Cover Story

Verdict 2010

March 2010

Has the Budget for FY 2010-11 done enough for the construction, building material and infrastructure sectors? CW compares the expectations and reactions of the industry.

The markets were watching for steps to roll back fiscal stimulus measures and cut the fiscal deficit, and waiting for details on the government’s borrowing plans, as Finance Minister Pranab Mukherjee unveiled Union Budget 2010-11 on February 26.

Considering India’s brisk recovery from the global downturn, the industry had its share of expectations. Top of the list was the removal of service tax on construction services for housing projects. Developers suggested that service tax should not be levied on renting immovable property as it does not qualify as ‘goods’ and hence should not be covered under the ambit of GST/service tax. Many developers expected fiscal incentives to neutralise the extra cost incurred on construction of green buildings. Major contractors were looking to the Budget to encourage public-private partnership (PPP) in mega projects. And, needless to say, another priority was the development of infrastructure and incentives to build the real-estate sector, especially the affordable housing segment.

Indeed, different sectors had their own set of demands. The port sector wanted the Budget to take a holistic view of port development and interlink it with the complete road-rail network. The cement industry expected reduction or complete abolishment of the present import duty on input cost, and hoped for reduction in railway freight and the addition of more wagons. While the glass industry sought the removal of customs duty on soda ash, the construction equipment sector was seeking tax relief on imports.

So how did it all pan out?

Read on to know more about the industry’s expectations, what the Budget offered, and how the industry reacted….

Here's what the construction industry expected from the Budget...

Expectations

Vinod Juneja, Managing Director, Braj Binani Group
Import duty on key inputs for cement is higher than finished goods, which include coal, petcoke and gypsum. We expect reduction or complete abolishment in the present import duty on our input cost. The Budget should include special schemes for boosting exports.

HM Bharuka, Managing Director, Kansai Nerolac Paints Ltd
Incentive for environmental expenses should be given top priority. As India needs capital for infrastructure by disinvestment and foreign flow, the capital market sentiment should be kept positive.

Rajiv Sethi, Managing Director & CEO, Gemini Equipment & Rentals Pvt Ltd
To keep pace with the demand for equipment to build highways and road development projects, the government should extend some tax relief on import of equipment.

Mukul Somany, Joint Managing Director, Hindusthan National Glass
Customs duty on soda ash which accounts for 10 to 12 per cent of production costs should be removed. There should be lower input costs on capital goods, infrastructure development and new technology for the domestic packaging industry.

Kumar Gera, Chairman, CREDAI
ECBs should be permitted to fund construction costs of at least those real estate projects that qualify for 100 per cent FDI. For all slum/dilapidated housing redevelopment projects, tax incentives have been recommended to achieve the objective of the government and to boost the economy.

Mayur Shah, Managing Director, Marathon Group
To stimulate growth of real estate, we expect extension of incentives for affordable housing, a forward momentum and a mechanism for taxation of real-estate mutual funds. A comprehensive increase in available deductions for interest on housing loan must be revised on priority levels.

Rupen Patel, Managing Director, Patel Engineering
The government should take measures to increase PPP in infrastructure building. There could be tax incentives for companies involved in infrastructure building. The Budget needs to encourage value/affordable housing by providing for tax incentives to developers.

Abhisheck Lodha, Managing Director, Lodha Developers
The finance minister in his Budget should provide specific tax incentives and rationalise stamp duty registration charges, which will lead to further investment in affordable housing projects and drive urban development. The Union Budget should offer clarity on the introduction of a real-estate regulator, as this will result in higher levels of transparency.

Deepak Pahwa, Managing Director & Group Chairman, Pahwa Enterprises
The government should put in place structural reforms in infrastructure, encourage greater private participation, subsidy rationalisation and labour laws.

Anshuman Magazine, Chairman & Managing Director, CB Richard Ellis, South Asia
The real-estate sector should get industry status. Stamp duty should be reduced by 4-5 per cent and made uniform across all states.

Satish K Bhatnagar, President- Material Handling Division, TIL Ltd
The government should impose stringent guidelines for import of used equipment in mobile cranes/lifting equipment. Wherever customs duty is exempted, either fully or partially, the same should be extended to import of components for domestic manufacture of such equipment.

Shib Bhowmik, President, Sandvik Mining and Construction
We should accelerate investment in infrastructure like roads, ports, airports and other civic infrastructure and ease the regulatory environment for such investments by the private sector.

Sachin Sandhir, Managing Director and Country Head, RICS India
Housing development should be exempt from service tax. Tax incentives could be increased for projects including low carbon power generation such as hydroelectricity and wind turbines or low carbon transport infrastructure.

Jitendra Jain, CEO & Managing Director, Neev Group
The government should develop all projects on PPP basis, an entity where it has a stake. It is then free to sell its equity or mortgage to raise a loan or whatever it wants to do and such a model will be easier for developer to get the relevant funds to manage the project execution.

Sushanto Roy, CEO, Sahara Prime City Ltd
FDI in real estate should not be subjected to a minimum three-year, lock-in period for repatriation of original foreign investment. Grant of industry status to real estate will help raise much needed construction capital at low cost domestically.

T Chitty Babu, Chairman & CEO, Akshaya Homes
ECBs should be permitted to fund construction costs of at least those real-estate projects that qualify for 100 per cent FDI.

Uday Dharmadhikari, CEO, Usha Breco Realty
There should be a single-window clearance for all applicable approvals and sanctions for real-estate development, circumventing the existing tedious procedures. Land costs should be subsidised for those developing affordable housing and land at subsidised rates should be made available closer to towns.

Kishore Avarsekar, Chairman & Managing Director, Unity Infraprojects Ltd
Service tax on construction services for housing projects—particularly for government housing projects and projects for LIC or economically weaker sections—should be removed.Budgetary allocation for the infrastructure sector should be increased.

Vipin Sondhi, Managing Director and CEO, JCB
Used equipment should clear the same engine emission norms and road regulations (CMVR rules) as applicable to Indian made equipment prior to being permitted for import. The legal requirements for Safety at construction sites are lagging as compared to other sectors in India and abroad. Recommend that Safety guidelines are codified and strictly implemented at worksites across India.

Pranab Datta, Vice-Chairman & Managing Director, Knight Frank India
Building of green (sustainable) buildings should be encouraged. The government should provide fiscal incentives that can at least neutralise the extra cost incurred on construction of these buildings. There must be uniformity in stamp duty rates. Rental housing must be given a boost.

Nikhil Mansukhani, Director, MAN Infraprojects Ltd
Promoting real-estate mutual funds and bringing flexibility to FDI norms are good alternatives to address the issue of capital funding requirements for high-end projects.

Navin M Raheja, CMD, Raheja Developers Ltd
Service tax should not be imposed in the case of construction industry as it already pays a number of taxes on different inputs purchased for constructing the houses in addition to taxes such as Works Contract Tax (WCT). Also, service tax should not be levied on rental income of commercial premises.

Michael Schmid–Lindenmayer, Managing Director, Putzmeister Concrete Machines Pvt Ltd
Manufacturers who imported components when the cenvat rate was 24/16/12 per cent have huge accumulated balances in cenvat credit. With every additional import, incremental amounts are added to the cenvat credit account. There must be a provision to get refund of at least 75 per cent of the balance amount lying in cenvat credit account.

RD Sharma, CMD, Kalindee Rail Nirman (Engineers) Ltd
To maximise the benefits of private-sector participation, the machinery/equipment required for development of railway infrastructure should be exempt from import duty.