The announcement of a fiscal stimulus package of Rs 20 trillion, constituting nearly 10 per cent of India's GDP, is truly a shot in the arm for the economy. The economic stimulus lays emphasis on key issues like land, labour, liquidity and law, and is indeed a well-thought-out reform. However, a fiscal stimulus for the real estate sector has been missed out, points out Dr. Niranjan Hiranandani, President, ASSOCHAM, and Founder & Managing Director, Hiranandani Group.
To start with, could share your views on the impact of COVID-19 pandemic and lockdown on the Indian economy, especially regarding the infrastructure space? There are four points here. Firstly, we need to understand that the healthcare issue needs to be tackled. When we talk about infrastructure, we mostly refer to physical infrastructure. When we talk about infrastructure, we also need to talk about health infrastructure as that's extremely important. We have found a deficiency in the handling of health crises. So, health infrastructure needs to be made a part of the overall infrastructure development. That's how it's done, worldwide.
Secondly, while a lot of other issues may get sorted out, funding may remain an issue. That is why ASSOCHAM has recommended that we must go ahead in terms of further deficit financing to the extent of 10 per cent of the GDP to ensure that all such requirements are met within the country. Thirdly, a large number of funds are locked up in payments from the government public sector enterprises (PSEs) and agencies like the National Highways Authority of India (NHAI). If they reimburse all those items, including a refund of GST, income tax and other pending amounts, it will come to almost Rs 1.9 trillion. So, the payment of those amounts would be a good step.
Thirdly, the government must see to it that the industry is subsidised because there is no cash to continue with projects. An intervention is, therefore, required to provide funds to industry and businesses to take care of immediate requirements of salaries as well as the huge loss of profit that companies have endured due to the complete stoppage of work.
Finally, the liquidity situation needs to improve in the marketplace because irrespective of what happens, if you don't have liquidity you can't undertake projects. Luckily, many of the government projects are supported by Japanese funding agencies so I don't think there will be any problems there. However, the share of the government in those projects might prove to be an issue.
How would you sum up the Rs 20 trillion stimulus package announced by Prime Minister Narendra Modi on May 12?
The much-awaited announcement of a fiscal stimulus package of Rs 20 trillion, constituting nearly 10 per cent of India's GDP, is truly a shot in the arm for the economy. The economic stimulus lays emphasis on key issues like land, labour, liquidity and law, and is indeed a well-thought-out reform. However, a fiscal stimulus for the real estate sector was missed. The industry had pegged its hopes on fiscal relief to be granted to the second-largest employment generating sector as liquidity infusion will be imperative to turn around the sector.
The announcement related to the regulatory aspect of extension of dates under Real Estate Regulation and Development Act (RERA) by allowing force majeure with the Ministry of Housing and Urban Affairs issuing advisories to states and union territories to treat the COVID-19 period as an "Act of God" is a welcome step. In terms of actual implementation, fresh project registration certificates can be issued as also registration and completion dates extended suo moto for up to six months. This is intended to combat the disruption caused by the pandemic that has practically brought construction work to a grinding halt, with the additional chaos created by the movement of migrant labourers and delays in the supply of raw materials. Relaxation in project timelines under RERA will bring some relief to developers and safeguard the interest of homebuyers with the revised new timelines for delivery.
The finance minister also announced a scheme to provide affordable rental housing for urban poor, which seeks to incentivise manufacturing units and factories to build such accommodation on their private land within their compounds. The scheme includes usage of empty government land to build more rental housing stock in the public-private partnership (PPP) model, with a concessionaire arrangement similar to toll being charged by firms building roads & highways. The other aspect is about converting government-funded housing in major cities to affordable rental housing. The measures include strengthening of infrastructure, logistics and storage to provide opportunities for setting up new facilitiesin green and brown-field segments. Also, supply chain issues, especially for perishable items like fruits, vegetables, dairy products and fisheries offer immense potential for warehousing and logistics segment in commercial real estate. The fisheries segment, for example, is expected to contribute Rs 1 trillion to India's exports. With diligent follow-up measures, the commercial real estate sector has the opportunity to help create better harbour and cold chain facilities.
Private Sector Important
How can the Central and State governments work together with the private sector to put India's growth story back on track?
If any government, be it at the centre or in the states,felt they could run the country without the help of private sector, then that would have happened long ago. For a very long time, socialistic policies decried private businesses. However, ever since 1991 that has changed. Now it's more about the private sector, the public sector, joint sector and so on. So, the private sector has an equal û if not superior û role and the government an even bigger role in infrastructure creation. In this partnership between the two, the government must take care of areas such as water supply, sanitation, transportation, etc., while their operation & maintenance are handled in a much better manner by the private sector. In my view, it is necessary to get both the agencies together to make the country work.
Which compels me to ask you how robustness can be restored in the construction sector?
It is very simple. Unless the whole economic machinery restarts and government inputs come in to kickstart the economy, the Reserve Bank of India (RBI) needs to ensure that sufficient funds are put into the hands of the business industry, and not just in banks. If that happens, the economy will be back on the track in the next six to 12 months. It will happen and, hopefully, by that time the coronavirus would have been largely contained.
In most of your recent interactions with the media, you have specifically maintained that a recovery is likely in the housing sector. Any reason for your optimism?
Well, one can be bearish or bullish about it. But a good reason to be bullish is if the government can deliver on the package it has announced I am assured that things will be back on track. And, perhaps, in a shorter time frame than I mentioned earlier. But the point is that the government must move proactively.
Where funding challenges faced by infrastructure projects are concerned, what is the best way forward, in your opinion?
There are ways to do it. There is enough capital and debt available worldwide and if you want you can get it. But in our case, we don't even need to do that. The RBI can ensure the flow of additional capital. We are looking at $200-250 billion on an immediate basis. This will not only help to kickstart the economy but also help put it back on track. This is ASSOCHAM's view and we had represented the government in this regard before the announcement of the stimulus.
Many see a big opportunity for India in the current crisis. For instance, there are reports of several manufacturing giants looking at relocating their factories from China to here. Do you see that happening?
Certainly! But the question is whether or not we can do it? In the past, we have not shown aggressiveness to identify opportunities and then run fast enough. The present government must study the opportunities and then drive them. Not a single day should be wasted!
How would you imagine life in a post-COVID-19 world?
Life will continue as it has for hundreds of thousands of years. We have faced more serious problems like major wars and other pandemics. But I am not trying to undermine the magnitude of the current crisis. My only point is that we have gone through crises before and we shall overcome this one as well! As a country, we are taking the utmost caution and I am optimistic of much better results.
- MANISH PANT