Budget 2019 Archives

Prospects for Budget 2019

by admin | May 25, 2021 | Economy, News

By Sunjay Kapur,

Lets start with the facts. While developing economies lose momentum, Indias momentum seems to tell another story:

* The Reserve Bank of India pegs the growth for FY19 at 7.4 per cent.

* According to the Global Economic Prospects report released by the World Bank, India’s GDP is expected to grow at 7.3 per cent in 2018-19, and 7.5 per cent in the next year.

* India’s growth is projected at 7.5 per cent in 2019 as compared to China’s projected 6.8 per cent as per the International Monetary Fund.

These are facts in the present day global, political, and economic scenario.

Being an interim budget, expectations are riding high from all aspects.
2017-18 witnessed phenomenal growth of brand India in the wake of reforms. Despite increase in oil prices, a weak rupee, and global trade war-like situation, India’s sovereign credit rating touched Baa2; and India ranked 100 among 190 countries assessed by the ‘Ease of Doing Business’ parameter.

This space needs to pick up pace, especially in the automotive sector. Considering that it contributes more than 7 per cent to the GDP, it can be the game changer.

Considering the demonitisation and GST introduction, the recent growth numbers are respectable. To maintain our position, we must maintain growth momentum, push infrastructure investments, and continue to expedite reforms in a big way.

I will keenly watch how the following plans unfurl:

Rationalisation of GST

India, a price-sensitive economy, is at odds with double digit growth. We hope for automobiles to be regulated under a uniform base GST rate, and an additional cess only applicable to luxury vehicles. Currently, automobiles attract peak GST rates of 28 per cent with an additional cess that ranges across the extremely broad spectrum of 1 per cent to 15 per cent depending upon specifications and make of engine. A small engine car to a large one attracts an excise duty that varies from 12.5 per cent to 27 per cent. Those with ground clearance of more than 170 mm attract 30 per cent more excise duty. The existing framework also levies tax rate of 28 per cent and 43 per cent on dealer margins. Naturally, this coupled with high insurance has led to subdued demand over the last three months.

Incentivise EV

In the context of initiatives taken to scale up e-mobility in the country, the sales of e-vehicles are bound to witness a radical turnaround. Envisaging the future as we are, smart or automatic vehicles should also benefit from the tax relief.

Electric vehicles should come under the ambit of a lower rate of taxation, preferably 5 per cent. In addition, to increase viability, road tax can be totally exempted.

Rev up Research and Development

Needless to say, this is an area of exploration that is too important to undermine if we are to move into the future. The initial 200 per cent weighted deduction on R&D spends was reduced to 150 per cent in April 2017.

Vehicle scrapping

It is suggested that the replacement of vehicles registered before the year 2000 should be considered under a one-time incentive scheme. Most of pollution in India, almost 80 per cent and road accidents are caused or attributed to vehicles that are more than 15 years old.

We should look at replacing or easing out pre-2000 registered vehicles. This initiative holds immense potential to spur automotive sales in addition to having a significant impact on reducing perils of pollution, which has been called out multiple times on international platforms.

We as part of the industry propose that the Centre institute one-time incentive; these can be in the form of reduced GST, lower interest rate on car loans, or rebate in road tax for replacement vehicles.

Simultaneously, end of life vehicles (ELVs) recycling is a necessity for our country. The Centre must implement a robust legislative framework for pollution control goals.

As per expert V. Ravichandar, the automobile industry must perform a proactive role by voluntarily discharging their extended producer responsibility (EPR).

The correct implementation will create jobs, conserve resources, save energy, reduce pollution, and mitigate climate change. Recycled aluminum consumes 5 per cent energy, whilst recycled steel consumes 20 per cent of energy. Further, there will be saving with regard to foreign exchange, as effective recovery can reduce import of these metals.

One thing is certain, streamlined GST implementation, and continued positive reform policies are sure to sustain a robust GDP growth. The general sentiment plugs it as a pacifying, populist budget to appease the larger salaried classes and farmers.

(Sunjay Kapur is the CEO of SONA Group & Managing Director of SONA BLW Precision Forgings Limited)

—IANS

Will the interim budget provide a lifeline to realty?

by admin | May 25, 2021 | Opinions

By Vinod Behl,

In a way, this year’s interim budget, the last from the present NDA government before the Lok Sabha elections, is set against a similar backdrop as its first (albeit not full) budget of 2014-15 when the real estate sector was reeling under a major financial crisis. As such, it is expected of the February 1 budget to provide a liquidity lifeline to revive the realty sector, recently hit by the crisis in the NBFCs that have been a major source of its funding.

The Modi government’s first budget had contributed to considerably improving the investment climate by liberalising the FDI norms in the construction sector, besides injecting Rs 4,000 crore to the National Housing Bank (NHB) to promote affordable housing and introducing REITs (Real Estate Investment Trusts) with tax incentives to unlock a new source of financing for cash-strapped developers.

So, on the one hand, while that budget focused on boosting supply through increased investment, on the other hand, it provided a recipe to boost demand by increasing the home loan interest exemption limit by Rs 50,000 and raising the income tax limit by Rs 50,000. And now, five years later, in the wake of the real estate sector facing the initial disruptive impact of progressive reforms like RERA and GST, the sector is looking up to the government to provide it a similar budgetary booster dose, both on the supply and demand side.

Though the key reforms undertaken by the NDA government have brought in the much needed transparency and fair play in realty transactions, yet the restrictive provision of maintaining escrow accounts under RERA to check misuse of customer funds has resulted in liquidity constraints for the developers, made worse by the crisis in the NBFCs.

Hundreds of housing projects across India are today stalled for want of funds, in turn driving down the real estate sentiment. It is in this backdrop that the sector is looking up to the new budget as a saviour to provide some kind of lifeline to the stalled projects. It is expected of the budget to create a stressed asset fund to take up incomplete projects.

The industry captains are also hoping that the budget may provide some incentives to stressed asset companies to encourage them to undertake stalled projects. And to further boost supply, the industry has on its budget wishlist a long-pending demand of introducing a structured single window clearance system.

The supply constraint can be considerably tackled by boosting flows from banks to the sector. This can be achieved through a policy initiative to grant industry status to real estate, though in the backdrop of NPA-struck banking, this looks unlikely, especially as the infrastructure status earlier granted to affordable housing has not brought in the desired results in terms of cheaper bank funding.

Incentivised policies to promote rental housing and boost construction skills and technology are also required which may ultimately improve home affordability.

While the liquidity crunch has been adding to the supply side problems, the current crisis in the real estate sector has a lot to do with home affordability. As such, it is expected of this budget to follow the first budget of the NDA government in enhancing the income tax limit as well as increasing the home loan interest deduction limit.

And as inflation has shown signs of relaxation, going forward, the reduction in interest rates, especially subsidised interest rates for affordable housing, along with tax benefits in home insurance, may well bring home ownership within comparatively affordable limits.

Besides unaffordable home prices, the high transaction cost (12 per cent GST for standard housing and 8 per cent for affordable housing), in addition to 6-7 per cent stamp duty, has been playing spoilsport in reviving housing. The government may well bring down the GST to 8 per cent and 5 per cent, with input tax credit, to make it more or less tax neutral.

Further, there is likelihood of bringing down the GST on construction material like cement to boost home affordability, paving the way for speedy revival of housing.

But the big question is: Will these high hopes from the interim budget materialise for the real estate sector, especially as due to poll compulsions, the government has a higher priority of addressing the rural and farm distress?

(Vinod Behl is Founder & Editor, Ground Real(i)ty Media)

—IANS