Great Expectations from Union Budget - 2015
Following the government’s announcement of `smart cities’ in the half-budget last year, the industry now seeks more clarity on the exact definition of a smart city in the Indian context. Not unnatural to want greater clarity on – for example – how these cities are going to be funded and greenfield locations identified for such development.
The implementation of such ambitious plans would ultimately result in national wealth creation—to help India’s cities become sustainable and livable urban centres. Although it has received a lot of attention, the smart city concept is still in its nascent stage in India. Nonetheless, it has evoked positive responses and some urban centres have begun implementing their plans in bits and pieces. Some measures should be considered fairly wide ranging. In recent months, Chennai, Hyderabad, Coimbatore, Bangalore, Mangalore, Jamshedpur, Kanpur, Delhi and Mumbai, have begun deploying smart technologies to efficiently provide civic services. These efforts include advanced communications systems, metro rail systems, traffic management systems, smart metres, GPRS for solid waste management, GIS to manage property tax, online water quality monitoring, and online building plan approval schemes, among others. Good going.
In addition, certain new cities—such as the Kochi Smart City, the Gujarat International Finance Tec-City, and Lavasa—are currently being developed as model cities through private sector participation.
Says Anshuman Magazine, chairman and managing director, CBRE South Asia, “Direction is sought from the upcoming union budget on funding such massive infrastructure, which is a major issue requiring urban planning overhaul. India needs up to Rs 40 lakh crore to develop urban infrastructure and another Rs 20 lakh crore to maintain such urban clusters in forthcoming decades. Apart from the Centre and state government resources, therefore, the initiative would also require private sector participation and international funding.”
He adds: “A high-powered investment committee has estimated that at least Rs 7 lakh crore would be required for creating basic infrastructure over a period of two decades. Building public private partnerships (PPP) projects for creating `smart cities’ is also important in the Indian context. The central government has been mulling invitations to private players for this national initiative. For building smart cities through the PPP model, the government is expected to provide viability gap funding, while facilitating all necessary support mechanisms. Announcements to this effect are anticipated in the next union budget.”
Significantly, the Centre had allocated Rs 7,060 crore for initiating `smart city’ development in the last union budget and options like infrastructure bonds, PPP and the municipal bond market are already being considered for funding avenues. The opportunity of private sector participation is also on the cards, along with a special purpose vehicle (SPV) to execute the project. A first concept note prepared by the Union ministry of urban development (MoUD) has estimated the project development cost over 20 years to be around Rs 6.86 lakh crore, of which it proposes to earn Rs 39,000 crore from a slew of ‘green’ taxes.
With hopes rising, other leading developers echo Magazine’s sentiments. Points out Mohit Goel, CEO, Omaxe, “The Centre has been moving steadily on smart cities and the budget will have a lot of announcements on this front, including the broader contours. With several countries, including the US and Singapore pledging support, smart cities offers opportunities for private developers. The Centre must further liberalise and allow FDI in other segments, after allowing it in construction and affordable housing. The NDA government must re-introduce tax benefits under section 80 IB (10) of the Income Tax Act in order to overcome the supply gap and fulfill the vision of Housing for All by 2022. This benefit should also be extended to smart cities, affordable housing and re-development. The real estate sector is expecting its long-pending demand for grant of infrastructure status to be met this time. It will help access to easy finance.”
Goel – like many others in the industry – hopes for the day when clearances under a single roof becomes a reality. “A single-window clearance mechanism is the need of the hour. Goods and services tax (GST) is an important tax regime and will benefit the economy. Inclusion of real estate in GST is something that needs a holistic view but we believe its inclusion will bring about a lot of transparency. Taxes comprise a major portion in a property purchase and must be rationalized. While a cut in interest rate by RBI isn’t alone enough, buyers, too, have to be incentives through rebate in personal income tax and more money be put into their hands in order to drive demand,” he says, from a broader perspective.
Promoters and developers also believe it is time realty was accorded industry status – among other steps. Says Anubhav Jain, group director, Silverglades Group, “The long-pending demand to announce real estate sector as an industry is our foremost concern. The Centre should also ensure quick passage of GST, which will replace numerous taxes and help consumers. The deduction of interest on housing loans needs to increase from the current limit. Removal of numerous taxes can encourage real estate sector on a large scale.”
While Union budgets are all about expectations, financing of smart cities remains top of the mind, so that burden from the traditional metros and old cities are taken away, if possible.
Prof Jagan Shah, director, National Institute of Urban Affairs, throws vital light on the subject. “Today, it is evident that other than the six existing metros – Chennai, New Delhi, Kolkata, Mumbai, Hyderabad and Bengaluru – new economic centres of growth are also emerging. It is equally evident that we need to shift focus to these smaller cities, to plan carefully before growth overruns them. We will have a better chance to integrate the city within its regional context, both in terms of space and economy. Mind you, smaller cities also allow for greater public interface and participation, the cornerstones of sustainable urbanisation.’’
However, there are more challenges than one can possibly conjure. A key impediment to developing such large scale urban built environments is the issue of land acquisition, wherein private participation has been discouraged owing to stringent conditions concerning social impact assessment (SIA) and mandatory approval from majority land owners. Recent initiatives by the Central government in relaxing land acquisition procedures have been welcomed.
The ordinance with the latest amendments to the Land Acquisition Act, 2013, however, is yet to be finally passed in parliament. Developers would be hoping that the new Act would be implemented soon, together with more incentives for the low cost/affordable housing segment in the budget announcements.
“State-level initiatives, such as land pooling in Delhi and Andhra Pradesh, can be a major factor for developing smart cities. More importantly, clarity is sought on the government’s initiative in terms of monetary allocation, specific timelines, finalized locations and the broad plan of action, going forward. Effective urban planning holds the key and inclusive growth of local municipal communities—and by extension, the federal states and the nation,” explains CBRE’s Magazine. He has a point.
by Ritwik Mukherjee
Source :- Financial Chronicle
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