Home Spotlight As expectation run high FM has little options

As expectation run high FM has little options

The economic situation prevailing in India is reminiscent of the one prevailing in 1990 when the country had faced severe foreign exchange crisis. The only difference was then we had a minority government at the centre while we have stable one now. Also, then we were facing forex crisis while now we are facing a sort of internal fiscal crisis due to unexpected pandemic outbreak causing revenue shortfall, mounting expenditure and burgeoning fiscal gap. So, the budget 2021 is the one event which we are all looking at that may throw some light as to how we are going to come out of the economic crisis. We expect a lot of balancing act from the Finance Minister this time where she has to find out some innovative revenue raising ways without resorting to many austerity measures nor taxing the common man who is already struggling to cope with dwindling income. In short, expectations from this year’s budget are the highest and the anxiety of the people is increasing as the budget date is approaching.

For example, CII recommendations for Union Budget 2021-22 while taking cognizance of the stressed fiscal situation, on account of a sharp decline in revenue collections due to the COVID induced economic slowdown wants clarity in law, simplification of procedures, reduction of litigation and facilitating business transitions which would make doing business easier for the industry. “It is time to take things forward and build on the country’s growth agenda so that we return to the path of high growth as soon as possible. We expect the government to introduce more growth- oriented measures in the next budget as well as look at some innovative ways to shore up its own finances. Additionally, there is a need to strengthen the social sectors particularly education and healthcare. Unlocking private sector capital in these sectors should be a priority especially when these sectors have been devastated due to COVID-19 and require a major infusion of investments,” says Mr Uday Shankar, President, FICCI.

Employment generation should be a priority

Employment generation will be one of the key requirements at this juncture and therefore infrastructure, construction and significant incentives for high employment-generating sectors (like textiles, affordable housing, MSME, etc) are key areas, which may get priority focus from the government end. The pandemic has caused significant business and livelihood disruptions and the focus of the Union Budget should be to soothe and support the economy with a special focus on the common man.  Therefore, government should maintain its focus on development of infrastructure (roads, water and affordable housing) that would give the economy a much-needed earnings / employment stimulus.

Will the real estate sector get what it wants?

One sector that’s in need of urgent help from the government is the real estate sector. Though the sector, of late, is seeing renewed interest from the home buyers, demand is restricted only to the established players and that too mainly for completed units. Small and marginal players in the industry are not finding the current situation any different from the one prevailing a few months ago as they are still struggling to come out of liquidity crisis and complete the incomplete projects. In some cases, decision of home buying is influenced by lower stamp duty and mortgage rates which may not remain at that level all the time. Also, realtors are complaining about the upsurge in prices of materials, mainly steel and cement.

Realtors want the government to hike the Rs2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least Rs5 lakh to generate healthier housing demand, most notably in affordable- and mid-housing segments.   Some of the realtors have demanded allowance of investment up to Rs. 50,000 in REITs as a deduction under Section 80C. They also want one-time restructuring scheme for builders with moratorium on principal and interest of 2 years to be implemented immediately.

Cement manufacturers hope infra and real estate receive their due in budget

Cement manufacturers are following a well-planned strategy to maintain price at elevated levels – hike the price at the beginning of the month and let it follow the course decided by the market forces during rest of the month. As a result, though the prices have been increased several times, they have been rolled back to original levels due to demand weakness. However, prices are still higher than that of the previous year. Cement manufacturers believe that demand cannot be sustained at higher levels unless the demand from infrastructure and real estate sectors emerge strongly. For this, they want the forthcoming budget to give extra push to infra and real estate sector. Also, the industry wants GST on cement to be reduced which will help them to reduce the prices.

Other building materials manufacturers too want to see some encouraging announcement in the budget towards realty sector. Wood panel manufacturers want the duty on imported furniture to be raised so that domestic manufacturing is encouraged as part of Aatm Nirbhar Bharat programme.

However, let’s not forget that the Finance Minister doesn’t have many options. She needs to do a lot of balancing act as her revenue collection options are limited while demand for enhanced allocations increasing. Despite the visible shortcomings let’s hope that she will be able to pull a rabbit out of the hat.

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