Budget shines nice and bright for the constructions industry!

New Delhi, March 15, 2020: Budget 2020 was the most anticipated budget of the recent times. Players across the construction and allied industries were anticipating the budget to give the much needed push to the sector.  While the budget did not address all the issues faced by the industries, it did lay a road map that will enable the growth of the industry.

Let’s take a look at the recent announcement and draw a parallel to the expectations that the industry had put forth.

Greater allocation and thrust on developing the infrastructure of the country-  Allocation of resources to improve the infrastructure of the country has been a long standing ask not just from building material industry but from the corporates across sectors and this budget has made moves to address the ask.  The budget has announced Rs. 103 lakh crore worth of infrastructure projects including housing projects, modern railway stations, modern bus terminals, world class educational institutions, warehousing, proposal for 100 new airports by 2024, among other projects. The government also announced redevelopment of four major railways stations under the Public Private Partnership Route (PPP). These projects will definitely improve the infrastructure of the country. It will also give a boost to the building materials sector.

Making India smarter: The development of smart cities has had a significant impact on the growth of building material industry. Finance Minister Nirmala Sitharaman had proposed five new smart cities in the recent budget. The proposed projects are being planned in lines of the Gujarat International Finance Tec-City (GIFT) at Gandhinagar. Apart from these projects directly creating a demand for materials, the projects will require infrastructure to support the smart city eco-system triggering the need for quality building materials. Moreover, as the government plans to open the Public Private Partnership (PPP) model, it will create more opportunities for private players to participate. The participation will witness at least 5% additional growth percentage growth in the building material industry.

Making affordable housing more lucrative for both builders and buyers: The recent budget has extended the tax holiday for the affordable segment by a year and this would definitely provide a strong impetus to the sector. This is likely to pave the way for new project launches in this category, which not only will benefit the real estate industry, it will have a ripple effect on the building material industry as well. The positivity would have had a stronger impact if the budget had also looked into and introduced special interest rates 6 to 8% for home buyers as well as accelerated depreciation benefits for developers.

New personal income tax rates: The budget has proposed a new dual tax slab option for Indian tax payers. While this will ease the tax burden for higher income brackets and may increase their purchasing power to some extent, it can also become challenging as the budget has planned to abolish at least seventy types of tax exemptions out of the current hundred. This will not only create confusion but also can increase the payable taxes for some of the income groups which in turn may have a neutral effect on the spending capacity of consumers. The consumers may look forward to invest the additional savings due to reduction in tax into a real estate property which in turn will increase the demand for new properties thus building materials as well.  

Single window clearance: The proposal to have a single window clearance has been a long standing ask from the industry. Simplifying the multiple process clearances which tend to delay the overall project would have given a big boost to the industry.

Ease of doing business: While we have made significant progress the budget was an opportunity of the government to further ease the process and aid business growth. Creating a supportive environment for businesses that are helping the development of infrastructure would have also supported the growth of the sector especially when it comes to timely resolution of redressals.

Granting infrastructure status: The budget had previously granted an infrastructure status to the affordable housing segment which resulted in a positive momentum for the segment. Similarly granting infrastructure status to the entire real estate sector would have helped the industry to experience an accelerated growth trajectory. Infrastructure status will provide tangible benefits such as funding availability, rationalization of interest rates, additional tax benefits etc which helps in additional growth may be additional 5%.

GST Rate reduction for some of the building material such as Cement, Sanitary material which are still taxed at 28%, also bringing petroleum products such as Natural Gas which is essential fuel for Tile industry which will help the industry to take input credit for the tax paid while buying the Natural Gas.