Rubber4U

Rubber4U - 1st March 2013 issue

Highlights of Union Budget 2013-14

Finance minister P Chidambaram unveiled a bigger-than-expected outlay for 2013-14 fiscal in one of the most highly anticipated Indian budgets of recent years. India faces challenge of getting back to its potential growth rate of 8%.

Following are few highlights of the Budget 2-13-14:

Revised estimate for total expenditure is 14.3 trillion rupees in 2012-13, which is 96% of budget estimate

Fiscal deficit seen at 5.2% of GDP in 2012-13

Fiscal deficit seen at 4.8% of GDP in 2013-14

Total budget expenditure seen at 16.65 trillion rupees in 2013-14

Plan expenditure seen at 5.55 trillion rupees in 2013-14

Non-plan expenditure estimated at about 12 trillion rupees in 2013-14

Set aside 100 billion rupees towards spending on food subsidies in 2013-14

India will need more than $75 billion this year and next year to fund current account deficit

Proposes surcharge of 10% on rich taxpayers with annual income of more than 10 million rupees a year

To increase surcharge to 10% on domestic companies with annual income of more than 100 million rupees

To continue 15% tax concession on dividend received by India companies from foreign units for one more year

Propose to impose withholding tax of 20% on profit distribution to shareholders

To introduce commodities transaction tax (CTT)

CTT on non-agriculture futures contracts at 0.1%

Plans to issue inflation-indexed bonds

Proposes capital allowance of 15% to companies on an 1 billion rupees

Foreign institutional investors (FIIs) can use investments in corporate, government bonds as collateral to meet margin requirements

Investor with less than 10% stake in a company will be regarded as FII, more than 10% stake as FDI

Will the government increase import duty?

The natural rubber prices in the local market have fallen nearly 20% since 2nd January 2012, when price of RSS4 grade was at 195.50 per kg, due to slowdown in economy and also on sluggish demand. There is a possibility that government could increase import duties on natural rubber in order to support falling rubber prices. The current duty is `.20 per kg, or 20%, whichever is lower.

Government won’t miss this opportunity

The Budget is again round the corner. The economy faces two clear problems - slowing economy and high inflation. Over 15 years have passed since P. Chidambaram presented what was called the ‘dream budget’. It was a budget that changed the discourse of financial policy and offered a vision of India matching the growth and dynamism of the tiger economies of Southeast Asia.

India’s economic growth is far below potential at this moment; perhaps more important is that price inflation, which could trigger mass discontent anywhere in the world, which has reached an uncomfortable levels. When the government announces the budget for 2013-14 fiscal on 28th February, it could be a platform to show that it has the long-term thinking to do the right thing.

One encouraging fact is that the spending cuts have started across the board, and even the military has not been spared. The number of state-sponsored schemes is likely to get drastically reduced, with a particular focus on areas with inefficiencies and wasteful spending. Therefore, the deficit target of 4.8% for 2014, after the 5.3% set for 2013, looks within reach. The fiscal deficit in FY11-12 was 5.8% while the budget estimate for FY12-13 was 5.1%.

The 28^th February 2013 budget is very crucial. The Finance Minister may outlined broad plans about the budget to restore the confidence in the economy and can expect no major surprises from this budget. It appears unlikely that the budget will make any substantial changes to the direct or indirect tax regime as any major tax hike may prove counter-productive by hurting the nascent recovery in business confidence. The government is likely to keep the reform momentum going and at the same time keep an eye on upcoming state elections in the second half of 2013 and general elections in 2014.

Highlights of the Indian Railway Budget 2013-14

The highlights of the Rail Budget as presented by Indian Railway Minister - Pawan Kumar Bansal:

No increase in passenger fare

Railways will absorb `. 850 crore on account of no hike in passenger fare

Marginal increase in reservation charges, cancellation charges

Internet booking to be provided from 0030 hours to 2330 hours

Superfast and Tatkal charges to rise

27 new passenger trains to be introduced

67 express trains to be launched

Run of 58 trains to be extended

72 additional suburban services in Mumbai and 18 in Kolkata

9 Electric Multiple Unit trains to be introduced

22 new lines to be taken up in 2013-14

500-km new lines to be completed in 2013-14

Electrification of 1,200 km to be completed this year

Concessional fare for sportspersons

5% average increase in freight

Diesel price hike added `.3,300 crore to fuel bill of Railways

5.2% growth in passenger traffic expected in 2013-14

Railways to set up a Debt Service Fund

`.3,000 crore loan from Finance Ministry repaid with interest by Railways this financial year

New coach manufacturing and maintenance facilities to be set up in various places

Centralised training institute to be set up in Secunderabad

Will provide better living conditions for Railway Protection Force personnel

Seek to fill 1.52 lakh vacancies in railways this year.

Target of `.4,000 crore for railway production units in 2014

Trying to connect Manipur through railways

Investment of `.3800 crore for port connectivity projects

Target of `.1000 crore each for Indian Railways Land Development Authority and Indian

Railways Station Development authority

Labs to test food provided in trains. ISO certification for all rail kitchens

Induction of e-ticketing through mobile phones

Next-generation e-ticketing system to improve end user experience.

`.100 crore to be spent to augment facilities at Delhi, New Delhi and Nizamuddin railway stations

Free wi-fi facilities in select trains

More ladies specials in metros and a helpline number to be implemented

Elimination of over 10,000 level crossings and 17 bridges sanctioned for rehabilitation

Enhancement of the track capacity and the Train Protection Warning System

Indigenously developed collision avoidance system to be put to trial

Induction of self-propelled accident relief trains along with fast and reliable disaster management system

Operating ratio of 88.8% achieved

Dividend reduced from 5 to 4%

`.63,000 crore investment in 2013-14

1,047 million tonnes freight loading estimated during 2013-14

Freight earning to grow by 9% to `.93,554 crore.

Passenger earnings of `. 42,000 crore estimated in 2013-14

Indian Railways Institute of Financial Management to be set up at Secunderabad

New wheel factory to be set up at Rae Bareli

Greenfiled EMU manufacturing facility at Bhilwara

Railway energy management company to be set up to harness solar and wind energy

179 escalators and 400 lifts at A 1 and other select stations

Raised four companies of women RPF personnel, and another eight to be raised for women's safety

Losses mounted from `.22,500 crore in 2011-12 to `.24,600 crore in 2012-13

Planning Commission pegged 12th Plan at `.125.19 lakh crore

`.1 lakh crore to be raised from public-private partnership, `.1.05 lakh crore through internal.

Use of Aadhaar card by Railways to render user friendly services

More RPF guards, ladies specials in metros and helplines to be implemented

Railways hopes to end 2013-14 with a balance of `.12,506 crore

Will it be a Aam Admi Rail Budget?

There are hopes that there would be some increase in ticket prices and freight prices. But there is also a fear that the budget would be populist. Indian Railway Minister Pawan Kumar Bansal is likely to announce passenger-friendly aam admi Rail Budget 2013 on Tuesday in Parliament. He is likely to announce measures such as improvement in catering service, development of stations and launching of about 75 odd new trains in his maiden budget.

Railways had aimed to mop up an additional revenue of `.6,600 crore but the fuel hike had wiped out `.3,300 crore. All eyes will be on Railway Minister tommorrow on whether he will hike passenger fares yet again or looks at other measures to mobilise resources to offset the burden of the recent diesel price hike.

Bearish trend to continue

According to Society of Indian Automobile Manufacturers, in January 2013, car sales and commercial vehicles sales have dropped by 12.44% and 9.51% respectively and on the other hand according to Rubber Board of India, the natural rubber production has declined by 5% to 97,000 tonnes and consumption fell by 9% to 75,000 tonnes, in January.

The largest natural rubber exporter - Thailand, will review a program to support prices by purchasing from farmers at the end of March. The contract for February delivery on the Tokyo Commodity Exchange gained to ¥282 per kg, while July delivery dropped to ¥297.1 per kg.

In India, rubber is set for a drop on concern that demand may slow as China called for property curbs and European data signaled the region’s recession is set to continue. Rubber prices in NMCE March contract traded sideways to bearish on lack of fresh buying and closed at `.157.55 per kg and June contract closed at `.166.50 per kg. Support is seen at `.155 per kg level while `.162 per kg is the resistance. Overall trend is looking bearish.

Bharat Bandh

All India bandh call is in support of various demands by the unions, including concrete measures to counter inflation, steps for employment generation, job security, universal social security, and making the minimum wage to `.10,000 per month along with daily allowance. The joint bandh call has been issued by the Bharatiya Mazdoor Sangh, Indian Trade Union Congress, All India Trade Union Congress, Hind Mazdoor Sabha, Centre of Indian Trade Unions, All India United Trade Union Centre and other such central and state organizations.

The nature of bandh and involvement of all the major central trade unions is going to affect the service sectors, which is the major contributors to the country’s GDP. The bandh would take its toll on atleast `.15-20 thousand crores, according to the Associated Chambers of Commerce and Industries of India.

Industries expectation

The auto sector forming around 6% of India's GDP. Indian auto industry was expected to reach the size of $145 billion, around 10% of the GDP, by 2016. The slowing demand has lowered auto industry’s growth to 4.57% in the first nine months of 2012-13, because of declining sales due to high interest rates, increasing fuel costs and raw material prices. In a pre-budget presentation to the Union finance minister, the industry is seeking an excise duty structure as stated in the auto policy and the 10 year Auto Mission Plan and has asked for a concessional excise duty structure, an equivalent GST to be applicable at 10% flat across all segments such as cars, two-wheelers and commercial vehicles.

The government should strive for early introduction of GST which would pave the way for rationalising the tax structure. The other ancillary manufacturing sectors in the industry have also been demanding faster implementation of GST. Automotive Tyre Manufacturers' Association has demanded permission to allow import of limited quantity of natural rubber under a Tariff Rate Quota (TRQ) basis for FY 2013-14 at a concessional duty rate of 7.5% or `.10 per kg, whichever is lower. Industry wants a relook at the customs duty on natural rubber or increase in the existing customs duty on tyres to correct duty inversion. The tyre industry in India has asked for a complete waiver of import duty on raw materials used by it which are not manufactured domestically. The Automotive Component Manufacturers' Association of India has asked for uniform taxes on components that go into the manufacturing different vehicles.

On Tuesday, a mixed trend is being witnessed in natural rubber in the global market. TOCOM rubber futures were swinging between positive and negative turfs. The most active rubber contract on TOCOM, July delivery closed at ¥324.2 per kg. and on Wednesday it is expected to trade in negative. Indian natural rubber market continue to be on the weaker side as consumption declines amidst slowing auto sales and unfavourable macro economic conditions.

Fuel price increased

India is 80% dependent on oil imports to run its growing economy. Oil companies are allowed to review crude prices and accordingly raise petrol and diesel prices. India liberalised petrol prices in June 2010. Petrol price was on Friday once again hiked by `.1.50 per litre and diesel by 45 paise a litre with effect from midnight. The increase announced is excluding local sales tax or VAT and the actual hike for consumers would be more after the incidence of duty is included.

Increase in diesel price is in line with the government’s decision to increase the fuel’s price by about 50 paise per litre every month till losses from selling it below cost are almost wiped out. The increase in petrol prices, however, can be attributed to the spike in global crude prices.

According to the central government’s Petroleum Planning and Analysis Cell, the price of the Indian basket of crude has risen to $114.88 per barrel on 14th February 2013 from an average price of $109.95 between 16 – 31 January 2013. The rupee-dollar exchange rate has, however, improved to 53.43 from 54.78 per dollar during the period.

Rubber4U

Rubber4U - 15th February 2013

IIP down & CPI increases

According to government data, India's industrial production fell 0.6% in December from a year earlier weighed down by manufacturing, which constitutes about 76% of industrial production. During April-December period, industrial production expanded an annual 0.7%. In yet another disappointment for the street after IIP numbers, annual rate of inflation, based on the consumer prices index (CPI), increased in the month of January 2013 at 10.79% as compared to 10.56% during December 2012.

Union Finance Minister P Chidambaram will meet the State Finance Ministers on 14th February to seek approval on the design of Goods and Services Tax (GST) Bill, so that a broad outline of the indirect tax regime can be included in the 2013-14 Budget. Last month, the Empowered Committee of State Finance Ministers had reached a broad consensus on the design of GST, under which the states will be free to decide on the time of its introduction. The committee has also agreed for a single rate of GST and there would be a floor rate with a band, giving freedom to states to fix their own rates.

Market expecting moderate data

The Indian market, which is likely to remain volatile during the week, will closely track crude oil movement and the wholesale inflation numbers for January and factory output data for December. The traders could take comfort from P Chidambaram's statement that India was likely to post a GDP growth of 5.5% in the current fiscal year, more than the 5% estimate of the Central Statistical Office, as the economy started showing signs of revival since November. Later on the focus will shift to expectations from Union Budget to be presented on 28th February.

The Index of Industrial Production (IIP) data is expected to be announced on Tuesday. Inflation numbers for January are expected on Thursday. IIP is expected to rise 1.1% in December after shrinking 0.1% in November. The inflation numbers for January are expected to moderate.

Rupee down, but margin improves

The rupee had ended six paise lower at 53.22 against the dollar in the previous session due to sustained dollar demand after government estimates pegged current fiscal's GDP growth at 5%. Today rupee further depreciated by 22 paise to 53.44 against the dollar.

The sharp decline in economic growth to 5% is alarming and validates the perception that the economy is under the throes of a widespread slowdown. The need to revive the investment sentiment has become indispensable. The government should take steps in the upcoming Budget to encourage growth and boost investments.

The Calcutta High Court today extended the interim relief on the winding up order on Dunlop India till 18th February after the management promised to submit `.10 crore as directed by the court.

MRF Ltd has announced unaudited results for the quarter ended 31st December 2012. During the 1st quarter, company has posted a net profit of `.1802.20 million, compared to `.1128.90 million for the quarter ended 31st December 2011. Total Income has increased from `.28794.20 million for the quarter ended 31st December 2011 to `.30286.80 million for the quarter ended 31st December 2012.

Higher production and rising stockpiles amidst muted demand continues to weigh on natural rubber prices. RSS4 grade rubber in India closed at `.157 a kg and the price of RSS3 grade closed at `.175.58 per kg at Bangkok. While Malaysian SMR 20, which Indian tyre makers prefer to import, closed with a positive note at `.164.83 a kg. On the Tokyo Commodity Exchange, February futures series closed lower at ¥308 per kg.

Still hoping for the best

The preliminary data released by the Central Statistics Office (CSO) on 7th February, drastically cut the gross domestic product (GDP) growth forecast to 5% for the fiscal year ending 31st March 2013, compared to 6.2% in the previous year. This will be the worst performance of the Indian economy since 2002-03 when the growth was recorded at 4%.

Finance Minister P. Chidambaram said CSO's growth estimate, no doubt, is below what we in the finance ministry had expected it to be. The government would take more appropriate steps to revive economic growth even as the statistical office lowered the GDP growth forecast to 5%. This projection is based on extrapolation of numbers till November 2012. Since then, leading indicators have turned up, suggesting some hope that we will end the year on a better note. We are keeping a watch on the situation. We have taken and will continue to take appropriate measures to revive growth.

Positive outlook for the day

Markets have been increasingly comfortable with European risks over the past few months. A fall in overnight U.S. equities on discouraging U.S. factory orders and euro zone jitters spurred more profit-taking after rally so far this year. Indian government is gearing up to unveil this month its budget for the fiscal year starting in April, which analysts see as a key test of commitment to shoring up finances.

With the buzz on imposition of Commodity Transaction Tax (CTT) in the forthcoming Budget getting louder, Forward Markets Commission (FMC) feels the market should be given more time to absorb such a levy. All the five national exchanges have made representation to FMC listing out the drawbacks on levy of CTT. The views of exchanges have been forwarded to the Ministry along with the FMC opinion.

Tyre manufacturer Dunlop India Ltd got a breather on 4^th February with the court directing the official liquidator not to take any further step till 6th February. A division bench of justices G C Gupta and T K Das on Monday passed the directive with the condition that if the company pays up `.10 crore on Wednesday, the court will consider the prayer for a stay on the winding-up order passed on 31st January, directing the liquidator to take possession of the assets, books and documents of the company immediately.

On the Tokyo Commodity Exchange, February futures series may touch ¥311.5 per kg and July ¥335 per kg mark on Tuesday. Domestic market may see an upward move.

Domestic market waiting for upward move

The slowdown in the auto industry is hurting rubber demand from tyre companies. It looks like demand will remain weak for the next few months. Tyre producers are not buying large quantities as they have enough inventories. Farmers are not in a mood to sell at the current level as they are expecting an improvement in price from March onwards due to drop in tapping and production.

The spot price of RSS-4 rubber in Kottayam-Kerala, rose marginally and closed at `.157.50 per kg. Indian natural rubber futures are likely to remain steady this week as farmers are holding back produce, hoping for an increase in prices, while tyre makers are trimming purchases due to lower demand from the auto industry.

RSS3 grade closed at `.176.93 per kg at Bangkok, while Malaysian SMR 20 closed at `.165.04 a kg. In the domestic futures market, the February 2013 series closed at `.158.30, March at `.160.90 and July at `.169.70 a kg on the National Multi Commodity Exchange. On the Tokyo Commodity Exchange, February futures series closed with a positive note at ¥310.2 per kg, March at ¥312.5, June at ¥329 per kg and July 2013 at ¥333.4 per kg.