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Despite Infrastructure Status Developers Are Unable To Obtain Funding

Construction and Real Estate Industry would to life with low interest rates, easy finances, and subsidies in direct & indirect taxes would rejuvenate the sector.

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The time has come to replace words like unprecedented, crisis and disruption into growth prospects, opportunity and realign to regroup for a better promising tomorrow. Treating the COVID-19 pandemic as a learning phase, the upcoming Union Budget 2021 holds a lot of expectation as companies are hoping for a budgetary revival through policy reforms. 

The unstable market is changing continuously, making it difficult for the developers and companies to safeguard its operations with apt strategy implementation. Amid this, 30-40 per cent increase in all kinds of raw material costs due to the COVID-19 protocols and production cuts is adding fuel to the fire. Contradicting this view, many believe that export markets for Steel, Copper and Aluminium have become very popular, especially the market in China. After a long, Indian economy is shrinking with negative growth, observes CARE Ratings. Besides agriculture, all other industries have badly suffered. Allied industries to the Construction and Real Estate Industry are experiencing negative growth which clearly indicates that the country needs an overhaul or a blanket reform to pull the economy out of the pandemic-infused crises.

In India, the production cut has increased the cost of Steel, Cement, PVC & HDPE resins - significant raw materials which directly increase the capital and financial requirement - leading to a severe crisis within the infrastructure companies.

The government is expected to address cost fluctuation in the industry, hoping it is not with the RBI basis points. Otherwise, it will force bankruptcy on many contractors’ resulting in jobs losses. Construction and Real Estate Industry would to life with low interest rates, easy finances, and subsidies in direct & indirect taxes would rejuvenate the sector.

Prioritizing projects like the Delhi–Mumbai Industrial Corridor (DMIC) can generate employment and bring liquidity to the dried-up Construction and Real Estate Industry. Migration, a big hurdle during the lockdown, has shown signs of recovery.

Going by theory of economics, the country is experiencing unemployment due to the fall in consumption, discouraging fresh and broad investments. Two major mechanisms, investment and consumption, are not firing. However, local investments are taking place. CMIE data shows that investments in India are down by 30-40 per cent compared to last year.

A revision is expected in circle rates of land, based on the current market, in the urban and rural areas. The gap amid circle rate and the market price comes to a ratio of 1:20. It will aid in wiping out black money and will multiply the stamp duty collections. To avail adequate finance from authorised sources to fund their projects, the real cost of land will make a difference for developers in India.

Activities of land use regulation and permission are the two primary causes of delay in real estate projects. A fully digitalized process and timely clearances of the permission should be ensured. With this, the Real estate and infrastructure both being capital intensive sectors, it will decrease the interest on the capital.

Within the real estate sector, RERA has fetched great faith, but it should not go the GST way just because of its complicated system. Simplifying processes and standard compliances in RERA will benefit the industry. There are various sub-segments such as open plots, residential buildings, industrial plots under RERA. Here each segment should have its specific standards instead of the common format.

Coming to the Pradhan Mantri Awas Yojana (PMAY), a subsidized affordable housing scheme, companies cannot continue to carry out more investments in these projects to merely achieve the target of ‘Housing for All’ by 2022. Provision for greater subsidies will help the industry to deal with the increased raw material cost. These projects are known to create more employment as well. Even though the real estate segment has the benefit of infrastructure status, developers find it difficult to obtain funding from major banks and NBFCs. Meanwhile, affordable housing projects accounts have very low profit margins.

Meanwhile, projects like interlinking of rivers and conversion of open water canals to pipelines should be proposed. Expressways from land-lock state capital connecting sea ports should be proposed. The food grain from Punjab, Haryana, Uttar Pradesh, Bihar can fetch good price by export; given that they have good mobility to the ports like Kandla, Mundra, Navasheva on the west coast and other seaports on the eastern coast. Fast-tracking Sagarmala Project will connect the country’s logistics benefiting developers to source raw materials at a lower cost.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Ambrish Parajiya

Director, GAP Associates

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