India Budget 2018
I would term it as a pro farmers budget with a slew of measures well directed towards improving productivity in agriculture. With the increase in MSP for crops, thrust on organic farming, doubling the expenditure allocated to food processing sector, liberalization of agricultural exports, creating state of the art facilities at food parks, push to fisheries and allied sector, measures for senior citizens, this budget truly focused on uplifting the life of the “aam aadmi”. The introduction of various schemes in these areas will certainly bridge the rural-urban divide in the future. The announcements in the areas of healthcare in particular are path breaking and will empower the poor and under privileged sections of the society.
While there was no direct benefit to the real estate sector from the budget, some measures announced will positively impact the sector. The announcement of a dedicated affordable housing fund in the National Housing Bank (NHB) funded from priority sector lending shortfall and fully serviced bonds authorized by the Indian government is a welcome move and could act as a catalyst in the government’s vision of “Housing for All by 2022”. The move to allow a variation of 5% between transaction value and circle rates for computation of capital gains will not impact transactions significantly in any of the metropolitan cities in India. The massive push for improvement in infrastructure, including significant capital expenditure for roads, railways and development of smaller airports will indirectly benefit the real estate sector in the long run.
One of the concerns is the inability to meet the fiscal deficit in spite of surpassing the divestment target. New measures adopted for reducing the deficit might push up the yields leading to higher interest rates for both corporates and households. Investors in particular will not be pleased with Long Term Capital Gains on sale of equity and mutual fund investments. We could see some flight of capital from equity to the real estate class on the back of this move. The salaried class too stood to gain very little as the standard deduction of Rs 40,000 will provide nominal benefits to them.
We had certainly anticipated more for the real estate sector which is the second largest employment generator in the economy after agriculture. It seems the entire focus of the government was on the latter while undermining the importance of real estate to the economy.
Surendra Hiranandani is the CMD of House of Hiranandani