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What Impact Does 2020’s Budget Have OnThe Construction World?

What Impact Does 2020’s Budget Have OnThe Construction World?

The world of construction goes beyond building houses. For a country to prosper, a lot needs to be built — hospitals to treat the sick, highways to facilitate trade and tourism(airports and railways for the same purpose), schools and colleges to educate and train the next generation of voters and workers, industrial plants to manufacture essential goods and provide employment — the list goes on and on. In a sense, construction is among the oldest jobs in the world — human beings have always built shelter for themselves. Instinctively, we want to optimise the space around us to better suit our lives and our tasks.

The Budget of 2020 was a mixed bag for the world of construction. There were a lot of positives — but a few insiders thought that the Finance Minister stayed tactfully quiet on a lot of important topics. First, let’s look at the many positive announcements that came from the budget speech:

  1. More airports. Airports are extremely complex ecosystems. They are office spaces and transport hubs rolled into one. They never close down — they are open 24/7. They have lounges, lobbies, lots and lots of shopping areas, cafes, restaurants, runways — multiple buildings erected according to one master plan. In this year’s budget, the Finance Minister announced the creation of 100 new airports and a doubling of the aircraft fleet. This should make the construction industry rejoice, as a lot of contracts for a lot of new airports will be given out in the next few years.
  2. More railway stations. Even in the age of flight, the importance of railways is undeniable. Trains can touch down in areas that airplanes can only fly over. The government is expanding the rail network and building modern railway stations with super-fast trains. All this new construction — and refurbishment of existing stations — will mean a lot of new opportunities all over India for builders, contractors and designers.
  3. National Infrastructure Pipeline. PM Narendra Modi wants to make India a $5 trillion dollar economy by 2024. Even though India is the fastest growing trillion dollar economy in the world, that target is still difficult as India’s current nominal GDP stands at $2.94 trillion. Almost doubling that number is impossible without serious investments in the infrastructure sector. To boost our GDP, India needs to trade more, produce more, buy more — and infrastructure underpins all of that. The government understands that, and therefore it has announced a National Infrastructure Pipeline. Projects worth 102 lakh crore are in this pipeline, and they will go on the floors in the next 5 years. Press Information Bureau has noted that “sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.” The category Urban covers a lot of projects such as Mass Rapid Transit Systems, Efficient Water Supply Systems, Affordable Housing Schemes, etc. Agricultural and Food Storage Infrastructure like cold-chain warehouses will also see the government investing more than a hundred thousand crores.
  4. Affordable Housing. To house India’s growing middle-class, the government has extended the tax benefits on housing loans. When a person takes out a housing loan to fund a property purchase, they agree to pay monthly installments to pay back the principal loan amount with the added interest in installments. Currently, the government allows people to deduct these installments from their taxable income to help them get into a lower tax bracket with lower tax rates. The government has extended these tax deductions for another year — so now is a good time to get a housing loan to buy your dream house.

There are, however, people who felt that not enough was done. Below are some of the criticisms raised by people from the world of infrastructure, construction and real-estate:

  1. No industry status yet. Construction is not officially recognized as an industry. This results in higher interest on loans for new projects, among other cons. The people involved with construction have been lobbying for the industry status for years now, and this year’s budget was another disappointment in a list that’s getting long for some people.
  2. Capital gains tax still apply on the sale of properties. The logic for this one is simple. If people are taxed when they sell old properties, they are less likely to sell the properties, free up some capital, and invest in new properties. A capital gains tax, therefore, dampens demand. The 2020 budget did not revoke this tax, though. This led some insiders to remark that merely re-arranging the income tax slabs will not do enough to raise the struggling demand.
  3. No Single-Window Clearance Mechanism Yet. A single-window clearance mechanism will fasttrack stalled projects. Construction projects won’t suffer what is known as the “death by committee” syndrome. However, those who were expecting the government to reveal a uniform application and approval process will need to wait for at least another year.

The stock market nevertheless tells a positive story about the future of real estate. Business Today noted how the stock market indexes showed positive gains post the budget speech: “Nifty Realty index outperformed every other sectoral index in the market, thanks to the government sops for the sector including Rs 25,000 crore funds infusion to revive stalled projects.”

What did you think of this year’s budget? How will it affect your sector? Let us know in the comments below!

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