EXPECTATIONS FOR A BIG BANG BUDGET

EXPECTATIONS FOR A BIG BANG BUDGET
27/01/2021 , by , in News/Views

VARIOUS INDUSTRIES HAVE COME UP WITH THEIR OWN SET OF DEMANDS BUT ONE DEMAND THAT REMAINS UNEQUIVOCAL FROM INDIAN INC. IS TO BRING BACK THE REQUIRED LIQUIDITY AND PUT THE ECONOMY ON TRACK.

BY: SAPNA SRIVASTAVA

As the Union Budget 2020-2021 is all set to be presented next month, expectations from this budget are higher  than before, because of the pandemic induced slowdown, Indian economy is going through. The businesses are looking forward to landmark policies and stronger  governance to boost manufacturing, infrastructure and investor  friendly climate that will be beneficial in the long run.  

With widespread anti-China sentiments, the Indian  manufacturing sector has become one of the most attractive  destinations for global manufacturers. Additionally, government’s  recent announcements to push infrastructure and construction  sectors have come as a good news. Backed by right fiscal policies  in the union budget these initiatives should ramp up the recovery  prospects this year. Finance Minister Nirmala Sitharaman has  already concluded pre-Budget consultations with the captains of  industry, and the process of preparing the budget is on. 

As per Bibek Debroy, Chairman, Economic Advisory Council  to the Prime Minister, “Budget is not only about revenue and  expenditure. It’s also about policy content and intent. This budget  is important as it should shape public expenditure in social and  physical infrastructure, state a medium-term fiscal policy, detail  an environment for private-sector investment, introduce reforms  in land, labor and capital markets, and incorporate technology to  improve governance. That’s what big bang budgets are about— setting the tone for the next ten years.” 

THE BUDGETARY CONSIDERATIONS

As per industry experts estimates, overall revenue, after  accounting for the shortfall in divestment, could be about 2.7%  of GDP, Deutsche Bank estimates. Total expenditure could be  higher than FY21 budget estimate by about 1% of GDP due to the  increase in government spending on account of Covid-19 relief.  The RBI’s latest bulletin stated, more evidence to show  that the Indian economy is reflating at a pace that beats most  predictions. If the current momentum is maintained and business  sentiments continue to stay positive, the additional fiscal support  can broaden the recovery faster. 

As per Confederation of Indian Industry (CII), the  three-pronged strategy for Union Budget 2021, should  center on the key themes of growth, fiscal consolidation,  and strengthening of the financial sector targeted to  overcome the impact of the COVID-19 pandemic on the  economy. The CII suggests bringing down government’s  stake in public sector banks (PSB) to below 50 percent  through the market route, over the next 12 months,  except for 3-4 large PSBs such as State Bank of India,  Bank of Baroda, and the Union Bank of India. It further  recommended that the government create state-owned,  professionally managed Development Finance Institutions  (DFIs) to finance key sectors of the economy, on the lines  of KfW Germany, Brazil Development Bank (BNDES),  and Korea Development Bank. This could be achieved  by infusing equity into NABARD for financing agriculture  and rural sector, SIDBI for financing MSMEs and IIFCL for  financing infrastructure. 

Federation of Indian Chambers of Commerce and  Industry (FICCI) is of the view that the Union Budget  2021-22 should look to double the Section 80C limit  to Rs 3 lakh which will boost further investment and  increase tax savings for an individual encouraging  consumption. 

The fiscal deficit for FY21 have soared to 7-8% of GDP  and general government debt is expected to soar to as  much as 90% of GDP this fiscal. On a brighter side, most  analysts have bettered their growth projections. The latest  projections for a contraction in India’s real GDP for FY21  are in the 7.7-10% range with an expectation of a sharp  rebound (about 9-11% expansion) in the next fiscal. 

The government has a tough task ahead and a tall  order of demands and expectations to fulfill. Undoubtedly.  Budget 2021 will have to spell out the road map for growth  of Indian economy in the near future. 

REAL ESTATE BUDGET HOPES

As per the National Statistics Office, the estimated  H2FY21 recovery in overall growth will likely be driven  by services sector led by real estate services. A slew of  measures including RBI’s repo rate cut of 140 bps, resulting  in a fair lowering of interest rates, a six-month moratorium  on EMIs, monetary and fiscal assistance to real estate  companies at the project level brought some operational  efficiency in the latter part of 2020.  

The realty experts recommend structured financing  impetuses in the upcoming budget. The real estate  sector requires demand-generating measures such as,  tax relief to buyers including removal of tax surcharges  for purchasing homes, expanding the availability of  income tax deductions for home buyers and a simplified  personal income tax regime. This will increase the  disposable income for potential homebuyers and widen  the market opportunity. For instance, providing personal  tax relief, either by tax rate reductions or amended tax cost of construction thereby limiting the affordability  quotient of the consumer. These critical construction  materials be taxed at a lower GST rate especially for  affordable housing to meet the intended objective of  housing for all.  

Transfer of development rights is liable to GST as  a service at the rate of 18 per cent. However, the sale  of land and building is outside the purview of GST. The  grant of development rights coupled with conveyance in  land in favour of residents is akin to sale of land. The GST  payable on such development rights increases the cost of  construction without any input tax credit. 

As per Section 54, the taxpayer is allowed to claim  refund of accumulated Input Tax Credit on account of  inverted duty structure. However, real estate developers  are restricted from claiming such refund leading to  increased tax cost and discrimination in taxation policy.  Making the said refund available to the real estate sector  would help developers in offering reduced prices to the  end consumer. 

Another concern in the real estate industry from a  consumer standpoint is the levy of GST on the common  area maintenance charges recovered by the housing  societies. The housing society functions on the co operative principles and values of democracy, equity,  equality and solidarity. Therefore, there is no service by the  society to its members and also there is no consideration.  Hence, the government should exclude the maintenance  charges collected by the housing society from the purview  of GST. This will provide a much-needed relief to the flat  owners and will reduce their burden. 

The CII has suggested that  the budget proposals, focus  on growth, and look at fiscal management from a three-year  perspective. Disinvestment and  monetization of assets can bring  in revenues at a time when tax  revenues have fallen sharply. 

Government expenditure  should be prioritized in three areas- infrastructure,  healthcare, and sustainability.  The budget proposals should also address two critical areas  of boosting private investments  and providing support for  employment generation.

 

REVISITING GST ON REAL ESTATE  SERVICES  

One of the major concerns for realty sector is the GST  waiver for under-construction homes – The present GST  rate on under-construction properties is 5% minus the  ITC benefit for premium homes (>INR 45 lakh) and 1% for  affordable homes (<INR 45 lakh). Even a limited period  waiver of GST will reduce overall property cost and thus  push demand for under-construction homes, which have  been slacking presently.  

The government should also revisit the GST rates  levied on the construction materials especially cement and  other raw materials. Rationalizing the GST rates of these  commodities will bring down the burden of construction  cost and the overall pricing. 

Key construction materials attract higher GST  rates such as cement (28 per cent), steel (18 per cent),  tiles (18-28 per cent), etc. This leads to increased  cost of construction thereby limiting the affordability  quotient of the consumer. These critical construction  materials be taxed at a lower GST rate especially for  affordable housing to meet the intended objective of  housing for all.  

Given that real estate contributes more than 8 percent  to the Indian economy, the industry is expecting a round of  measures to help faster revival  of the sector. It looks forward to  additional considerations that  includes attention to challenges  of liquidity to complete ongoing  projects and pushing demand  for under-construction homes.  The government also needs to focus on strengthening the  consumer’s capacity by way of more efficient tax rebates  and increased tax reliefs to prospective homebuyers. 

 

 

 

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