Fitch Ratings says today that the impact of India's FY10 union budget on corporates is expected to be broadly neutral from a credit perspective.

While the new budget seeks to continue providing relief to export hit sectors and also provides for tax and other benefits to other sectors such as oil and gas, autos, gems and jewellery, the benefits on account of these, in Fitch's opinion, are likely to be marginal. Fitch also notes that the union budget does not adequately address the issue of subsidies in the fertilizer and petroleum sectors.

The adhoc nature and timeliness of the subsidy policy has in the past, resulted in liquidity pressures for entities within these sectors and while these risks have abated due to declining prices of crude and inputs costs for fertilisers, the risks cannot be ignored.

Fitch however, notes that the government has proposed to set up an expert panel to look at the petroleum pricing mechanism and has also laid out a direction for future fertilizer policy, the timelines for implementation of these initiatives remains uncertain and could potentially impact short-term liquidity for entities in these sectors. The risks could be accentuated by India's increasing fiscal deficit.

The impact of the budget proposals on some key corporate sectors:

Oil & Gas
The budget makes several proposals for the O&G sector, the most important one being that related to extending the tax holiday, under section 80-IB(9) of the Income Tax Act, to commercial production of natural gas. There are some proposals which could have a long term impact on the O&G sector - like the setting up of a National Gas Grid and the Expert Group on pricing petroleum products.