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Budget must take the investment route to boost a sluggish economy

Demonetisation broke the back of the MSMEs, leading to consolidation & formalisation of the economy.

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Last Updated: Jan 25, 2020, 12.54 PM IST
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To create depth in the market, we need focussed measures to attract global capital.
By Sunil Rohokale

The Union Budget presentation is still a critical event in the Indian economy, as it helps the government show strategic intent and tactical actions to stimulate the economy and initiate appropriate fiscal measures. This year’s event is more critical in the backdrop of the slowest economic growth of the decade in last quarter and it looks like the ongoing financial year is likely to end with less than 5 per cent GDP growth.

This is the first time after a decade that most of the economic drivers have faltered or yielded less result. In the quest for a more transparent, governed and digital economy, the initiatives taken like GST/RERA have impacted business models, shaken up corporate confidence, leading to more leverage and defaults in the banking/NBFC/HFCs businesses.

Demonetisation broke the back of the MSMEs, leading to the consolidation and formalisation of the economy. Every industry is consolidating, and better governed, transparent and more compliant companies are getting benefited while large unimaginable chunks are heading towards bankruptcy. IBC/NCLT helped build the confidence of the investors and banks after the marquee asset resolution that came through recently, albeit delayed.

This Budget needs to focus on improving investment climate and confidence of the individual investors, institutions and banks/other lending institutions so they do not paint everyone with the same negative brush.

Real estate is a very widely held asset class by most of the Indian investors. This assets class has lost its sheen since last five years due to stripping of all the incentives meaningfully required for an asset class to attract investments. The Budget objectively needs to address the revival of the sector as the real GDP growth of 7-8 per cent will be impossible without the lion’s share by real estate because of its linkages with core industries and other industries.

Following are the some of the expectations from the Budget to attract capital to this sector:

1. Under Sec 24, the tax-free interest paid on housing loans can be increased from the current Rs 2,00,000 to Rs 10,00,000 for all houses purchased till year 2022

2. Loss from house property should be allowed for the full amount instead of Rs 2,00,000

3. Allow capital gains to be invested into new properties without any constraints in the amount or number of houses.

The government has taken very good measure to stimulate demand for affordable housing. With the focus on revival, the above measures would help in gushing the liquidity to this sector which is the need of the hour. Banks/investors perception of reduced risk would help them refinancing the project and overall execution will lead to delivery of homes. The delay in project execution/defaults by developers to banks/NBFCs/HFCs/private equity investors have shaken their confidence impacting the flow of capital and cost of capital.

Equity as an asset class has shaped well in past five years. After demonetisation, in the absence of attractiveness of other asset classes like real estate and gold, domestic retail investors participated in the equity markets through SIPs in MFs, which was an absolute boon to the asset class.

To create depth in the market, we need focussed measures to attract global capital. The stability of policies would help the investors the most to look at the market regularly and with a long-term view.

The following pointed intervention in this Budget would be most welcome:

1. Long term capital gain tax (LTC) can be reduced to zero for a holding period of over two years

2. Dividend distribution tax and tax on dividends in the hands of recipient should be done away with

3. Buyback of equity tax should be nil for even unlisted companies

4. ESOP taxation should be imposed only on sale of shares to attract and retain talent. This will massively help the startup ecosystem too.

To get the animal spirit back in the economy, this Budget has a huge role to play and expectations are rife.

On the personal income-tax front, very less expectations have built up, but on indirect taxes and on sector specific measures, we need excise duty cut on automobiles for a short period of 2-3 years besides incentives to car owners to scrap old vehicles.

To address the rising unemployment issue, the government has been focusing on infrastructure projects and that should continue with more vigour, more resolution in IBC. And a recovery of the real estate and allied sectors can bring the smile back on the faces of the unemployed.

(The author is the Managing Director and CEO of ASK Group. Views are his own).
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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