Saturday, 4 February 2017

Budget 2017: A Push for Reform

As business leaders, the annual budget is always an occasion we await with a mix of optimism and trepidation. This year’s budget, presented by Finance Minister Mr. Arun Jaitley was a welcome push for stability and calculated, measured growth.

A positive outlook overall

I would call this year’s budget a ‘reform oriented budget’ where the expenditure is focused on economic growth and development, especially in the rural areas. It also reflects the government’s intention to improve the investment climate with a view to stimulate growth. The massive push for improvement in infrastructure -  including record capital expenditure for roads and railways  - will indirectly benefit the real estate sector in the long run.

A step In the right direction

Another positive initiative is the move to grant infrastructure status to affordable housing as it will act as a catalyst to the government's vision of Housing for All by 2022. This will lead to higher participation by private players in this segment as they can have access to institutional funding and other government subsidies. Along with tax rebates for the salaried class which will lead to higher disposable income and interest subventions, this can be a potential winner in the long run.

A suggestion: the government should redefine affordable housing clearly, keeping in view the different geographies in India.

Similarly, the decision to increase the qualifying unit area for affordable housing from built up area to carpet area will lead to an increase of around 20% per unit for the end user. Also, increasing the time frame for completion to 5 years indicates that the government acknowledges the practical and operational difficulties faced by developers in this category.

Sound Policy

The decision to tax capital gains on Joint Development Agreement upon completion of the project is a significant move. However, more clarity is required to avoid litigation which is bound to happen given the current ambiguity. The tax break of 1 year post receipt of the completion certificate, for the unsold stock, and reduction of long term capital gains to two years will provide respite to investors and developers alike.

Looking To The Future

While these initiatives are noteworthy we need to remember that Deregulation will be the key to the success of various government initiatives. A major impediment to real estate development in India remains the approval process. While the government has done a lot to ease the functioning of the real estate sector and protect the consumers, it must get the statutory authorities responsible for clearing the projects within the purview of law.

The other major concern remains that corporate taxes and dividend distribution tax remains the highest in the world. We hope this is addressed in the future to attract more investments in the corporate sector.

Here’s looking forward to a prosperous and stable 2017 for India and our industry.