India?s economic woes have worsened during FY13, largely led by the weakening of the global economy and declining domestic macroeconomic indicators. GDP growth for FY13 is estimated to be around 5%, accompanied by persistently high inflation and declining industrial growth. However, the Economic Survey for 2013-14 indicated that the slowdown has bottomed out and growth is headed for an upturn. This boosted sentiments in the industry and expectations were rather high from the Budget. In line with the expectations, the Budget has promoted rejuvenating economic growth by curbing wasteful expenditure to limit the fiscal deficit and support foreign investment.
However, the Budget did not live up to the expectations of the real estate and construction industry. The sector did not get the much-demanded industry status, nor were there any big-ticket announcements supporting infrastructure status for mass housing, integrated townships or industrial parks, which would have spurred the growth of organised real estate in the country. The finance minister provided an additional tax deduction of R1 lakh for first-time property buyers, for home loans up to R25 lakh from R10 lakh previously. This is expected to support buyers in the low-cost housing and affordable housing segment. Reduction in the rate of abatement of service tax for luxury homes and flats from 75% to 70% is expected to increase prices of luxury housing. However, there was no mention of expanding the loan value in the 1% interest subvention scheme for low-cost housing, nor was there any commitment towards enhancing the limit of external commercial borrowings permitted for affordable housing construction. The government has also refrained from clarifying the status of fiscal incentives for export promotion regimes such as special economic zones, or committing to the creation of a regulating authority for the sector. Other expectations such as FDI reforms to cover projects smaller than 50,000 sq m or permitting real estate investment trusts to mobilise funds for the sector have also been belied.
On a positive note, the government continued to focus on infrastructure as a critical propeller of economic growth and remained committed to the targeted expenditure of R55 lakh crore on infrastructure growth in the 12th Plan; almost 47% of this expenditure is to come from the private sector. It is positive to note that the government is committed to infrastructure projects such the Delhi-Mumbai Industrial Corridor, besides developing new industrial corridors connecting Bangalore, Chennai and Mumbai. Such large-scale industrial developments will not only help spur economic growth in states falling within their ambit but also churn industrial production in the country. The development of seven new planned cities in the DMIC project, and allocation of additional funds up to R2,000 crore to the National Housing Bank and up to R5,000 crore to Nabard to develop cold storage facilities, warehouses and logistics will continue to bolster urban development and strengthen institutional capacity in infrastructure development.
Additionally, the government also supported infrastructure funding by permitting tax-free infrastructure bonds up to R50,000 crore, encouraging long-term low-cost debt-raising through infrastructure debt funds and credit finance to infrastructure companies.
Other positive steps that will help spur housing and urban development in the country include allocating almost R15,000 crore for Indira Awaas Yojna and almost R14,000 crore for the JNNURM project. The sharp increase in fund allocation to JNNURM (up from R7,800 crore in 2012-13) is an indication that the government is committed towards promoting urban regeneration of our cities and will go a long way in building capacities for a renewal of the built environment in our urban areas.