Telecom, Auto Sectors Stay In Stress Zone With No Direct Relief

Tethering issues in real estate, automobile and telecom services remained unattended in the Budget, despite the severe stress in these sectors. Apart from peripheral measures such as lowering of income tax rates, the lack of direct help from the government left most industry players unsatisfied.

For instance, in real estate, the Economic Survey for FY20 identified that with Rs 8 trillion worth of unsold stock in eight major cities, the sector played a key role in the current deceleration in the economy. However, apart from extension in the date of availing tax incentives for investors in affordable housing, no direct steps have been proposed in the Budget to boost housing sales.

According to Shishir Baijal, chairman and managing director of Knight Frank India, with the economy in the midst of a sharp slowdown, the Union Budget for FY21 was being awaited with high expectations to provide a growth booster.

“However, the Budget fell short of industry expectations, with no major announcement for accelerating growth. Lowering of income tax rates with removal of exemptions may not lead to any meaningful boost to consumption. As far as real estate is concerned, the industry was hoping that the government would come up with measures to boost housing demand,” he said.

“Developer and investor community expectations on provisions pertaining to increased sectoral allocations and deductions remain largely unmet. Moreover, non-applicability of the deduction on housing loans under the new optional individual tax structure may act as a deterrent for those considering housing loans,” said Shubham Jain, group head and senior vice-president (corporate ratings), ICRA.

Satish Magar, president of CREDAI, said that even though the realty sector needed immediate attention, sector-specific measures like providing more liquidity and one-time restructuring of loans were not addressed.

According to industry executives, the government’s focus remained on affordable housing, where previous tax exemptions for both homebuyers and developers were extended for another year.

The Budget proposed to extend the capital gains tax relief on property valuations to 10 per cent below circle rates, against the earlier provision of 5 per cent.

The automobile sector, reeling from faltering sales since mid-2019, also had little to cheer.

“Industry was looking forward to some direct benefits that could have helped in reviving demand. We had made some specific suggestions like an incentive-based scrappage policy, which hasn’t been considered,” said Rajan Wadhera, president at industry lobby group Siam.

However, R C Bhargava, chairman of Maruti Suzuki, said carmakers were expecting very little from the Budget. “The urgent requirement for industry is to bring down the cost of production and the Budget has very little scope to do that. The GST council will take a call on rates on car, and states need to reduce the cost of electricity and other input materials to bring down cost of production,” said Bhargava.

He pointed out that the move would leave more money, primarily in the hands of buyers of entry-level cars. Sale of such cars has suffered as the cost of lending increased cost on account of new safety features and a hike in road taxes in many states has increased acquisition costs by above 20 per cent since the past one year.

“Reduction in tax rates will allow more savings for people in the income bracket of Rs 5 lakh. Therefore, the lower end of the market may get a boost if the savings are used to buy a car,” said Bhargava.

Ashish Kale, president of auto dealers association FADA, also agreed that the net positives from lower income tax are likely to act as an immediate sentiment booster. “Especially for the two-wheeler and entry-level passenger vehicle segments, this is a big booster,” Kale added.

According to an estimate, India’s auto industry accounts for 2.3 percent of its GDP and employs over 5 million people. However, the industry has witnessed its worst-ever half-yearly performance (till December) with overall revenues plunging 10.1 percent at Rs 1.79 trillion. This has also resulted in around 100,000 people losing jobs and an estimated investment loss of about $2 billion.

Industry body Cellular Operators Association of India (COAI) remained unimpressed with the Budget. “It is disappointing that there were no announcements made regarding the rationalisation of levies and taxes currently imposed on the severely distressed telecom sector, and telecom infrastructure is not taken into consideration that is going to build out the country,” Rajan S Mathews, Director General, said COAI.―Business Standard