Budget 2020: Misses key investors and real estate demands
Budget 2020, the second finance bill tabled by Finance Minister Ms Nirmala Sitharaman, was a reflection of young India’s aspirations, growing economic concerns and the increasing need to be a caring society. The slew of policy reforms and new initiatives announced were done keeping in mind the needs of the rural populace, infrastructure development, skilling the millennials and boosting entrepreneurship. Transport infrastructure developers, electronics manufacturers and rural India were the biggest gainers from this year’s budget.

However, the budget seems to have missed the bus on addressing core investor concerns as well as those of the real estate sector, which has remained resilient despite the current slowdown but was expecting certain measures to overcome the stress. No ‘big bang’ announcement was made to boost consumption, attract investors or improve housing demand. In fact, this budget was more of an amalgamation of small steps aimed to lessen the stress, after a series of stimulus announcements were introduced out of the budget cycle in order to improve the economic scenario.
 
Key Highlights

Infrastructure Development


•Funding: Infrastructure development received an outlay of more than INR 100 lakh crore over the next five years, with INR 1.7 lakh crore to be spent on developing transport infrastructure.

•Development and redevelopment: The government announced the monetisation of 12 lots of highway bundles by 2024. Four railway station re-development projects and operation of 150 passenger trains would be carried out in PPP mode.

•Udaan scheme and sea port efficiency: A hundred more airports would be developed by 2024 to support the Udaan scheme. Use of more technology and setting a global level governance framework to enhance sea port efficiency was also announced.

•Suburban transport project in Bengaluru: A 148-km-long Bengaluru Suburban Transport project at a cost of INR 18,600 crore, with fares on the metro model, was announced. The Central Government would provide 20% of equity and facilitate external assistance of up to 60% of the project cost.

Real Estate and Housing

•Additional tax deduction: Tax deduction of up to INR 1.5 lakh for interest paid on loans for an affordable house can now be availed until 31 March 2021, instead of the earlier provisioned 31 March 2020.

•Tax holiday extension: The tax holiday on the profits earned by developers of affordable housing projects was extended by a year to 31 March 2021.

•Real estate transaction tax: No additional tax liability has been proposed arising out of a transaction where the differential in the actual transaction value of the property and circle rate is lower than 10%, compared to the earlier provisioned 5%. This should help secondary market transactions in certain core upmarket locations in leading cities.

•Smart cities: Five new smart cities in collaboration with states in PPP mode were announced.

Industrial and Logistics Sector

•Formalisation of the sector: The government sought to bring more formalisation to this sector by commissioning NABARD to map and geo-tag agri-warehousing, cold storage and reefer van facilities – which together have an estimated capacity of 162 million MT.

•New logistics policy: It also announced that the new logistics policy would be released soon that would create a single-window e-logistics market and focus on generation of employment, skills and making MSMEs competitive.

•Data Center Policy: To leverage growing tech adoption, the government announced plans to come up with a data center (DC) policy that would enable the private sector to build DC parks throughout the country.

•Boost transport network: Accelerated development of highways will be undertaken. This will include development of 2,500 km of access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads, and 2,000 km of 'strategic' highways.

Banking and NBFCs

•Enhanced governance for raising capital: The government announced that governance reforms will be announced for public sector banks and a few among them will be encouraged to approach the capital market to raise additional funds.

•Deposit insurance coverage increased: The Deposit Insurance Coverage and Credit Guarantee Corporation has been permitted to increase the deposit insurance coverage from the current INR 1 lakh to INR 5 lakh per depositor.

•Greater regulation of cooperative banks: To instil greater confidence amongst depositors, amendments to the Banking Regulation Act have been proposed to increase professionalism, enable access to capital and improve governance of cooperative banks.

•NBFC debt recovery: The limit for NBFCs to be eligible for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has been proposed to be reduced from an asset size of INR 500 crore to INR 100 crore or loan size from the existing INR 1 crore to INR 50 lakh.

•Push to the Partial Credit Guarantee scheme for NBFCs: To support the scheme, a mechanism to enhance liquidity has been proposed and the government will offer support by guaranteeing securities so floated.

•NBFC funding to MSMEs: Amendments to the Factor Regulation Act have been announced and the same will enable NBFCs to extend invoice financing to MSMEs through TReDS. Also, a scheme to provide subordinate debt for entrepreneurs of MSMEs was also announced.

Skill Development and Students  

•Funding and FDI: The budget earmarked INR 99,300 crore for the education sector and INR 3,000 crore for skill development in 2020-21, considering that India would have the world’s largest working age population by 2030. Also,  it was announced that steps would be taken to enable sourcing ECBs and FDI so as to deliver higher quality education.
•New education policy: The government announced the formulation of a new education policy soon.

•Promote inflow of foreign students: Under its “Study in India” programme, Ind-SAT was proposed to be held in Asian and African countries. It shall be used for benchmarking foreign candidates who receive scholarships for studying in higher education centres in the country and will help the student housing sector in India.

Start-ups and Entrepreneurship

•Funding: An outlay of INR 8,000 crore over a period of five years was announced for the National Mission on Quantum Technologies and Applications.
•Seed funding: Recognising the spirit of Indian entrepreneurship, the government aims to directly provide seed funding to support the development of early-stage start-ups in India.

•Tax deductions: A start-up with a turnover of up to INR 25 crore would be allowed a deduction of 100% of its profits for three consecutive assessment years out of the first seven years. In case a start-up’s turnover exceeds INR 25 crore, the FM proposed increasing the turnover limit from the existing INR 25 crore to INR 100 crore. Also, the period of eligibility for claiming the deduction was extended from the existing 7 years to 10 years.

•Deferment of tax payments: A deferred tax payment on ESOPs to enable start-ups to reduce attrition rates and retain talent was also announced.

•Investment Clearance Cell: The FM declared the formation of  a cell (online portal), which will provide entrepreneurs end-to-end facilitation and support – including pre-investment advisory, information related to land banks and facilitate clearances at the centre and state levels.
Corporates, Taxes and Capital Markets

•Amendment to The Companies Act: The act has been proposed to be amended, with focus on building into statutes and criminal liability for acts that are civil in nature.

•DDT abolished: Currently, companies pay a Dividend Distribution Tax (DDT) of 15%+ on the dividend paid to shareholders; the same has now been scrapped. The deduction was also allowed for the dividend received by a holding company from its subsidiary.

•Sovereign Wealth Fund investment exemptions: 100% tax exemption on interest, dividend and capital gains income of foreign Sovereign Wealth Funds which have invested in infrastructure and other priority sectors before 31 March 2024 with a minimum lock-in period of three years.

•Lower corporate tax: A tax rate of 15% was extended to new electricity generation companies, in addition to domestic corporates engaged in manufacturing (units that commence manufacturing before 31 March 2023).

•Increased limit for FPIs: The limit for FPI in corporate bonds, currently at 9% of outstanding stock, will be increased to 15% of the outstanding stock of corporate bonds.
 
Personal Taxation Slabs

The government sought to recalibrate the taxation structure by proposing a new and simpler tax regime which taxpayers can avail by foregoing certain exemptions:

While the taxpayers have currently been given the flexibility to opt out of the new tax regime, the move puts the government on the path of removing all exemptions in the future.

Budget Impact: CBRE View

On the Economy


In a complex economy like India, Budget 2020 promised the right things – push to infrastructure development, impetus to manufacturing and entrepreneurship and simplification of taxation norms. While the widening of fiscal deficit to 3.8% was expected in the face of the economic slowdown, it is expected to impact next year’s fiscal target of 3.5% although the privatisation of LIC and Air India are likely to help the government achieve its target. However, the lack of any big announcement such as a stimulus package for the struggling MSME sector or the NBFC sector could impact investor sentiments. Also, the new tax rates seem more like a simplification mechanism and may not provide any additional income in the hands of the tax payers when compared to the previous tax regime. In fact, the DDT exemption will mean higher taxes for dividends on mutual funds and may only benefit debt mutual fund investors in the lower tax brackets but will hurt most investors in the higher tax slabs. The impact of a recalibrated personal tax regime on sectors such as insurance and real estate will have to be assessed carefully in the next few months.
 
On Real Estate

The extension of tax benefits for affordable housing for developers and home buyers by one year is a step in the right direction; as is the focus on the partial guarantee scheme for NBFCs. The focus on the warehousing sector, including the DC segment, would go a long way in formalising a largely unorganised sector, thereby piquing investor interest. However, the budget did not touch upon critical demands of the sector such as reduced lending costs, stemming the liquidity gap, grant of infrastructure status, single-window clearance, SEZ sunset clause, and reduced GST rates on construction materials. We are hopeful that the government will focus on these pending concerns in the coming few months.