Moody's Investors Service, the global credit rating agency, on Monday said Union Budget 2015-16 is credit positive for corporates and a mixed bag for the banks.
The increase in service tax, however, is credit negative as it would increase the production cost for corporates , the agency said.
"Measures designed to reduce and rationalise taxes, boost economic growth and increase the ease of doing business will support the credit profiles of Indian non-financial corporates, but a reduction in the fuel subsidy allocation is credit negative for upstream oil and gas companies," Vikas Halan, a Moody's vice president and senior credit officer was quoted in a statement.
For non-financial corporates generally, Moody's noted that Finance Minister Arun Jaitley's maiden full-year Budget proposes to reduce the corporate tax rate to 25 per cent from 30 per cent over the next four years, and also seeks to rationalise the tax structure, in part, by increasing the excise duty rate and introducing a unified Goods and Services Tax from April 1, 2016.
On the other hand, the proposed increase in the service tax, which is the indirect tax paid on the value of services consumed, is credit negative because it will raise the cost of production for domestic corporates.
Another credit negative factor, and specifically for upstream oil and gas companies, is the decision to lower the fuel subsidy allocation for the 2016 financial year as it indicates that the subsidy burden of these corporates will remain high in the 2015 fiscal and that they will have to bear any shortfall in the subsidy amount in FY16.
"A significant increase in planned public sector capital expenditure, coupled with measures to increase investment and financing in the private sector, will be credit positive for infrastructure companies," said Abhishek Tyagi, a Moody's vice president and senior analyst.
The Budget also proposes the setting up of a national investment and infrastructure fund, which would raise debt and invest in infrastructure finance projects, helping enhance - along with other measures - the ability of infrastructure firms to access funding, Moody's said.
"By comparison, public sector banks can expect limited near-term relief, with the government allocating a significantly lower amount of capital than in recent years, while proposals to set up a bank board bureau and adopt a new bankruptcy law have the potential to improve governance over time, if implemented effectively," said Srikanth Vadlamani, a Moody's vice president and senior credit officer.
According to Moody's, the Budget's implications for the banking sector is mixed, noting - for example - that their capital allocation for FY16 is lower than that in the 2014-15 financial year.
However, the government proposes to improve governance and set up an autonomous bank board bureau, which would help public sector banks in areas such as management quality and strategy.
The proposed introduction of a new bankruptcy law would also be credit positive. The current weak bankruptcy framework has been a major impediment for banks in enforcing credit rights. Few details on the new law are currently available.