If real estate is able to get its mojo back, there is hope that the Indian economy would also return to its 8-plus per cent growth rate soon.
It was largely expected. With a view to curb the spread of Covid-19, the 21-day lockdown which was imposed earlier across the country has been extended by another 19 days albeit with partial relief given after 20th April in some parts or regions of the country. The biggest pandemic faced by mankind in over a century, which originated in China and soon engulfed the entire world including most of the developed as well as developing nations, has impacted one and all. With restriction on the movement of people as well as goods & services, barring some of the essential services, the economic activities are currently at a standstill. Needless to say, the lockdown would have a jeopardising impact on the economy.
The Early Growth Indicators
There is a near consensus amongst most of the economists that World economy would slip into recession, with many of them even predicting that the current slowdown would be far worse than that of 2008 financial crisis and next only to ‘Great Depression’. The IMF’s Economic Counsellor has named it the ‘Great Lockdown’ and has estimating the cumulative loss to global GDP over 2020 and 2021 at around $9 trillion, which is greater than the economies of Japan and Germany put together.
Thankfully, India is among the handful of countries that is projected to record positive growth and at 1.9%, India’s growth rate is projected to be the highest among the G-20 nations.
Measures unveiled by Government & Authorities
To curb the impact of pandemic, Governments and authorities across the globe have announced several relief measures. The United States has passed a record $2 trillion Corona relief package. Other countries have also announced similar measures.
Domestically, the Indian government too has announced a relief package to the tune of Rs 1.7 lakh crore, which is mostly aimed at economically weaker section of the society. Compared to relief package announced by some of the major economies, the relief package announced by India is much smaller as it is merely 2% of the GDP as compared to relief packages of the US, Japan, UK & others wherein it is to the tune to 10-12% of GDP. Thus, there is greater expectation that the government would soon unveil another relief package for industries.
The Reserve Bank of India too has done its bit. It has already announced several measures in two tranches. Complementing the Government’s efforts, the apex bank towards the end of March lowered repo rate by 75 basis points to 4.4% and infused liquidity in banking system to the tune of Rs 3.74 lakh crore. It also lowered the reverse repo by 90 bps to 4%. It also announced moratorium of 3-month on repayment of all term loans, including retail loans and on advances to MSMEs.
With the economic growth scenario remaining under cloud, the apex once again intervened on April 17 and announced further reduction in reverse repo to 3.75% besides providing additional liquidity of Rs 1 lakh crore to NBFCs and All India Financial Institutions like NABARD, SIDBI & NHB. It has also announced certain relaxation on loan classification and provisioning as well.
Real estate may offer panacea for economy
One of the reasons that the Indian economy is struggling to attain 7.5-8% kind of growth is the state of real estate. The last few years have been challenging for the sector as it underwent tremendous transformation due to Demonetisation, RERA and GST implementation. The Covid 19 is further likely hit the sector hard, with some of the reports suggesting extreme pessimism regarding the sector.
But as Mahatma once famously said: “In the midst of death life persists, in the midst of untruth truth persists, in the midst of darkness light persists.” – the sector still remains the second largest employer and is an essential cog in India Inc, with close to 300 industries relying on it for growth purposes. Thus, it is utmost important that some measures are announced to revive the sector, which in turn may immensely benefit the economy.
a) One Time Loan Restructuring
One of such measures could be developers’ long-pending demand of restructuring of existing loans for a period of 12 months. Amid the challenging times, the sales of housing units have remained subdued for the last couple of years. This in turn has adversely impacted the loan repayment capacity of a substantial chunk of developers. The unrest caused by Covid 19 is further likely to aggravate the situation. Thus, it would be apt that the Government or the Reserve Bank of India announces one-time loan restructuring for 1 year. This would ensure that developers would have sufficient liquidity at their disposal, which would enable them to turn the tide. Also, with no defaulter tag, developers would be able to raise additional finance from various institutions. Needless to say, it would help in faster completion of project and would create substantial employment opportunity.
b) Waiver of Stamp duty
The other major initiative, which may help the sector revive, is waiver of stamp duty for a limited time period. With stamp duty being one of the biggest sources of revenue, various state governments have substantially hiked circle rate over the years. In many of cases, the hike is not in sync with market realities. As such, stamp duty based on unrealistic circle rate is a major deterrent in buying of properties. Thus, it would be apt that states waive off stamp duty for a limited period. The move would help in the revival of the sector.
c) Special Window for HFCs/ NBFCs
Banks have been reluctant to finance realty projects over the last few years. In absence of it, the sector has heavily relied upon NBFCs and HFCs for its financial requirements. But post the IL&FS as well as DHFL fiasco, even that source of funding has dried up to a large extent. Even some of the HFCs and NBFCs are facing liquidity squeeze. In the wake of the same, providing a special window of finance for HFCs/ NBFCs would not only help them at this critical juncture, but in turn would help in the revival of the realty sector as well.
And there is little doubt, if real estate is able to get its mojo back, the Indian economy would also return to its 8-plus per cent growth rate soon.
(By Harvinder Singh Sikka, MD, Sikka Group)