Sourcing Hardware invited industry leaders to share their analysis of Union Budget 2018, and explain how it would likely impact their industry and the economy at large…
Sensitive to Critical Areas
Geoffrey Nagpal, managing director, Ebco
The size of the Indian market is the biggest opportunity for a manufacturer. The Budget has prioritised important sectors of the economy such as agriculture and healthcare, which directly benefit poorer households. As the aspirations and spending power of low and middle income segments grow, so will the need for homes and offices, cost-effective space-saving furniture, and thereby furniture fittings.
While the IT industries have encouraged large scale office furniture manufacturers, the kitchen, bed and wardrobe industries have great scope for bulk manufacturing in India. Today, we do not have a reasonably-sized sofa manufacturer. As affordability grows in rural and middle class households, these industries will pick up. We have several products that make it possible for the middle class to live comfortably, especially when space is at a premium. Our fittings enable a 96-square foot dwelling space to have a wardrobe, folding-bed, folding dining table, study-table and a mini kitchen. As the market is able to afford basic furniture, volumes of these products will grow.
Corporate tax reduction to 25% should have been across the board irrespective of turnover. Larger companies invest, expand and create more jobs with savings in taxes. Larger companies are able to produce volumes more efficiently, bringing down the cost of production for items such as basic furniture and fittings, making these more affordable. The increase of import duties on furniture fittings will protect local manufacturers. However, there are no concrete steps taken by the government with respect to labour market reforms. Manufacturers will hesitate to hire freely.
Considering steps such as demonetisation and GST in the preceding financial year, this budget is sensitive to the critical areas which need to be addressed in the future. How these plans are funded remains a question as there are insufficient provisions in the Budget.
Excellent for Building Materials Industry
Asutosh Shah, managing director, Duravit India
Budget 2018-19 has brought much good news. I would rate it as excellent for the building materials industry (BMI). I think the proposals have done complete justice and will lift demand for almost all items of the sector. Following points are noteworthy in this regard:
- n Infrastructure spending will rise from Rs 3.96 lakh crore to Rs5.97 lakh crore (almost 50%); when implemented, it will create huge demand for steel, cement, ceramic and all building material items.
- The mission to provide every home with a toilet has got a further boost with the continuing focus on and budget allocation for Clean India. This has a direct impact on the demand for ceramic tiles, sanitary ware and fittings.
- The continuing thrust on affordable housing is good news for the sector. This offers sustainable development opportunities for building materials.
- Development via rural spending will broad-base the BMI market, and this will benefit all stakeholders located in far and wide corners of the country.
- Further allocation for road development will also bring many indirect benefits to the sector.
- Many companies within the BMI sector fall in the Rs 250-crore turnover slot. Therefore, income tax liability in such cases reduces to 25% from 30%. This also offers direct benefit to entrepreneurs.
I believe the Budget has done enough to develop the construction side of the business, and the benefits will gradually be seen as demand picks up. It’s good in particular as there’re no proposals to change excise duty/ other indirect taxes which may leadto sudden changes in cost of the products. In fact under GST, uniformity of tax rates across the country will bring many benefits via simplicity. Besides, the recent reduction of GST rates to 18% before the Budget has helped reduce prices and that is already helping in demand generation.
The realty sector is reeling under a lot of pressure due to several useful but disruptive steps taken last year. While all measures are positive for the future, the sector needs attention and short term relief to be a contributor to the economy, society and exchequer. With partnerships between state and centre, one can put realty in particular on the high growth path. This will be a win-win for everyone. Of course, this will also bring a lot of opportunity for building materials on a long term basis. Rationalising stamp duty to make it consistent with GST will bring back investor confidence in this sector.
From my point of view, skill development is very important for the building materials sector. While I do not have any specific proposal to offer, a lot could happen with skill improvement. Maybe this can be addressed within or outside the budgetary proposals. This would also be the key to Indian companies becoming globally competitive.
‘Make in India’ is a very important, relevant and industry-friendly mission. More concrete steps in this direction could have helped to address the problem of the unfavourable gap between our imports and exports. On the whole, however, the Finance Minister has done very fine balancing in an election year without making it populist. To me this is a welcome change.
Most of Our Expectations were Well Aligned & Addressed
KE Ranganathan, managing director, Roca Bathroom Products
It is overall a good budget which is well thought out and addresses most of the areas that need focus to ensure long-term, sustainable and equitable growth of the Indian economy. It focuses on demand drivers like ‘housing for all by the year 2022’, wherein there will be 51 lakh houses built in rural areas by end of FY18-19. Under the Swachh Bharat Mission (SBM), over two crore toilets will be constructed in two years for making India open defecation free. These initiatives are bound to generate sufficient demand for the sanitaryware industry and drive GDP at 7-7.5% levels in the year ahead.
The government could have looked at more concessions for corporates to encourage them to spend on capex, which is a key measure of growth. Also with the Rupee stabilising and oil prices under control, both of which have led to lower forex outgo for the government, it would have been prudent to drive down inflation by bringing down prices of essential items. Lower inflation will always lead to higher surplus funds, which will be channelised to higher consumer spending.
Water for all households in 500 cities is a big dream. This calls for linking of rivers which should be the top agenda. Also, thrust on exploiting natural resources like solar and wind power is missing in this Budget.
It is heartening to mention that most of our expectations from the Budget were well aligned and addressed. With the focus to propel the economy to 7% GDP growth in coming year, the government has once again looked at increasing consumption and growth of the industry, although the majority benefit focus has remained on rural India.
Increased spending on building infrastructure, smart toilets, affordable housing, and toilet construction as part of Swachh Bharat Mission (SBM) will generate employment, and also an opportunity for the bathroom products industry to grow. Having said that, the issues of ease of doing business, bringing down GST on basic amenities, and corporate taxation remain unaddressed.
The Budget has Been Well Received
Ajay Khurana, chairman, REHAU South Asia
The Union Budget 2018 has been well received with some positive and some not so positive reforms. It is a budget that focuses on health, farmer and rural development. For the corporate sector and MSME industry it’s a relief that corporate tax rate has been reduced to 25% for those having a turnover of up to Rs 250 crore.
There are certain pain points that the Budget didn’t cover. For example, the industry was expecting a reduction in corporate tax rates and personal income tax rates. Additionally, it did not focus on export industry. These areas could have been taken into consideration.
The government needs to take steps to boost the real estate sector, which saw a complete miss in the Budget. However, the proposals include some positive reforms for employment generation and ease of doing business in India, which is good news for the corporate sector.
The government should focus on affordable housing, and manage the fiscal deficit in order to keep inflation under control.
Good Balancing Act that Fell Somewhat Short
Deepak Anand, managing director, Kaff Appliances
Budget 2018 has been a balancing act of sorts. On the one hand there is an increase in customs duty surcharge from 3% to 10%, which will impact bottom-line to some extent; on the other the corporate tax for companies with a turnover of up to Rs 250 crore (FY2016-17) stands reduced from 30% to 25%. Consequently, the increase in customs duty may impact the demand for appliances, given that costs will rise somewhat. Nevertheless, reduction in corporate tax will benefit companies that were impacted due to subdued consumer demand.
There were expectations that the Budget would offer more relief for companies, given the impact of GST and demonetisation in slowing consumer demand. The focus on the rural economy and the poor is, however, understandable since this is the last full budget before the 2019 general elections and the government has to do much for creating jobs.
Some key issues have been addressed, since the government’s focus has been on increasing employment, improving ease of doing business, and providing a level-playing field for the industry. Moreover, the measures to benefit senior citizens and the poor are commendable. Tax exemption on interest income from bank deposits being raised to Rs 50,000 (from Rs 10,000) is a good move. Raising the deduction for health insurance premium under Section 80D of the Income Tax Act to Rs 50,000 (from Rs 30,000 currently) should reduce the burden that senior citizens have felt in recent years, and enable them to live a better life.
But the Budget hasn’t focussed on salaried employees. The proposal to offer standard deduction of Rs 40,000 to salaried employees in lieu of the earlier transport allowance and medical reimbursement is somewhat beneficial. This decision will reduce the taxable income of salaried individuals by at least Rs 5,800. Nonetheless, since consumer sentiment across India has been muted during the past year, more direct benefits for individuals and corporate entities would have given a greater boost the economy.
No Direct Impact on Real Estate, Budget only Focuses on Long-term
Ramesh Nair, CEO & country head, JLL India
The Union Budget announcement did not have any direct impact on the real estate sector. There were no changes in income tax sops or other direct measures that influence the sector. The demand and supply dynamics of real estate sector got no further intervention.
The sector, which has been reeling for a while, was expecting some big ticket announcements to revive it. This was from the perspective that real estate greatly contributes to the three E’s – Economy (by contributing 7.7% to GVA), Employment (15 million job creation over 5 years) and contribution to Exchequer. The functional reforms of RERA, Benami Properties (Prevention) Act, Bankruptcy and Insolvency Acthave created a more transparent and accountable sector. The expectations to receive direct benefits from the Budget were high.
The real estate sector’s long standing demand of getting ‘industry’ status has once again not found mention. Further there were no concessions for ECB for real estate. The sector expected to see some measures to infuse demand with relaxations in key tax rates like 80C, 80CC and 24B which have also not been addressed. Aspects like single window clearances, uniform stamp duty or reduction in GST rates on real estate were not mentioned either. Like the GST, single window clearance and stamp-duty could also been brought into a centre-state ambit to be implemented with states towing the line with incentives and benefits upon implementation. We understand that states’ will be consulted as part of centre–state dialogue to come to a consensus.
We see some strengthening of the affordable housing sector in the form creation of Affordable Housing Fund under National Housing Board. This will allow better access to capital for related developments in urban and semi–urban areas. Announcements in allocation in infrastructure and road and highway developments of over 9,000 kilometers, airport development to increase capacity by five times, as well as 600 railway stations development will create opportunities for developments around these locations. Further,the government’s continued focus on the Bharatmala to develop 60,000 kilometers further allows for development of new locations.
Alternatives have seen credible mention in the Budget with healthcare and education being direct beneficiaries. Senior living, by virtue of improvement in saving capacities of senior and super senior citizen, may also get a boost.
The government continues to stress on transparency by making multiple provisions towards the same with mentions of block chain technology for digital economy, further integration of Jan Dhan to mainstream economy, facilitating raising of bonds, and 142 cities receiving investment rating.
The government has focused on creating long term programmes for inclusive growth. They have clearly spelt the motivation of this year’s budget as ‘Ease of Living’. This Budget, seen in the light of year long announcements, is only a continuation in the process of reforming the economy.
Balanced but Not a Boon for Real Estate
Anuj Puri, chairman – ANAROCK Property Consultants
All eyes were on the Finance Minister as he delivered his fifth full Union Budget, the last one before the general elections in 2019. As expected, the Budget turned out to be populist and sounded excessively cautious while the need of the hour was to provide a positive boost to the economy which is reeling under the pressure of structural changes and policy reforms.
The Budget did not offer any substantial incentives to individual taxpayers, with slabs remaining constant. A change in the standard tax deduction in lieu of transport and medical expenses, which now stands at Rs 40,000, was the only gift to the salaried class. There was no change in tax savings on home loans, nor were the 80C limits raised. While this put paid to any hopes for significantly increased home buying appetite, there were some notable announcements with positive implications for the real estate sector:
- n The continued push for affordable housing: As many as 51 lakh houses in rural areas are to be built in 2018-19. Also, a dedicated Affordable Housing Fund was announced. These are the right moves towards achieving the vision of Housing for all by 2022.
- The Budget addressed the anomaly under Section 43 CA to tax real estate transactions at their real value rather than the value arrived at by applying artificially higher circle rates. As per the new announcement, if the circle rate does not exceed 5% of transaction value, no adjustment is required towards the capital gains on a real estate transaction. It will help in terms of some extra savings if there is parity between the market rates and the ready-reckoner rates. Cities which are not under the heavy influence of real estate investors and where prices are rational may benefit from this announcement.
- Improvement in regional air connectivity: The regional air connectivity scheme to connect 56 unserved airports is good news for business growth and office space demand in smaller cities, with a natural spinoff demand for housing on the back of job generation.
- Curbing crypto-currencies: The government is coming down heavily on crypto-currencies such as Bitcoin. There was conjecture that crypto-currencies would find their way into Indian real estate, as it has in developed countries, effectively becoming the ‘new black money’ in the sector. With the government committed to taking all necessary steps to eliminate the use of crypto-currencies in India, people who were looking at them as a get-rich-quick route will have to look at traditional asset classes and investment routes again.
- Increase in taxpayers: With the massive crackdown on black money, the taxpayer base has increased significantly. This is, at least indirectly, good news for the real estate sector as seeking home loans is now going to be easy for a larger set of individuals.
- Allocation of Rs 1 lakh crore to update education infrastructure over the next four years may result in the development of new education institutes. In addition, if the government emphasises more on a definitive student housing policy, a new avenue will open up for the real estate sector.
- The allocation of Rs 5.97 lakh crore on infrastructure spending is a welcome move, though we need a massive push to ensure that the country’s infrastructure meets global standards.
In a nutshell, while there were not many takeaways for the individual taxpayers, the Budget also did not seem to favour any particular sector. With fiscal deficit slipping to around 3.5% of GDP in 2017-18, the government seems to be on the right path of taking charge of things and ensuring that the fiscal deficit target of 3.3% of GDP for 2018-19 is achieved.