The budget’s extensive focus on the real estate and transportation sectors will provide a significant fillip to the construction sector.
The budget’s extensive focus on the real estate and transportation sectors will provide a significant fillip to the construction sector. These include announcements such as access to low-cost finance by the affordable housing segment, and 44% higher allocation for Pradhan Mantri Awas Yojana—from Rs 20,075 crore to Rs 29,043 crore, which is in line with the government’s broader vision of ‘Housing for All by 2022’.
The realty sector has borne the brunt of demonetisation and will soon come under the stringent Real Estate (Regulation and Development) Act. The announcement of schemes such as profit-linked income tax exemption for promoters of affordable housing, and consideration of carpet area instead of built-up area will come as a relief.
The period for completing projects has also been increased from 3 to 5 years. So while the budget augurs well for affordable housing, the mid and luxury category houses — which have a substantial proportion of investors —will be impacted negatively. That’s because the setting off of loss from house property against income under any other head has now been severely restricted. Income tax department data shows that for AY 2014-15, 2.6 lakh income tax returns reported a loss under house property. A loss from house property is reported when interest deduction is claimed. Roughly Rs 1,525 crore was claimed as loss from house property income.
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Meantime, budgetary support to construction of national highways increased by 24% over the revised estimates for the current fiscal, while budgetary support to the National Highways Authority of India (NHAI) is up a substantial 59%.
Additionally, support to the Pradhan Mantri Gram Sadak Yojana, the rural roads programme, has been maintained at R19,000 crore. Also, coastal connectivity roads have been identified for construction and development.
What would also improve construction activity is a 22% jump in budgetary allocation for railway infrastructure projects. Rail safety projects so far were funded from internal accrual, which has been a constraint historically.
The creation of a new safety fund, therefore, is a huge positive. CRISIL Research expects rail safety investments to treble to ~R90,000 crore over fiscals 2016 to 2020 compared with 2011-15, with the bulk of it going for construction of rail under- and over-bridges and track renewal.
Planned listing of IRCTC, IRFC and IRCON will help unlock funds for construction activity, as will station redevelopment and privatisation of operations and maintenance of select airports in Tier II cities.
Senior director, CRISIL Research