Hospitality, auto ancillary to be negatively impacted: ICRA

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Sectors like hospitality and auto ancillary will be negatively impacted by proposals announced in the Budget 2012-13 but it has brought good news for healthcare firms, tractor makers and housing finance firms, according to rating agency ICRA.

"The increase in service tax rates is expected to make hotel stays and dining out dearer for guests, thereby impacting demand to an extent," according to ICRA.

Apart from taking the service tax to 12 per cent, the government has also hiked central excise duty on manufactured goods from 10 per cent to 12 per cent.

"Increase in excise duty by would translate into increase in prices of automobiles that is likely to weigh on early demand recovery and consequently slower recovery in auto component supplies to original equipment makers," ICRA said.

However, continuity of benefit available from weighted deduction on in-house R&D expenditure would encourage auto ancillaries to invest in building technical capabilities, it said.

Commenting on the 'moderately positive' impact on healthcare sector ICRA said: "Increased capex deduction on hospitals is expected to provide impetus to investments in the sector."

Further, increased allocation to schemes like National Urban Health Mission and Pradhan Mantri Swasthya Suraksha Yojana, and introduction of new schemes like National Urban Health Mission augur well for the healthcare sector, it added.

"The concessional duty regime on raw materials of specified medical devices is expected to help medical devices manufacturing companies improving their export competitiveness," ICRA said.

Similarly, housing and finance companies are set to benefit as operationalisation of credit guarantee trust fund could help lenders mobilise long term funds and therefore reduce asset liability mismatches, diversify their funding sources and improve access to capital markets.

Finance Minister Pranab Mukherjee announced setting up of a Credit Guarantee Trust Fund for better credit flow for housing loans and also provisions under Rural Housing Fund (RFH) have been enhanced from Rs 3,000 crore to Rs 4,000 crore.

ICRA further said excise duty hike by 2 per cent would lead to increase in tyre prices and is also likely to marginally impact the market share of domestic players in the replacement segment.

"Similar duty hike on automobiles, especially large cars, could affect derived demand for tyres...Duty exemptions on pneumatic tyres (both new and retreaded), used in aircrafts is positive," ICRA added.

Commenting on media and entertainment industry ICRA said: "Since no major positive announcements have been made related to relaxation in FDI norms for print, news broadcasters, radio and DTH segments, the overall impact is neutral."

Film industry has been exempted from service tax on copyrights related to recording of cinematographic films.