Aditi Nayar

Economy
Chief Economist, Head-Research & Outreach, ICRA

Fiscal marksmanship on display

The Union Budget is always much awaited to glean the policy as well as the fiscal direction that the Government of India (GoI) intends to take. This was a special Budget, presented after the Parliamentary Elections, which has led to comparisons with both the fiscal outcome for FY2024 as well as the Interim Budget Estimates for FY2025. The overall fiscal math appears credible on several counts. Let’s start with the revenue-side assessment; the pace of growth of the gross tax collections vis-a-vis the provisional actuals (PA) for FY2024 is pencilled in at 10.8%, which seems appropriate, given the tax modifications announced in the Budget, as well as the nominal GDP growth that it has estimated for FY2025.

Kinjal Shah

Construction Sector
Senior Vice President & Co-Group Head – Corporate Ratings, ICRA

Increasing component localisation could offer ~Rs. 25,000 crore annual opportunity to construction equipment vendors by by FY2030

Rating agency ICRA forecasts rising component localisation to offer ~Rs. 25,000 crore annual opportunity to construction equipment vendors by FY2030, led by components such as undercarriages and precision hydraulics. Overall, ICRA foresees a jump in localisation levels from 50% to over 70% in the next 5-7 years. The Indian mining and construction equipment (MCE) industry is the third largest in the world in terms of volumes sold, however, it imports nearly 50% of its component requirement (by value) from suppliers based out of China, Japan, and South Korea, among others. Components like hydraulics, undercarriages, and high-tech electronics like electronic control units (ECUs), sensors, telematics, etc are generally imported. These imported components are either technology-intensive parts or require large scale manufacturing to attain economic viability. In addition, certain high tonnage fully built machinery and some steel alloy grades are also imported.

Girishkumar Kadam

Mining Sector
Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA

Margins of primary steel producers could shrink by ~60-180 basis points post new cess

Ratings agency ICRA forecasts a challenge for the domestic steel industry in the form of the new mining cess by some states, following the recent Supreme Court ruling. This development is poised to compress operating margins across the sector, impacting both primary and secondary steel producers. As per ICRA estimates, primary steel producers margins could shrink by approximately ~60-180 basis points, while secondary producers, with already lower profitability, may face a more severe impact, with margin declines ranging from ~80 to 250 basis points, based on various scenarios that cess rates could potentially vary between 5% and 15%. The power sector, which is heavily dependent on coal, may see a rise in the cost of supply by 0.6% to 1.5%, potentially leading to higher retail tariffs. Further, primary aluminium producers will also be impacted due to their high power consumption.

A M Karthik

NBFC Sector
Senior Vice President & Co-Group Head Financial Sector Ratings, ICRA

NBFCs fairly resilient to intensifying headwinds; however, growth to moderate to 13-15% in FY2025

ICRA highlighted that the non-banking financial companies (NBFCs)1 shall witness headwinds related to funding availability, which is likely to impede growth vis-à-vis the robust expansion in the last two fiscals. ICRA projects the growth of NBFC asset under management (AUM) to ease to 13-15% in FY2025 from 18% in FY2024. Standing at about Rs. 47 trillion in March 2024, the sector AUM is set to cross Rs. 50 trillion in FY2025. Key challenges for meeting growth expectations, however, would be in accessing the required debt funding over and above the refinancing of existing debt. The estimated incremental debt funding for AUM expansion is Rs. 5.6-6.0 trillion for FY2025. Notwithstanding the sizeable demand and unmet credit requirements, the downside risk to the indicated NBFC AUM growth would accentuate, if the tight funding environment, as witnessed in Q1 FY2025, continues for a prolonged period in the current fiscal.