Investments in housing, roads key to revival

Updated: Jan 25 2002, 05:30am hrs
Encouraging investment in physical and social infrastructure holds the key to economic recovery. Hardly any investment has taken place in infrastructure though some activity is visible on the housing front. Housing and infrastructure investments can substantially drive the economy by creating additional demand and improving the spending capacity of the people through a chain of linkage effects.

The housing/construction sector is recognised as among the top employment providing sectors in the country. At present, there are 2.5 crore construction workers in India. Employment multiplier, including all effects direct, indirect and induced of an investment in housing is estimated at about 7 to 8.

Apart from budgetary resources, funds can be accessed from multilateral agencies like the World Bank/ADB for construction of houses and creation of roads and building new ports and airports and modernising the existing ones through public-private partnership. The only prerequisite is an appropriate policy framework.

Archaic laws that prevent the use of available land should be done away with. For this, lowering and rationalisation of stamp duty, modification of rent control laws and abolition of ULCRA by the remaining states is essential. Further, foreclosure laws need to be implemented and securitisation of mortgage assets encouraged.

Apart from housing, development of rural roads in concrete across the country would also meet the objective of new job opportunities, creation of additional demand and revenue accretion to the government. At present, there are hardly any pucca rural roads, and even if there are, they are in deplorable condition. The government needs to focus on constructing rural roads that will last for decades. In comparison to concrete rural roads, bitumen roads will be costlier to maintain. Cement roads can withstand extreme weather conditions. A concrete road can help heavy vehicles save up to 14 per cent fuel i.e. saving of Rs 2,000 crore for every 10,000 km of concrete roads. Use of concrete in roads would also mean lower imports as cement is produced domestically, unlike bitumen. The cost of concrete roads can be further reduced by using fly ash.

Further, a healthy capital market is essential if a meaningful dent is to be made in the current investment climate. In my view, equity investment by investors should be encouraged. At present, advantage on capital gains taxation at 10 per cent is available on equity holding for one year. As there has been an increase in debt flotations, an effective boost to equity investments has become all the more imperative.

The US economy has been inherently strong for a number of years primarily because of wealth generation as a result of its strong equity market. Therefore, 100 per cent exemption from capital gains taxation for equity holdings for 1, 2 or 3 years should be provided to investors.

An assessee should be allowed to deduct from a block of his equity investments, the realisation from sale of any particular share which has given him a profit, rather than paying tax on each transaction. Only when the total investment gets recovered, the government may contemplate to levy 20 per cent tax on his net profit.

(The writer is Chairman, Gujarat Ambuja Cements Ltd)