure, power sector is all set to trigger increased demand for the construction equipment as well as power generation, transmission and distribution equipment. While the commitment of construction of 20 km of road a day will translates into strong growth for road construction equipment even if half of it been achieved.

While the allowing resale of specified machinery imported (under 0% import duty) for road construction before 5 years on payment of import duty at depreciated value or relocation of such machinery to other eligible projects though benefit construction service providers that will negatively impact the domestic construction equipment players as the imports of such specified equipment has heightened the competition. The user industry which preferred the domestic equipment/ hiring of such equipments over the overseas has now got the option to import that at 0% customs duty and move to other similar projects to have full utilization. This will impact the domestic equipment players. Since the monorail and truck refrigeration unit is not manufactured in India the extention of concessional duty will not impact much on domestic players.

While the steel cost moving up on the back of increase in excise duty to 10% the input cost for players will go up. Players who has price escalation clause coverage to their order book will not get impacted much but those with fixed price contract will get impacted. The setting up of clean energy fund as well as complete exemption in excise duty of inputs required for manufacture of rotor blades for wind turbine generators will augur well for the WTG manufacturers.

The increase in excise duty with out addressing the inverted duty structure though hurt the competitiveness of the domestic capital goods industry the industry players were used to it and have been dealing with it effectively.

Overall the budget is positive for its focus on thrust on infra development that will have cascading beneficial effect on the industry.

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