Dubai:The Indian government will need to come up with a steep cut in consumer and business tax - even by as much as 50 per cent - for the next six months.
This is one of the key demands being put to the government by an influential group of Indian businesses.
On March 26, India had announced a 1.7 trillion rupee relief package that was aimed more at its citizens than businesses directly. This was to counter the slowing down of the economy because of the 21-day lockdown announced by the government as part of its measures to rein in the COVID-19 spread.
“A stimulus package by itself will not work to revive economic activity,” said Niranjan Hiranandani, President of Assocham (Associated Chambers of Commerce) India. “The economy needs demand creation in parallel - and for that to happen, there needs to be a 50 per cent reduction in the GST (Goods & Service Tax) for the next six months.
“And not just for a handful of sectors, but across the board. This will create the demand push that is need alongside the economic stimulus.”
Assocham is putting up the recommendation to the government, which is expected to announce a second stimulus package to safeguard the economy from the worst of the COVID-19 pandemic.
On whether the government can consider such a drastic cut in its tax revenues at such a time, Hiranandani said: “Only drastic moves can work in this environment - you don’t prescribe Crocin for cancer cure. That only works for headaches.
“The situation right now needs strong intervention by the government - and a slashing of GST rates for a fixed period would work.”
Size of economic boost
Assocham and other business entities are hopeful whatever India will announces as its second stimulus is hefty enough. Hiranandani believes it should be about 10 per cent of GDP or between $200 billion to $300 billion.
“This package could address all sectors, including the interests of the salaried,” he added. “Lots of people ask whether India can afford such a package.
“But the Indian government will benefit because of low oil prices and what this means for its import bills. The benefit could be to the tune of 1,700 billion rupees for the next six months alone.
“With that kind of [import bill] savings, the government can well use it for the stimulus package. Other countries have already come up with similar packages.
“We need to do the same at the earliest.”
Real estate - a downer?
But can India’s real estate turn itself around at a time when buying has dropped to negligible levels? Even if given a boost by way of any stimulus package?
According to Prashant Thakur, Director & Head – Research, Anarock Property Consultants, “Another fallout of the lockdown is that many key markets will have almost zero construction activity at project sites. This will further strain several developers’ financial health.
“As many as 1.56 million units across the Top 7 cities were in various stages of construction as on 2019 end.
“Further analysis reveals that out of these 1.56 million units under construction, nearly 57 per cent are in MMR (Mumbai Metropolitan Region) and NCR (Delhi’s National Capital Region) alone. Both regions already have a backlog of hundreds of thousands of delayed/stalled units.
“With construction activity almost coming to a standstill, homebuyers will have to brace themselves for another wave of delayed project deliveries.”
Hiranandani, however, is willing to look beyond such bleak numbers. “People want security, and when they need that, they get into real estate and not invest all in mutual funds and stocks,” he added. “Yes, people had shifted to stocks in the last five years… but that’s completely disappeared now.
“There are investors who would want to now get back to real estate rather than wait for a stock market appreciation.”
Hiranandani, who is also head of the National Real Estate Development Council, said: “I would not be wasting my time making suggestions or recommendations if I was not hopeful of the government doing the right thing.
“We are not asking for reduction of interest rates or extension of credit - all we are asking for is something that will go beyond the normal measures taken at such times of economic distress.
“And remember, real estate is the second biggest employer in India. The market will spring back - but it needs government intervention to make it happen sooner.”
That's because "people are not able to visit sites and are also in cash-conservation mode," he said.
According to Puri, "Given the ongoing global healthcare calamity, it’s no surprise that housing sales and new project launches across India’s Top 7 cities decreased both on yearly and quarterly basis. As expected, March – the month when most advisories and lockdown were imposed - saw a steep decline in both new launches and housing sales against the preceding two months.
“The Government has taken an inarguably necessary hard-line stance to curtail the spread of the virus. The lockdowns have stalled construction activity and will lead to project delays in the future. But this is a reality the sector must accept and live with.”