The Real Estate sector does not necessarily deserve incentives all the time. The three stimulus packages before were more than enough.
“The investment in infrastructure for the growth of economy is critical” said Mr Pranab Mukerjee in his budget speech. India will aim for a growth rate of at least 9 per cent per annum over an extended period of time and try and increase the investment in infrastructure to more than 9 per cent of GDP by 2014.
The Finance Minister took a leaf from President Barack Obama’s inaugural speech, when the President of Change pragmatically stated “Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time.” Mr Mukherjee drew parallels by stating, “Members would appreciate that a single Budget Speech cannot solve all our problems.”
Investment in infrastructure is not a short term recourse for growth, it is a macro-view for stability through connectivity. Heavy emphasis was laid on infrastructure, both in rural and urban areas.
It was suggested that the Infrastructure Finance Company Limited (IIFCL) will cater to infrastructure by refinancing 60 per cent of commercial bank loans for Public-Private Partnerships (PPP) in critical sectors over the coming months.
The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) schemes allocation has been upped by 87 per cent. With close to Rs. 4000 crores allocated for housing and providing amenities to the urban poor. This portrays the affordable housing schemes by private developers as a joke.
The Rajiv Awas Yojana (RAY) intends to make the country slum free in a five year period is something to be sceptical about; a similar promise which could not be delivered by the Government since the last election.
The Indira Awaas Yojana (IAY), for rural housing, is proposed to be increased by 63 per cent. The proposal is to allocate, from the shortfall in the priority sector lending of commercial banks, a sum of Rs.2,000 crore for Rural Housing Fund in the National Housing Bank (NHB). This is expected to boost the resource base of NHB for their refinance operations in rural housing sector.
Mumbai, now in its fifth year of Venetian-like floods, can look forward to the Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA) with an influx of funds of up to Rs. 500 crore to “expedite the completion of the project.”
Furthermore, steps were provided to reach the unbanked and under-banked areas of the country to ensure a brisk circulation of the financial system to regulate the economy from all quarters.
The only cake for Real Estate, albeit half-baked, was provided to the construction sector, with a proposed full exemption on goods manufactured at site including pre-fabricated concrete slabs or blocks, when used for further construction at site.
Politically, it is advisable that the allocation and incentives are favoured towards the rural sector, a major vote bank for the Congress, or even the malignant state of infrastructure, including metros such as Mumbai. Rural development will mean equitable distribution of wealth, investment, higher standard of living and job creation in areas which have been neglected. This may also deter the rural-to-urban population migration easing pressures in urban areas.
The world is still rotating on the financial crisis and investments to struggling sectors like real estate, for instance, will absorb any incentives with little to show. Influx of capital in any sector will give a less-than-expected disproportionate ratio to the output. And ideally, market forces should govern their status. It is then advisable that the basic idiosyncrasies of the country are strengthened during these times.
Dissent for the budget is mainly on the Income Tax slabs voiced by the middle class section of the population but then again there is no key financial crunch in India although the economy has slowed down. Liquidity options are cautious than anything else. Furthermore, the three stimulus packages announced by the Government pre-elections, from December 2008, are enough enticements for housing loans and consequently the real estate sector. Failure to capitalise means that they were treated as bench warmers.
Section 80IB (10) which provides tax benefits to developers who provide for housing aimed at weaker sections was under-utilised and hence was not renewed. And rightly so.
Housing for the poor has been taken up by the Government themselves through institutions like the IAY and the JNNURM, leaving private developers out of the opportunity to make hay through volumes. Remember affordable housing schemes, anyone?
Historically speaking, the Great Depression on 1929 had similar solutions. It purported that concentration of an economy in only a few areas, be it geographically or sector wise, is detrimental and thus chose to inculcate a wider range of the economic spectrum across the country. President Franklin Delano Roosevelt is believed to have restored the economy with concentrated efforts towards labour and upgrading the infrastructure at a national level.
On the Indian front, regulations can be relaxed as and when required. Provisions can provided and exceptions can be made. But today is not that need of the hour. The budget is good. Wait and see.
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