• Allocation of Rs 55,000 crore in the Budget for Roads and Highways. This will be further topped up by additional Rs15,000 crore to be raised by NHAI through bonds. Thus the total investment in the road sector, including PMGSY allocation, would beRs97,000 crore during 2016-17.

• Rise in allocation under Pradhan Mantri Gram Sadak Yojana: The allocation towards the scheme has been increased to Rs 19,000 crore for FY17. The government has pledged to connect remaining 65,000 eligible habitations by 2019.

• Extension of excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work at such site to Ready Mix Concrete (RCC).

• Total outlay for infrastructure stands at Rs 2,21,246 crore.

• Proposes 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in threeyears. MAT to apply.

• Service tax exemption on construction of affordable houses upto 60 sqm

• House rent deduction raised from Rs 20,000 to Rs 60,000. 

• Proposes a deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17 for first time home buyers, wherehouse cost does not exceed Rs 50 lakh. This initiative will boost affordable housing demand.

• No change in excise duty structure: At present the excise duty is levied in the form Cement is taxed at 12.5% ad valorem and additionally Rs 125 per mt, with 30% abatement. Jaitley in his Budget did not tinker with excise duty structure for the sector.

• Railways have already announced a capex of over Rs. 1.25 lakh crore in its budget announced on 25th February. Together the outlay of 2.21 lakh crore on infrastructure will also boost the cement demand.

• Levying of Clean Environment Cess on coal from Rs. 200 to Rs. 400 would mean almost an additional burden of about Rs. 50 to 60 per MT on the cement industry, which will mean the increase in cement prices to the extent of Rs. 3-4 a bag on this account only, if taken into account the fact that the total tax incidence on cement is over 60% of the ex-factory realisation.

• Krishi Kalyan Cess at 0.5% on all taxable services with effect from 1st June 2016 will certainly increase the production cost further.

Outlook

The Budget is positive for the cement sector as government announced a slew of measures to boost infrastructure and investment in the country, with a focus on roads and highways. The budget announcement on allowing 100% deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities and increased deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17, where house cost does not exceed Rs 50 lakh likely to spur supply of affordable homes.

RMC players believed that their long pending demand of exemption of excise duty on RMC plants has been finally attended to, but on going through the fine prints it appears it is applicable only to the dedicated RMC plants at sites, the percentage of which is almost negligible.