The wait is finally over. The Finance Minister Nirmala Sitharaman presented the Union Budget 2020, woven around three prominent themes: Aspirational India, Economic Development and Caring Society. The budget laying focus on the three themes has incorporated reforms that seeks to energise the Indian economy through a combination of short-term, medium-term, and long term measures. However, it is infrastructure - both physical and social - that seems to have received the maximum attention, and rightly so. The budget had good news for MSMEs, Co-operative societies, Start-ups, and of course the individual tax payers.
In the theme Aspirational India was centered around Agriculture, Irrigation, Rural Development, Wellness, Water and Sanitation and Education and Skills. A budget outlay to the tune of more than Rs 2.83 lakh crore has been proposed for Agriculture, Rural Development, Irrigation and allied activities as farmers and rural poor continue to remain the key focus of the government. This augurs well for the rural economy and is indicative of the government's resolve to doubling the farmers income by 2022. Agriculture credit target for the year 2020-21 has be set at Rs 15 lakh crore. Comprehensive measures for 100 water stressed districts, proposal to expand PM-KUSUM to provide 20 lakh farmers for setting up stand-alone solar pumps and for another 15 lakh farmers to solarise their grid-connected pump sets, setting up of efficient warehouses at the block/taluk level and focus on “one product one district”, in the horticulture sector, for better marketing and export are some of the steps in that direction. With the focus on warehouses it is the real estate sector in these blocks/taluks that will see major traction and the gain will spill over to the building product and building materials industry. The pump and pipe segment will likely see a major boost.
Setting up hospitals in the PPP mode mainly in aspirational districts will give a fillip to social infrastructure further providing the much needed push to the real estate sector and building materials and products - tiles, sanitaryware, paints, etc. The commitment towards ODF Plus in order to sustain ODF behaviour with an allocation for Swachh Bharat Mission at Rs.12,300 crore for FY'21 is yet another positive for the building material sector. Companies providing economy range of sanitaryware are likely to benefit the most. Similarly, Rs 3.60 lakh crore approved for Jal Jeevan Mission and Rs 11,500 crore in 2020-21. The Jal Jeevan Mission to provide piped water will boost the pipe manufacturers.
As for Economic Development the Finance Minister has allocated Rs 27300 crore for development and promotion of industry and commerce for FY'21. The proposal to develop five new smart cities in collaboration with states in PPP mode will not only have a long term impact on the real estate but also building products, and allied industry, besides providing thousands of man-days of employment. The accelerated development of highway - 2500 km access control highways, 9000 km of economic corridors, 2000 km of coastal and land port roads and 2000 km of strategic highways - will have a spill over effect on the real estate of cities/towns along the route. The announcement to develop 100 more airports by 2024 to support the Udaan Scheme, and Data Centre parks throughout the country will further boos the social infrastructure. The major gainers of the announcement are the realty players, the building product and allied industry.
The announcement to develop five archaeological sites as iconic sites with on-site museums - Rakhigarhi (Haryana), Hastinapur (Uttar Pradesh) Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu) - is a move aimed to promote tourism. Renovating four museums across the country and setting up Tribal Museum in Ranchi and a Maritime museum to be set up at Lothal, Ahmedabad, it goes without saying that realty and building products industry will benefit the most.
Affordable Housing has been a pet scheme of this government, and once again the government showed its resolve to provide Housing for All by 2022. Adding to last years' announcement of an additional deduction of upto Rs 1.5 lakh for interest paid on loans taken for purchase of an affordable house, the date of loan sanction for availing this additional deduction has extended by one year, beyond 31st March, 2020. Also, tax holiday provided to developers building affordable housing projects has been extended by a year to March 2021. The two announcements bodes well for the realty players and the building products industry - cement, tiles, paints, sanitaryware, etc.
However, the real estate sector is not highly impressed with the budget proposals. The real estate sector was waiting for Budget 2020 with high expectations to act as a growth booster. However, it seems the budget fell short of the industry expectations, with no major announcement for accelerating growth. Trade analysts are of the opinion that a hike in the Rs 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in the affordable and mid-segment categories. The key demands of the sector such as allowing restructuring of loans, extension of a subvention scheme, raising the limit of Rs 45 lakh for affordable housing, scrapping of capital gains on the sale of properties, extending the timeline of capital gains, have not been met with.
They are of the opinion that lowering of income tax rates with the removal of exemptions, may not lead to any meaningful boost to consumption. In fact, the removal of exemptions under the new income tax regime, implying no tax benefit on principal and interest for home loans would be a dampener for the sector, feels the industry. The developers are disappointed as Budget 2020 failed to address their liquidity concerns and did not provide major incentives to boost sluggish sales. While the extension of benefit for affordable housing for the developers as well as home buyers by one year is a step in the right direction, the proposal to enhance the partial credit guarantee scheme for NBFCs in response to the funding constraint for the ailing real estate sector may not be suffice.
To boost Make in India and domestic manufacturing the customs duty on furniture items has been increased to 25% from the current 20%. Giving in to the long-standing demand of domestic companies, the dividend distribution ta x - DDT - has been abolished. It will now be charged at the hand of the receiver. Currently, domestic companies pay a DDT at 15%, but coupled with surcharge and cess, the effective tax rate on the shareholder today is 20.56%. To put more money in the hands of the consumer, the income tax rates too have been rationalised. These new income tax slabs and rates however come with a catch, the taxpayer will have to forego certain exemptions.
Overall, Budget 2020 addresses the fiscal constraint that the economy is currently faced with, seeks to boost consumption and investment, lives up to overall expectations and has taken long-term measures to revive confidence in the India growth story.