New Budget promises ‘ease of living’, aspires to improve infrastructure
Colliers International lauds India Budget 2020-21 for its objectives to work for ‘aspirational India’, ‘economic development for all’ and ‘a caring society’. Colliers Flash report analyses the projected impact of the broad measures announced by the Government in the budget that would enhance the quality of life for all Indians through improved infrastructure.
The budget has a long- term focus to bring economic growth to the aspired trajectory as well as attaining holistic development of society, at large. “The broad measures for cross sector economic and commercial development offer opportunities to investors as well as developers to undertake projects alongside the planned infrastructure” says Sankey Prasad, Managing Director and Chairman at Colliers International India.
The Budget 2020-21 aims to improve the physical quality of life through the National Infrastructure Pipeline launched on 31st December 2019, consisting of projects worth INR103 lakh crore (USD1440 billion). It aspires to boost commercial real estate industry, with opportunities focused on economic corridors, transport hubs, housing, logistics and warehousing and new smart cities.
“Budget 2020 – 21 aspires to secure ease of living to all Indians and ease of doing business in India to all those who aspire to contribute to growth. It emphasizes on building smart and sustainable infrastructure including housing, world class education facilities, economic corridors, transport hubs, new smart cities, logistic and warehousing facilities and data centres. Allocations worth INR 1.70 lakh crore (USD23.8 billion) for transport Infrastructure is a very bold step. Budget’s support to start ups and its measures to invite foreign capital in our priority sectors like infrastructure and education are also recommendable”, said Kaveri R Deshmukh, Senior Associate Director, Research at Colliers International India.
- In a major boost to infrastructure the budget has allocated around INR 1.70 lakh crore (USD23.8 billion) for transport Infrastructure in 2020-21. It focuses on developing controlled highways, economic corridors, coastal and inland port access and strategic highways. The right-of-way along railways are planned to be tapped for solar power, along with four station re-development projects and operation of 150 passenger trains through public private partnership (PPP). It announces development of one hundred more airports by 2024, as a part of the UDAN scheme. These measures are expected to trigger nationwide economic and commercial development, enhance the scope for investors and developers to create modern, sustainable real estate facilities alongside the planned infrastructure initiatives.
- To maximise the cluster effect of the upcoming economic corridors, manufacturing and technology development and to cater to the demands of the aspirational classes, five new smart cities and five archaeological sites would be developed as iconic sites with onsite museums. This offers major opportunities for developers with the proposed developments attracting investments in infrastructure, travel, tourism and the hospitality sector and generating employment and demand for affordable housing.
- In a very bold step, Sovereign Wealth Funds investing in infrastructure and other notified / priority sectors before 31 March 2024 are planned to be eligible for a 100% exemption for interest, dividend and capital gains tax. It poses immense potential to increase investments into infrastructure development and priority sectors like housing and education.
- The budget encourages state governments to undertake implementation of Model Agricultural Land Leasing Act, 2016 and state governments to take this up as a priority as it will facilitate institutionalisation of land leasing activities and ensure transparency but will also facilitate more productive use of land rendered fallow by farmers, bringing a change in land use patterns from agricultural to commercial and industrial use.
Measures to reduce taxation woes
The budget extended the deadline by a year for additional deduction of INR1.5 lakh (USD2,098) on interest paid on affordable housing loans. It also proposed a tax holiday to the developers on the profits earned on affordable housing projects approved on or by 31st March 2021, an extension of one year over the earlier date of 31st March 2020. This lends both the demand and supply side push to affordable housing, a move that further strengthens government’s commitment towards its policy of Housing for All by 2022 and is an opportunity for developers and investors alike.
The budget also announced a host of initiatives to reduce taxation woes including the proposal that buyers and sellers would be taxed simultaneously only if the transactions are priced 10% below the circle rate. To reduce tax burden of companies and to attract investments, the Dividend Distribution Tax (DDT) of 15% on companies has been removed, and dividends are now planned to be taxed at the recipient’s applicable rate. Similarly, the budget proposes to exempt co-operative societies from the Alternative Minimum Tax (AMT) as they contribute to the credit supply for manufacturer. These provisions are likely to help unlock liquidity while also augmenting manufacturing and generating employment.
Budget’s boost to start ups, in terms of deferring employee taxation by five years, is a welcome move. A start-up with turnover of up to INR25 crores (USD3.5 million) can avail a deduction of 100% of its profit tax for three out of seven years. It has now increased the turnover limit to INR100 crores (USD14 million) and extended the period of eligibility to claim a deduction from seven to ten years. Cities like NCR and Bengaluru, with a considerable number of star ups, should experience enhanced activity and we also see this as an opportunity for developers and investors in these cities as this change encourages new ventures and entrepreneurship.