Impact of Budget on commodities

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In the last comprehensive budget before the 2019 election, Finance Minister has presented a balanced budget, addressing almost all distressing areas of economy especially agriculture and creation of job growth. Earlier, it was expected that the budget would be a populist one albeit with measures to improve the fiscal health of the economy, which has slowed down post implementation of GST and demonetisation.

More emphasize has given on agriculture and rural economy with a plan of doubling farmers income by 2022. Plans to strengthen the agriculture infrastructures give advantage for farmers for direct selling of their produces. Proposal to increase the MSP of agriculture commodities would also give an extra edge to the farming community. In the budget, FM has allocated of Rs 2000 crore fund for agriculture market and infra fund that would strengthen the market connectivity. With a view to offer more income for farmers, Minimum Selling Prices (MSP) for the Kharif Crops has been set at 1.5 times of the crop cost. Farmers are currently drawing lower income owing to increased cost of production, while crop prices haven’t risen correspondingly.

On commodity futures front, abolition of Commodity Transaction Tax was widely expected, but there was no such proposals in the budget. CTT has initiated five year back which has adversely affected the trading volume of commodity derivative exchanges.

Customs duty on crude edible vegetable oils like groundnut oil, safflower seed oil and refined edible vegetable oil has increased which likely to support the domestic players.

While there has been clamour from the tyre sector to reduce import duty or allow duty free imports of natural rubber to the extent of projected market deficit, no such measures has been announced in the Union Budget. However, the basic customs duty on truck and bus radial tyres has been hiked from the 10 per cent to 15 per cent.

In gold, the most expected import duty cut from the existing 10 percent was not considered. The industry players has been urging a duty cut to battle against illegal import of gold, which was increased after hiking the duty to 10 percent since August 2013 with a view to curb the widening current account deficit. Meanwhile, proposal to re-branding of Gold Monetisation scheme and plan to formulate policies for making gold to be an asset class likely to strengthen the bullion market later.

Excise duty on unbranded petrol and diesel has decreased by Rs 2 per litter but there was a forecast of more cushion on the impact of rising oil prices. The Economic Survey has cautioned earlier that rising oil prices will hammer the countries growth projection.

Posted: February 2018