With tax revenues projected at modest levels and revenue and fiscal deficit showing a growth of 5.3 per cent and 2.2 per cent respectively over the current fiscal, increasing gross domestic savings and investments would be required to sustain the ongoing recovery in the industry sector, Care said in its review of Union budget.

The budget has pegged the revenue deficit at Rs 77,425 crore and fiscal deficit at Rs 111,275 crore for 2000-01.

In its sectorwise review, Care said that the reduction in peak basic customs duty on vehicle imports from 40 per cent to 35 per cent was unlikely to have any effect on the automobile industry as quantitative restrictions continue to be imposed on the import of vehicles.

The rationalisation of excise duties has resulted in an increase in the duties on multi-utility vehicles (up by 2 per cent) and tractors of less than 1800 cc (up by 8 per cent), which might push their prices upwards, it said.

Increase in farmgate prices of urea and muriate of potash (MoP) by 15 per cent and di-ammonium phosphate (DAP) by seven per cent would adversely affect demand while decontrolled fertilisers would be further affected by a five per cent increase in rail freight.

Care said the budget's thrust on housing and infrastructure would lead to an increase in demand of cement, but the margins of cement manufacturers would be marginally affected due to two per cent increase in rail freight.

Lowering of peak duty rates on most consumer durables was expected to have limited impact at present on account of their low import volumes, it said.However, prices of products in the high end CTV and audio range may increase as a result of the increase in import duty rates of completely built units (CBUs), which are mainly imported at present. The decision to levy excise on B&W TVs is most likely to depress demand for the product in the medium term while most audio products would also see price increases as a result of the rationalisation in excise duties, Care said.

Similarly, fortunes of the airconditioner industry would be hit by the rise in excise duty rates from 30 per cent to 32 per cent, withdrawal of Modvat benefits on 16 per cent special excise duty (SED) and shift to MRP based excise scheme.

Welcoming the incentives given to venture capital funds, the rating agency said that the hardware segment of information technology would benefit from reduction in import duties and lower PC prices would lead to increase in demand.

Care said the phasing out of tax exemption on export profits would negatively impact the steel industry as it is presently focussing on exports wherein realisations are higher.

"Domestic producers may find it difficult to pass the burden of marginal hike in freight rates to their end consumers until there is further demand revival," it said. Care said the increase in excise duty on cotton fabrics would adversely affect fabric and garment manufacturers while withdrawal of tax exemption on exports would adversely affect cotton yarn exporters.

Stating that the increase in freight costs would result in higher prices for the secondary metal producers, Care said adding the levy of tax on export revenues would impact the integrated aluminium producers which derive a significant proportion of their revenues from the international markets.

Speciality paper manufacturers would be marginally affected by reduction in import duty by 1.6 per cent while paper manufacturers using non-conventional raw materials like bagasse, straw etc too would be adversely affected by the increase in excise duty, it added.