Friday, February 27, 2009
Inflation at 15-month low of 3.36%; may fall below 1% by March
Inflation at 15-month low of 3.36%; may fall below 1% by March
The Financial Express, February 27, 2009, Page 2
fe Bureau
Inflation fell sharply by 56 basis points to a 15-month low of 3.36% for the week ended February 14, raising expectations of rate cuts from the Reserve Bank of India. With the government already announcing a 2% cut in service tax and excise duty, the action is now expected to shift towards the RBI. Inflation stood at 3.92% in the previous week.
Analysts now expect inflation rate to fall below 1% by March end, while RBI has targeted an inflation of 3% or lower. The second round effects of the fuel price reduction announced earlier has lowered the pace of price rise of various commodities. While most products including food and manufactured items turned cheaper, some luxury items like wine became expensive. The wholesale price index-based inflation is at its lowest since November 24, 2007 when it stood at 3.11%. Inflation for the week ended December 20 was revised to 5.91% from 6.38%, indicating a sharper reduction in inflation numbers than reflected in the provisional data.
Bond yields eased marginally, with the benchmark 2018 government bond ticking down one basis point to 6.58% after the inflation data. The rupee and the stock market held steady. The yield closed at 6.51% on Thursday, down from previous close of 6.65%. The 30-share BSE Sensex ended up 0.59% at 8,954.86 points and the 50-share NSE index closed up 0.84% at 2,785.65 points. The rupee closed at 50.45/47 per dollar, from previous close of 49.96/97, as month-end dollar demand from refiners and importers coupled with non-deliverable forwards-related dollar demand weighed on the rupee.
“Inflation is drastically coming down mainly due to the second round impact of the fuel price cut. Global crude prices have fallen drastically and the government may announce another fuel price cut soon. If that happens, then inflation would fall at a much faster pace,” Bank of Baroda chief economist Rupa Rege Nitsure said.
“With inflation at such low levels, good liquidity in the system and slackening credit demand, all warrant a lending rate cut of 50 to 100 basis points by banks,” she said. After aggressive rate cuts since October, RBI’s key lending rate, the repo, stands at 5.5%, while the reverse repo is at 4%. RBI governor Duvvuri Subbarao said in Tokyo recently there was room to cut rates, but the question was when and by how much. He, however, said a fall in inflation does not automatically mean rates will drop too.
Primary articles’ inflation fell to 7.3% from 8%. Food articles inflation fell across-the-board to 9.9% in the current week compared with 10.4% last week, coming down to a single digit level. Non-food articles’ inflation fell to 2.9% compared with 3.8% in the previous week. Fuel and power’ group inflation decreased to (-) 4% from (-) 3%. Manufactured products’ inflation fell to 4.7% from 4.9%.
Rs 5000-crore for housing
Rs 5000-crore for housing
The Economic Times, February 27, 2009, Page 3
THE government will provide financial assistance of Rs 5,000 crore to states in the next four years to construct 10 lakh affordable houses in the country, reports Our Bureau from New Delhi. The Central assistance will help in creating civic infrastructure. Construction of houses will be done under public-private partnership where states will provide land.“The scheme will increase the stock of houses ranging from 300 square feet to 1200 square feet,” said an official release issued after the Cabinet Committee on Economic Affairs on Thursday.
The Economic Times, February 27, 2009, Page 3
THE government will provide financial assistance of Rs 5,000 crore to states in the next four years to construct 10 lakh affordable houses in the country, reports Our Bureau from New Delhi. The Central assistance will help in creating civic infrastructure. Construction of houses will be done under public-private partnership where states will provide land.“The scheme will increase the stock of houses ranging from 300 square feet to 1200 square feet,” said an official release issued after the Cabinet Committee on Economic Affairs on Thursday.
Low-cost houses to be set up in PPP mode
Low-cost houses to be set up in PPP mode
Business Standard, February 27, 2009, Page 4
The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a scheme, to be implemented through the public-private partnership (PPP) model, to encourage states to increase the supply of land and construct one million affordable houses.
The scheme is expected to activate the measures announced for the housing construction sector under the economic stimulus packages.
It will increase the stock of houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments.
The government has set aside Rs 5,000 crore for the next four years for this purpose. Private sector developers and builders as well as state-run housing boards are expected to be partners to the government for these projects, with funding from institutional sources.
Real estate developers looking at low-cost housing during the downturn would now have an opportunity to take up projects where the demand for housing is still high. The urban housing shortage is estimated at 24.7 million, largely for the weaker and low-income households.
The pace of applications for home loans at reduced interest rate of 8 per cent to 8.5 per cent (for loans up to Rs 5 lakh) and at 9.25 per cent (for loans up to Rs 20 lakh) can now be expected to increase, an official statement announcing the decision said.
A minimum of 25 per cent houses of 300 sq ft area will be compulsory for the economically weaker sections and the urban poor, in each project to be allotted by the government.
Meanwhile, the government today approved a Rs 3,070-crore package to implement recommendations of the second Vaidyanathan Committee on reviving the long-term cooperative credit structure.
The initial package, recommended by the panel, had been recast by the government in view of the announcement of the debt waiver scheme in last year’s Budget.
“While this (recommendation of the committee) was under examination, the agricultural debt waiver was announced. Factoring in the relief granted under the debt waiver scheme, the package recommended by the Vaidyanathan Committee has been recast,” Home Minister P Chidambaram said in New Delhi, briefing the media about decisions taken by the Cabinet.
Business Standard, February 27, 2009, Page 4
The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a scheme, to be implemented through the public-private partnership (PPP) model, to encourage states to increase the supply of land and construct one million affordable houses.
The scheme is expected to activate the measures announced for the housing construction sector under the economic stimulus packages.
It will increase the stock of houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments.
The government has set aside Rs 5,000 crore for the next four years for this purpose. Private sector developers and builders as well as state-run housing boards are expected to be partners to the government for these projects, with funding from institutional sources.
Real estate developers looking at low-cost housing during the downturn would now have an opportunity to take up projects where the demand for housing is still high. The urban housing shortage is estimated at 24.7 million, largely for the weaker and low-income households.
The pace of applications for home loans at reduced interest rate of 8 per cent to 8.5 per cent (for loans up to Rs 5 lakh) and at 9.25 per cent (for loans up to Rs 20 lakh) can now be expected to increase, an official statement announcing the decision said.
A minimum of 25 per cent houses of 300 sq ft area will be compulsory for the economically weaker sections and the urban poor, in each project to be allotted by the government.
Meanwhile, the government today approved a Rs 3,070-crore package to implement recommendations of the second Vaidyanathan Committee on reviving the long-term cooperative credit structure.
The initial package, recommended by the panel, had been recast by the government in view of the announcement of the debt waiver scheme in last year’s Budget.
“While this (recommendation of the committee) was under examination, the agricultural debt waiver was announced. Factoring in the relief granted under the debt waiver scheme, the package recommended by the Vaidyanathan Committee has been recast,” Home Minister P Chidambaram said in New Delhi, briefing the media about decisions taken by the Cabinet.
Realty biggies likely to lower earlier profit figures
Realty biggies likely to lower earlier profit figures
Business Standard, February 27, 2009, Page 6
The country’s leading real estate companies are likely to lower part of their earlier profit figures as the dwindling income levels of home buyers may force some of them to walk out of booked projects, analysts said.
Last month, Mumbai-based Lok Housing and Construction had said it would restate its accounts for the past three financial years as the revenue it booked hasn’t materialised after the investors and buyers backed out of its projects. Lok plans to write off Rs 225.01 crore worth of profit and Rs 282.14 crore of sales it recognised in its books in the previous financial years.
According to a Credit Suisse report, developers such as DLF, Parsvnath and Orbit have over 20 per cent of their revenues booked since financial year 2006-07 as outstanding from customers and some of these transactions could be cancelled leading to write offs.
"Wherever possible, the customers are looking to walk out of transactions entered at the peak of real estate market,'' the Credit Suisse report said.
DLF, the country's largest developer, had recently cut home prices by 13-14 per cent in its Chennai project 'Garden City' to prevent large scale cancellations, Credit Suisse said.
Construction-to-power group Lanco had reported bookings of 4 million sq ft at its 6.7 million sq ft Lanco Hills project in Hyderabad-based Lanco Hills. As on December 2008, the bookings were down to 2-2.5 million sq ft. The company has cited the inability of buyers to pay in a challenging macro environment, to be the reason for cancellations, the report said.
The profits of real estate companies have increased multi-fold since FY06 on account of the revenues being recognised on a percentage completion method. However, this has also led to an increase in receivables as cash inflows have lagged the revenue recognition.
"Given the falling property prices, economic and job uncertainty, the inability of buyers to pay and investors backing out in anticipation of better deals, some of these transactions could be cancelled leading to the previously recognised profits being written off,'' the brokerage said.
Though the real estate developers denied any immediate need to restate their books, they said they may have to write off their profits if the buyers take more-than-expected time to pay for the booked property. "As of date, we have not found any cancellations or resized our transactions. There is no possibility of restatement at this point of time. However, customers may back out of projects, which could hit real estate companies like us. In the last quarter, we did not get any funds from our customers. If customers do not pay any money in the next three-four quarters, we may have to write off our revenues accordingly,'' said Ramashraya Yadav, head of finance at Orbit Corporation, a Mumbai-based developer.
Both Parsvnath Developers and DLF denied any need to restate their books, saying the customers have to pay the money after they enter into agreements with developers for their properties. "Until we receive money from buyers, we do not recognise revenues in our books,'' said Parsvnath chairman Pradeep Jain.
"If buyers do not pay the agreed money, their booking amount gets forfeited,'' said a DLF official.
Business Standard, February 27, 2009, Page 6
The country’s leading real estate companies are likely to lower part of their earlier profit figures as the dwindling income levels of home buyers may force some of them to walk out of booked projects, analysts said.
Last month, Mumbai-based Lok Housing and Construction had said it would restate its accounts for the past three financial years as the revenue it booked hasn’t materialised after the investors and buyers backed out of its projects. Lok plans to write off Rs 225.01 crore worth of profit and Rs 282.14 crore of sales it recognised in its books in the previous financial years.
According to a Credit Suisse report, developers such as DLF, Parsvnath and Orbit have over 20 per cent of their revenues booked since financial year 2006-07 as outstanding from customers and some of these transactions could be cancelled leading to write offs.
"Wherever possible, the customers are looking to walk out of transactions entered at the peak of real estate market,'' the Credit Suisse report said.
DLF, the country's largest developer, had recently cut home prices by 13-14 per cent in its Chennai project 'Garden City' to prevent large scale cancellations, Credit Suisse said.
Construction-to-power group Lanco had reported bookings of 4 million sq ft at its 6.7 million sq ft Lanco Hills project in Hyderabad-based Lanco Hills. As on December 2008, the bookings were down to 2-2.5 million sq ft. The company has cited the inability of buyers to pay in a challenging macro environment, to be the reason for cancellations, the report said.
The profits of real estate companies have increased multi-fold since FY06 on account of the revenues being recognised on a percentage completion method. However, this has also led to an increase in receivables as cash inflows have lagged the revenue recognition.
"Given the falling property prices, economic and job uncertainty, the inability of buyers to pay and investors backing out in anticipation of better deals, some of these transactions could be cancelled leading to the previously recognised profits being written off,'' the brokerage said.
Though the real estate developers denied any immediate need to restate their books, they said they may have to write off their profits if the buyers take more-than-expected time to pay for the booked property. "As of date, we have not found any cancellations or resized our transactions. There is no possibility of restatement at this point of time. However, customers may back out of projects, which could hit real estate companies like us. In the last quarter, we did not get any funds from our customers. If customers do not pay any money in the next three-four quarters, we may have to write off our revenues accordingly,'' said Ramashraya Yadav, head of finance at Orbit Corporation, a Mumbai-based developer.
Both Parsvnath Developers and DLF denied any need to restate their books, saying the customers have to pay the money after they enter into agreements with developers for their properties. "Until we receive money from buyers, we do not recognise revenues in our books,'' said Parsvnath chairman Pradeep Jain.
"If buyers do not pay the agreed money, their booking amount gets forfeited,'' said a DLF official.
Now, promoters take pledging to new heights
Now, promoters take pledging to new heights
The Economic Times, February 27, 2009, Page 9
Shikha Shrama & Sanjeev Choudhary ETIG ET BUREAU
AN ETIG study based on disclosures made by 467 listed firms shows the promoter group of 27 companies has pledged more than 90% of its holding. Well-known listed companies in this category include Kirloskar Electric, JP Hydropower, ERA Infra Engineering and Micro Inks.
Promoters of another 38 companies, including realty firms Unitech and Parsvnath besides other large firms such as Tata Teleservices (Maharashtra) and India Cements Capital, have pledged over 70% of their holding
When the promoter group pledges a high proportion of its shares, the firm is potentially vulnerable to management change, although so far there are just three cases of a promoter actually losing control as a result of pledging shares.
In case of Satyam, founder B Ramalinga Raju had got the IT firm’s board to approve purchase of a company owned by his family at a phenomenal valuation. This was done at a time when almost his entire stakeholding was pledged. Following the Satyam case, market regulator Sebi has made it mandatory for listed companies to disclose details of pledged shares.
“Usually a lender gives a loan worth 60% of the value of shares and if the share price falls, a margin call is triggered. There is a risk of management change if the quantum of shares pledged is high,” says Prithvi Haldea of Prime database, an independent market research firm. He points out that some promoters may even be tempted to manipulate profits of the company to keep the share prices inflated and avoid triggering selling of shares.
Promoters of a fourth of all companies in the study have pledged more than half of their total stake. Most of them haven’t disclosed either the object or the institutions with which shares have been pledged. Shares owned by promoters are pledged either for their personal borrowings or as a collateral with banks and other financial institutions against borrowings by the company. If the value of shares drops significantly, as is the case currently, banks ask for more shares or some other collateral.
If the firm or the promoter fails to furnish the extra amount the lenders can sell the shares in the market.
Some firms, however, say there is not a significant risk of sale of such shares in the market. Consider the case of power firm JP Hydropower where promoters have pledged around 59% of their total 63% in the company. “These pledged shares are only secondary securities. The primary security is the project for which finance is made available,” argues a senior executive of JP Hydropower.
Moreover, these shares are not really linked to market prices and do not trigger margin call, as they are meant to ensure lenders have control over the company in case of a default. JP Hydro shares were pledged before it was listed.
“There is definitely a case for more disclosure, which will bring in more transparency in the way promoters and companies function,” says Indiabulls Financial Services CEO Gagan Banga. Indiabulls is an NBFC with which many promoters have pledged shares.
Mr Haldea says these are early days. “We will learn lessons as we go along. It’s debatable if companies need to disclose the object, name of lenders and even use of funds. But the focus should only be on disclosures that are relevant and useful for investors.”
There are also firms where one of the co-promoters has pledged a large part of his stake. So even though the proportion of pledged shares of the total promoter holding is not significant, if margin calls are triggered, it could see one of the co-promoters losing part control of the company.
One such example is UTV Software in which the original Indian promoter group of the company has pledged 22.7% out of 23.3% held in the company. But the majority stake in the firm is now owned by Walt Disney(59.9%) and as a result, percentage of promoter group holding pledged would not be significant.
The Economic Times, February 27, 2009, Page 9
Shikha Shrama & Sanjeev Choudhary ETIG ET BUREAU
AN ETIG study based on disclosures made by 467 listed firms shows the promoter group of 27 companies has pledged more than 90% of its holding. Well-known listed companies in this category include Kirloskar Electric, JP Hydropower, ERA Infra Engineering and Micro Inks.
Promoters of another 38 companies, including realty firms Unitech and Parsvnath besides other large firms such as Tata Teleservices (Maharashtra) and India Cements Capital, have pledged over 70% of their holding
When the promoter group pledges a high proportion of its shares, the firm is potentially vulnerable to management change, although so far there are just three cases of a promoter actually losing control as a result of pledging shares.
In case of Satyam, founder B Ramalinga Raju had got the IT firm’s board to approve purchase of a company owned by his family at a phenomenal valuation. This was done at a time when almost his entire stakeholding was pledged. Following the Satyam case, market regulator Sebi has made it mandatory for listed companies to disclose details of pledged shares.
“Usually a lender gives a loan worth 60% of the value of shares and if the share price falls, a margin call is triggered. There is a risk of management change if the quantum of shares pledged is high,” says Prithvi Haldea of Prime database, an independent market research firm. He points out that some promoters may even be tempted to manipulate profits of the company to keep the share prices inflated and avoid triggering selling of shares.
Promoters of a fourth of all companies in the study have pledged more than half of their total stake. Most of them haven’t disclosed either the object or the institutions with which shares have been pledged. Shares owned by promoters are pledged either for their personal borrowings or as a collateral with banks and other financial institutions against borrowings by the company. If the value of shares drops significantly, as is the case currently, banks ask for more shares or some other collateral.
If the firm or the promoter fails to furnish the extra amount the lenders can sell the shares in the market.
Some firms, however, say there is not a significant risk of sale of such shares in the market. Consider the case of power firm JP Hydropower where promoters have pledged around 59% of their total 63% in the company. “These pledged shares are only secondary securities. The primary security is the project for which finance is made available,” argues a senior executive of JP Hydropower.
Moreover, these shares are not really linked to market prices and do not trigger margin call, as they are meant to ensure lenders have control over the company in case of a default. JP Hydro shares were pledged before it was listed.
“There is definitely a case for more disclosure, which will bring in more transparency in the way promoters and companies function,” says Indiabulls Financial Services CEO Gagan Banga. Indiabulls is an NBFC with which many promoters have pledged shares.
Mr Haldea says these are early days. “We will learn lessons as we go along. It’s debatable if companies need to disclose the object, name of lenders and even use of funds. But the focus should only be on disclosures that are relevant and useful for investors.”
There are also firms where one of the co-promoters has pledged a large part of his stake. So even though the proportion of pledged shares of the total promoter holding is not significant, if margin calls are triggered, it could see one of the co-promoters losing part control of the company.
One such example is UTV Software in which the original Indian promoter group of the company has pledged 22.7% out of 23.3% held in the company. But the majority stake in the firm is now owned by Walt Disney(59.9%) and as a result, percentage of promoter group holding pledged would not be significant.
Realty cos rejig debt to overcome slowdown blues
Realty cos rejig debt to overcome slowdown blues
Economic Times, February 27, 2009, Page 5
Rajesh Unnikrishnan & Supriya Verma Mishra
MUMBAI
REALTY companies and developers have undertaken ambitious debt restructuring exercises to improve their financial situation as the tight liquidity situation crimps housebuying decisions and debt-equity ratio of companies crosses the prudent level of 0.5. The debt-equity ratio of many property firms currently ranges from 1 and 1.5.
The domestic real estate market has already seen private equity firms buying strategic stakes in holding companies, sale of land banks and non-core businesses, pledging of promoters’ equity for long-term debt and securitising of future receivables for their working capital requirements.
“Developers are quick to accept their over-leveraged position and are taking all possible measures to correct this financial mess,” said Anshuman Magazine, MD (South Asia) of CB Richard Ellis. “Currently, they are focusing only on reducing debt. This can be done either by bringing in a strategic partner or selling land assets,” he added. CB Richard Ellis is working with more than six developers to cut debt exposures.
The Reserve Bank of India’s recent move to allow real estate companies to restructure their outstanding debt may be the last saving grace for these developers. Unitech’s outstanding debt was Rs 10,000 crore, going by the December 2008 quarter results.
Unitech had to repay Rs 2,500 crore by March 2009. It was able to restructure Rs 1,000 crore and this will be due for repayment after 12-18 months, depending on the restructuring terms. Another Rs 1,000 crore was raised through mutual funds and Rs 500 crore was restructured for three months and will be due by the end of March this year. The company is raising funds by part-selling its stake and non-core businesses.
Similarly, HDIL, Omaxe, Unitech and DLF have restructured their debts due for repayment by March 2009.
The Bangalore-based Sobha Developers is restructuring 45% of its Rs 1,900-crore debt. The company, which has a land bank of 3,000 acres, primarily in southern India, is in talks with over ten banks and financial institutions to restructure its debt of about Rs 850 crore.
Economic Times, February 27, 2009, Page 5
Rajesh Unnikrishnan & Supriya Verma Mishra
MUMBAI
REALTY companies and developers have undertaken ambitious debt restructuring exercises to improve their financial situation as the tight liquidity situation crimps housebuying decisions and debt-equity ratio of companies crosses the prudent level of 0.5. The debt-equity ratio of many property firms currently ranges from 1 and 1.5.
The domestic real estate market has already seen private equity firms buying strategic stakes in holding companies, sale of land banks and non-core businesses, pledging of promoters’ equity for long-term debt and securitising of future receivables for their working capital requirements.
“Developers are quick to accept their over-leveraged position and are taking all possible measures to correct this financial mess,” said Anshuman Magazine, MD (South Asia) of CB Richard Ellis. “Currently, they are focusing only on reducing debt. This can be done either by bringing in a strategic partner or selling land assets,” he added. CB Richard Ellis is working with more than six developers to cut debt exposures.
The Reserve Bank of India’s recent move to allow real estate companies to restructure their outstanding debt may be the last saving grace for these developers. Unitech’s outstanding debt was Rs 10,000 crore, going by the December 2008 quarter results.
Unitech had to repay Rs 2,500 crore by March 2009. It was able to restructure Rs 1,000 crore and this will be due for repayment after 12-18 months, depending on the restructuring terms. Another Rs 1,000 crore was raised through mutual funds and Rs 500 crore was restructured for three months and will be due by the end of March this year. The company is raising funds by part-selling its stake and non-core businesses.
Similarly, HDIL, Omaxe, Unitech and DLF have restructured their debts due for repayment by March 2009.
The Bangalore-based Sobha Developers is restructuring 45% of its Rs 1,900-crore debt. The company, which has a land bank of 3,000 acres, primarily in southern India, is in talks with over ten banks and financial institutions to restructure its debt of about Rs 850 crore.
DLF mops up Rs 720 crore from bond sale
DLF mops up Rs 720 crore from bond sale
Business Standard, February 27, 2009, page 6
Raghavendra Kamath & Gautam Chakravorthy / Mumbai
DLF, the nation’s biggest real estate developer, has raised Rs 720 crore from selling bonds to insurance companies as part of its plan to raise Rs 5,000 crore from such sales.
DLF on February 24 raised the funds through issue of non-convertible debentures maturing in five years which offered as much as 14 per cent interest, sources in the company said. The bonds were sold to Life Insurance Corporation (LIC) of India and a few others. DLF officials were not available for comments.
DLF in March disclosed plans to raise Rs 5000 crore from selling bonds to investors. It received a ‘AA stable’ rating for the issue from Crisil. However, the rating company in January downgraded the real estate developer’s pass through certificates to ‘A+’ from ‘AA-’ because of “slowdown in the company’s real estate sales”.
The developer, while announcing its quarterly results, admitted that it had put a quarter of its projects on hold.
The rating company believed that the sales would continue to adversely affect DLF’s operating cash flows. The realtor has been forced to increasingly rely on refinancing of its debt, Crisil said.
Thursday, February 26, 2009
Conversion rates in affordable housing projects still lackluster
Conversion rates in affordable housing projects still lackluster
The Financial Express, Corporates & Markets, February 26, 2009, Page VIII
Mona Mehta Mumbai, Feb 25
Despite many top builders offering discounts of 15% to 20% on future affordable housing projects, which are yet to be constructed, the actual bookings for apartments at the revised market rates by potential end-buyers has started happening to the tune of 5% in the fourth quarter of the financial year200S-09.
At the same time, top builders and international property consultants say endusers have started inquiring about future projects this quarter, which was not the case during the previous quarter.
This comes as a relief to realty players since even transaction inquiries were on hold during the quarter ended De¬cember200S due to the liquidity crunch. But with the Central government announcing three stimulus packages in the last 60 days, the scene seems to have improved. Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM), said, ''While the demand continues to be good, the degree to which potential buyers are responding to their needs is minimum, in anticipation of the large scale market rationalisation."
Jayant Gandhi, general manager - marketing and sales, Mayfair Housing Private Ltd said, "For our upcoming Mayfair Housing project in Virar, we have witnessed 1,000 footfalls since January 2009 and SO bookings. The booking rate at which builders are launching their properties is based on the revised market rate.”
According to Pawan Malhotra, managing director and chief executive officer, Mahindra Lifespaces, "There is a 300010 increase in enquiries by end-buyers this quarter. Apart from dropping prices, what is needed is personal negotiation between builders and endbuyers."
Hiranandani Constructions is now planning to develop affordable housing projects in Pune (between Rs 15 lakh and Rs 30 lakh for two and three BHK flats), said Niranjan Hiranandani, its managing director.
With bottlenecks such as high inflation and soaring in¬terest rates dampening the demand in the realty sector, major developers have started focussing on affordable housing in Mumbai, Delhi and Bangalore, as well as in emerging cities such as Pune, Ahmedabad, Lucknow, Kochi, Indore and Gurgaon.
According to Puri, "The market is headed for rationalisation and sustainable growth. The days of spectacular price rises are over. In residential, developers have been forced to take a serious look at the requirements of the common man - a segment that they had, to a large extent, been ignoring. In commercial, the sudden drop in the fortunes of the global IT community has put a brake on indiscriminate project launches and exuberant rentals. Whatever happens from now, will happen around the real needs of real people with real business plans and aspirations."
Residential constitutes 80% of the overall demand for India's real estate, which is now almost entirely end-user driven. While the demand continues to be at that level, the degree to which potential buyers are responding to their needs has dropped in anticipation of large-scale market rationalisation.
Today, there is little potential for the traditional profit avenues associated with real estate development. The highest real-time demand is now for affordable housing in residential and compact, efficiently managed projects in commercial, Puri added.
Big Bets on small houses
Big Bets on small houses
The Financial Express, India Inc, February 26, 2009, Page I
Saikat Neogi
* Omaxe plans to build one million houses in the price band of Rs 2.99 lakh to Rs 9.99 lakh in 21 states across the country
* Puravankara Projects intends to build 64,500 homes in the price range of Rs 10-20 lakh across five cities
* DLF plans to launch mid-income residential projects in the price range of Rs 20 lakh across the country
* Falcon Realty plans to build a one-room-kitchen flat for Rs 5.5 lakh and a one-bedroom apartment for Rs 9.9 lakh in Alwar
* Orange Properties in Bangalore is constructing 1,800 two-bedroom apartments for Rs 13.5 lakh each
These examples suggest a gold rush like situation in the real estate sector. With the government announcing a series of policy initiative and tax incentives on affordable housing in the last few months, real estate developers across the country are making a beeline to construct low-cost houses and are even modifying their pre-approved plans to construct small size apartments to cater to the untapped market.
For realty developers, venturing into low-cost housing is a new business opportunity. Although there has been a real estate boom in recent years, it has been limited to the middle and upper income residential and commercial property market. But with the economic slowdown and credit crunch, demand in this segment has completely dried up and developers are sitting on huge unsold stocks.
So, why are real estate developers now moving in doves to construct low-cost housing, which till recently was the sole domain of state housing boards? The catch is in the high demand-supply mismatch as the Planning Commission estimates that there is a shortfall of 24.71 million dwelling units in the country, out of which 99% is for LIG/EWS housing.
Anecdotal evidence suggest that about 100 large and medium size real estate companies have lined up affordable housing projects with a price tag of less than Rs 20 lakh in the range of 400 to 800 sq ft in the national capital region, distant suburbs of Mumbai and in tier II and tier III cities. And many are negotiating with various state governments and local bodies for land at concessional rate to construct low-cost houses under the public-private partnership mode as land cost accounts for around 70% of the total project cost. “One of the key themes of 2009 will be a greater focus on low-cost housing, due to demand still outstripping supply, falling land and construction costs and significant government incentives,” says Tushar Poddar, research head of Goldman Sachs in India in a recent report.
Strong matrix
Recession or no recession, the demand for housing will continue to rise due to urbanisation, demographic change and falling household size. Goldman Sachs estimates that an additional 140 million people will move to cities by 2020 and average household size is likely to continue to decline. Both these factors will push up demand for urban housing. Also falling raw material prices and shortage of land will make people to move into small-size apartments. “Ironically, the real estate sector, which was one of the principal causes of the financial market meltdown in the US, may just offer downside protection in India,” say Poddar.
To initiate a sustained development of affordable housing, the ministry of housing and urban poverty alleviation had set up a high level task force under the chairmanship of Deepak Parekh, chairman of HDFC Ltd. Submitting the report in December last year, the task force has underlined the fact that any delay in addressing the problem of housing would seriously affect India’s economic growth and poverty reduction programmes. (See graphic for more recommendations and affordability criteria)
Developers’ strategies
With the economic slowdown, the heady days of building and selling luxury and super luxury apartments are over. Speculative property buyers have scaled down their investment decision and shifted to Rs 20-25 lakh range, prompting developers to shift focus to building affordable housing in a bearish market where demand has slowed down and project funding has become a major concern.
If mega developers are getting into mid-income residential projects, smaller ones are cutting prices across the board to prop up sales. With shortage of working capital and dampened demand for new houses, developers are optimising costs by cutting down on high-end specifications like vetrified tiles, expensive bathroom fittings, and granite flooring. Moreover, a lot of developers are rushing to clean up their highly leveraged balance sheets and are under mounting pressure to meet their interest payment deadlines. In such a situation, building low-cost housing would enable them to generate the much needed working capital because of priority lending by banks and tax incentives offered by the government.
Says Sanjeev Srivastava, managing director, Assotech, “Small size apartments have become the in thing in today’s business and more and more real estate developers are targeting the segment. Affordable housing can be constructed in partnership with the government as land price is very high in India.” Assotech is building two-bedroom apartments for Rs 20 lakh each in Ghaziabad.
To carry the affordable housing business with a long-term growth strategy companies are floating subsidiaries or taking the special purpose vehicle route. For example, Omaxe has set up a subsidiary called National Affordable Housing Infrastructure Ltd to develop low cost houses and Bangalore-based Puravankara Projects has formed Provident Housing and Infrastructure to build affordable homes across the country. Even premium housing developers like Sharpoorji Pallonji and Matheran Realty have chalked out aggressive plans for affordable housing.
Puravankara Projects will invest around Rs 80 billion for its pan-India affordable housing project. The first phase covers Bengaluru, Chennai, Hyderabad, Coimbatore and Mysore where 64,500 houses with a total built-up area of 59.80 million sq ft will be constructed in the next five years. The company is funding these projects through construction debt and customer advances, which would amount to Rs 65 billion, and internal accruals and equity sourcing. In the second phase, the company will cover cities like New Delhi, Kolkata, Kochi, Jaipur and Pune.
Though building small apartments may be the in thing because of the economic slowdown, margins are much lower in this category. And developers are not dithering. “Volumes make up for the lower margins and economics can be worked out with the use of latest technology to scale down the cost of projects,” says Rohtas Goyal, chairman and managing director, Omaxe Ltd.
Stock of urban land for affordable housing remains a major problem. Each parcel of land, depending upon its location and physical attributes, has its own set of problems. A developer of low-cost houses has to take 58 various approvals and no-objection certificates and the waiting time could be anywhere between six months to two years.
“Though the government has introduced a series of sops for developing affordable housing, there are many who are deprived of this basic need. For making houses affordable, the bureaucracy needs to be transparent in regulations and set up a single window clearance. It should also encourage use of local raw materials, which will bring down the cost of housing,” says Navin M Raheja, managing director, Raheja Developers Ltd.
Technology plays an important role in reducing costs on construction. Residential projects could use new prefabricated construction technology where the construction needs to be done at a faster pace with quality control. “Construction cost has to be reduced without compromising on quality and various technology options should be put in place,” says R R Singh, director-general, National Real Estate Development Council.
Experts suggest that core housing, which are incomplete at the time of initial occupation and completed by the inhabitant, should be adopted in smaller towns as it is cost effective, and one can do incremental construction.
Damp demand
Though builders are firming up affordable projects and are advertising them, consumer sentiment is still low and even banks are keeping a tight control on loan disbursement. The latest data from the RBI Monetary Policy shows that offtake of credit for housing had slowed down to 8.8% till December last year from 14.6% during the same period in 2007.
Even after the two stimulus packages and low interest rates offered by PSU banks on loans below Rs 20 lakh, credit offtake for housing remains dismal. RBI data between November 7, 2008 and January 16, 2009 shows that while the aggregate non-food credit grew at 4.3%, housing recorded a credit growth of only 2.49%, underlining the fact that consumers are still in a watch-and-wait mood and expect price of real estate to fall further.
Experts say that the interest rate cuts alone will not help boost real estate sales and reciprocal steps need to be taken by developers. “Demand has to come from actual borrowers and low interest rate has no relevance if borrowers do not come for loans because of high real estate prices,” opines V K Sood, managing director, PNB Housing Finance Ltd.
Buyers are also skeptical about claims by developers. Developers do not mention the end-cost in their advertisements, which could exclude additional costs like parking, external development, preferential location, club membership and power backup. These charges put together can go up to Rs 6 lakh per apartment.
Boosting the economy
Large-scale construction of low-cost houses will boost sectors like steel and cement.The Deepak Parekh committee estimates that alleviating the urban housing shortage could potentially raise the rate of growth by at least 1-1.5% and have a decisive impact on improving the basic quality of life of our people.
Various studies have established the fact that investment in real estate has a multiplier effect on income and employment. It is estimated that every rupee invested in this sector adds 78 paise to the state’s GDP and for every direct job created in the housing industry, eight jobs are created indirectly.
The National Urban Housing and Habitat Policy recognises the need for public-private partnerships and development of various financial and operational innovations for bridging the housing shortage.
Perhaps a lesson can be learnt from China, which has compelled local administration to promote low-cost housing and directed private developers to reserve 70% of their new projects for small units. The government of India has been considering cross-subsidisation but progress will depend on the Centre, state governments and real estate developers acting in a far-sighted way to build low-cost housing.
Cabinet to take up changes in land acquisition policy today
Cabinet to take up changes in land acquisition policy today
The Financial Express, February 26, 2009, Page 3
Sandip Das
After getting go ahead from GoM on Tuesday, the Cabinet would consider two significant policy changes on land acquisition for industrial use and rehabilitation of displaced people due to industrial project on Thursday.
Sources told FE that amendment to the Land Acquisition Act 1894 and a introduction of the National Rehabilitation and Resettlement Policy (NRRP), 2007, would be taken up by Cabinet, following which both the bills are likely to introduced in both houses of Parliament on Thursday.
With Thursday being the last day of Parliament session for the UPA government, it wants to rush through the amendment instead of waiting for the next government. Agriculture minister Raghuvansh Prasad Singh has been pushing for including the two important items in Parliament’s business schedule.
As per the changes proposed to the Land Acquisition Act, a state could only acquire a maximum 30% land required for an industrial project while the rest has to be purchased directly by the concerned company. If passed, the amendment is expected to see opposition from the states as the issue of land remained a state subject.
The NRRP, which comprehensively deals with rehabilitation aspect of land acquisition for industrial use, states that families displaced due to industrial project are to be given market rate for the land, including some compensation in terms of shares and debentures of the company.
“In case of a project involving land acquisition on behalf of a requiring body, and if the body is a company authorised to issue shares and debentures, the affected families who are entitled to get compensation for the land or other property required shall be given the option to take up 20% of the compensation amount due to them in the form of share and debentures,” NRRP states.
Sources also said the GoM has accepted the rural development ministry’s demand for 70:30 formula for land acquisition for industry, which was earlier opposed by Left parties, a parliamentary panel and few state governments.
The suggested policy change in policy assumes significant as NRRP categorically says that the purpose of setting up an industrial unit should be to minimise large scale displacement of people as far as possible.
NRRP and the associated legislative measures aim at striking a balance between the need for land for developmental activities and at the same time protecting the interests of the land owners, tenants, the landless, agricultural and non-agricultural labourers, artisans and others whose livelihood depends on the land involved.
“Acquisition of agricultural land for non-agricultural use in the project may be kept to the minimum and multi-crop land may be avoided to the extent possible for such purpose and acquisition of irrigated land,” NRRP has states.
Ear to ground
•As per the changes proposed to the Land Acquisition Act, a state could only acquire a maximum 30% land required for an industrial project while the rest has to be purchased directly by the company
• If passed, the amendment is expected to see opposition from the states as the issue of land remained a state subject
• The GoM has accepted the rural development ministry’s demand for 70:30 formula for land acquisition for industry, which was earlier opposed by Left parties, a parliamentary panel and few state governments
Pune builders working out 3-month relief package
Pune builders working out 3-month relief package
The Hindu Business Line, February 26, 2009, Page 19
Our Bureau
Mumbai, Feb 17 Realising that job security is uppermost on the minds of home buyers, the Promoters and Builders Association of Pune is working out a three-month relief package to address the EMI portion for the period in case of job loss.
The Pune-based builders would take up the payment of EMI for the three-month period, subject to buyers providing proof of job loss. The scheme is being framed on the presumption that the buyer would get employment in three months.
The builders would also not insist on any instalment due during the period and would collect the same without interest after the buyer was gainfully employed, said the Association President, Mr Lalit Kumar Jain.
The provision would be extended through an escrow account created for the purpose by builders or the association could take up the responsibility.
Mr Jain said prices have fallen by 20-40 per cent in Pune and the 260-member association has asked members to lower prices to the maximum extent to induce buying.
Some developers were also offering price guarantee schemes - in case prices fall after the booking is made, but before possession, the sale amount would be revised accordingly.
Mr Jain said the cost of a square foot in a residential built-up area across Pune was in the range of Rs 2,500-2,900.
This cost had been arrived after an extensive survey by the association, which had concluded that the sq ft rate, inclusive of inputs, expenses and overheads, was Rs 1,900- Rs 2,000, in addition to the land cost that varies from Rs 900 to Rs 1,400 a sq ft.
Any deal below this bandwidth depended on ‘builder comfort,’ as land could have been bought much ahead of the normal three-year horizon the builders adopt, he said.
Steel: Hard times to stay
Steel: Hard times to stay
Business Standard, Money & Markets, February 26, 2009, Section II, Page 1
The lower prices could stimulate demand though not significantly
Steel makers plan to trim prices of steel by about Rs 600 per tonne following the 2 per cent cut in excise duties.But that’s unlikely to result in a spurt in orders from the real estate or automobile players though players in the infrastructure space may be willing to buy more.Until there’s a fullfledged revival in demand, companies will have to live with low realisations-prices have fallen sharply by around 30-40 per cent since August last year and now range between Rs 32,000 and Rs 36,000 per tonne. That’s what caused JSW Steel (standalone) to report losses before tax of Rs 139 crore in the December 2008 quarter. This number doesn’t include foreign exchange losses. Of course, the company also sold a smaller amount of steel—it had actually scaled down production by 20 per cent and therefore revenues remained flat. In fact, others too netted lower realisations as a result of which sales at Tata Steel, for instance contracted 3.5 per cent while SAIL’s revenues were down 6 per cent.
High raw materials continued to pressure operating profit margins(opm) at JSW Steel—the opm was down by about 1400 basis points to 15.3 per cent. Tata Steel’s margins too came off by about 1200 basis points, though of course they were far higher at 30 per cent.
In the current year Tata Steel is expected to post sharply lower profits compared with the Rs 7,700 crore reported in 2007-08, with its overseas subsidiary Corus expected to report only a small surplus. Analysts are also forecasting afall in profits in the following year and that’s why the Tata Steel stock is quoting at a price-earnings multiple of less than 3 times estimated earnings in 2009-10. JSW Steel’s net profits too are tipped to fall this year from the Rs 1,728 earned in 2007-08. However, since the company is not as exposed to the overseas markets as Tata Steel is, a revival in demand at home could mean better operational profits in 2009-10. Nevertheless the company could continue to incur foreign exchange losses and that could hurt the bottom line.
Tatas, Birlas bet big on real estate
Tatas, Birlas bet big on real estate
The Economic Times, February 26, 2009, Page 5
M V Ramsurya & Rajesh Unnikrishnan MUMBAI
TWO OF India’s large business houses, the Birlas and Tatas, are looking at real estate as a major investment area, albeit in different ways. While the Birlas, through a financial services arm, are offering real estate as an alternative investment option to clients, the Tatas are planning to develop surplus land held by group companies and could also invest in the sector through money raised in recent public offerings.
Interestingly, these moves come at a time when real estate prices are correcting and slow demand for projects has prompted large developers to default on their fi nancial commitments and on project deadlines.
Aditya Birla Management director Ajay Srinivasan who also heads the fi nancial services business, says the con glomerate is merely gearing up for the future. “We are now putting a team in place and want to be ready when the time is right,” he told ET. The financial services arm of the group is setting up a real estate and private equity arm for its wealth management units. To be headed by Sashi Kumar, the real estate business would be managed through Birla Sun Life Asset Management.
The Birlas plan to subsequently launch two real estate funds, offshore and local, for the real estate sector where although the investors would be different, the investment destinations would be in India and could also likely include distressed real estate assets.
Tata Housing Development, a real estate arm of the Tata group, has already said that it plans to leverage its tie-up with banks by developing properties on surplus land owned by other Tata group companies. Tata Housing is now identifying excess landbanks owned by companies such as TCS, Voltas, Rallis India, Tata Motors, Tata Coffee and Tata Tea.
Tata Capital, the financial services arm of the Tatas, is scheduled to close a largely successful non-convertible debenture issue on Tuesday; it has so far raised Rs 2,300 crore against a targeted Rs 1,500 crore. Although Tata Capital has said that it won’t lend to group companies, it has proposed to invest in most asset classes.
Anticipating a large value erosion in the realty space, Indian corporates are planning to float new funds to acquire assets in the domestic property market. Real estate funds such as Saffron Advisors have either floated or are in the process of floating funds with corpus ranging between Rs 500 crore and Rs 1,000 crore. “As far as Indian realty is concerned, for the right projects, funds are still available,” says Saffron Advisors MD Ajoy Kapoor. “Conservative European investors, after conducting extensive due diligence and research, are more comfortable with investing in Indian real estate provided they are able to align with the right partners.”
A few months back, Munich-based retail aggregator Deutsche Capital Management AG underwrote $20 million for Saffron India Real Estate Fund I, an India-focused real estate fund. DCM is raising a specific fund for investing in Indian real estate through Saffron Advisors.
HOUSING IN
Birlas are offering realty as an alternative investment option to its clients
Plan offshore and local real estate funds
Realty arm of the Tata group, Tata Housing Development, plans to leverage its tie-up with banks by developing properties on surplus land owned by group firms
It’s identifying excess land owned by TCS, Voltas, Rallis India, Tata Motors, Tata Coffee and Tata Tea
NRI realty investments halve
NRI realty investments halve
The Economic Times, February 26, 2009, Page 5
Avinash Nair & Parag Dave AHMEDABAD
THENRI season is now at its fag end. De spite undertaking tours to the US, the UK and Middle East and doling out free bies and discounts, realtors have been unable to catch the attention of this cash rich community. The result: NRI invest ments in India-based properties dropped by over 50% this season, with the four metro cities and “NRI-heavy” mirco markets in states like Gujarat and Kerala being among the worst hit.
“Compared to last year, the drop in NRI interest in India-based properties has been almost 50% in all sectors. The metros showed a sharp drop in demand, largely owing to the steep prices”, says Sanjay Dutt, CEO - business, Jones Lang LaSalle Meghraj (JLLM), a global realestate consultancy firm. “Very few luxury homes have been sold as compared to last year”, he adds.
At a time when the domestic demand in micro-markets in Tier-I, II and III cities began to slump in the third quarter of this financial year, the developers were hopeful that the demand from the NRIs will pep up the sentiments in the realty markets. However, the global slowdown and the resulting slump froze the bullish sentiments among NRIs. “Though a far-from-spectacular number of transactions have indeed taken place this season, generalised job insecurity and a desire to conserve available cash among IT employees abroad has curbed investment demand for high-end properties, Mr Dutt said adding that the response was “significantly muted” from the NRI community this season.
The sharp corrections seen in some larger cities has also led to an “acute wait-and-watch attitude among NRIs who - just like everyone else - are now very price sensitive”, he explained.
The Economic Times, February 26, 2009, Page 5
Avinash Nair & Parag Dave AHMEDABAD
THENRI season is now at its fag end. De spite undertaking tours to the US, the UK and Middle East and doling out free bies and discounts, realtors have been unable to catch the attention of this cash rich community. The result: NRI invest ments in India-based properties dropped by over 50% this season, with the four metro cities and “NRI-heavy” mirco markets in states like Gujarat and Kerala being among the worst hit.
“Compared to last year, the drop in NRI interest in India-based properties has been almost 50% in all sectors. The metros showed a sharp drop in demand, largely owing to the steep prices”, says Sanjay Dutt, CEO - business, Jones Lang LaSalle Meghraj (JLLM), a global realestate consultancy firm. “Very few luxury homes have been sold as compared to last year”, he adds.
At a time when the domestic demand in micro-markets in Tier-I, II and III cities began to slump in the third quarter of this financial year, the developers were hopeful that the demand from the NRIs will pep up the sentiments in the realty markets. However, the global slowdown and the resulting slump froze the bullish sentiments among NRIs. “Though a far-from-spectacular number of transactions have indeed taken place this season, generalised job insecurity and a desire to conserve available cash among IT employees abroad has curbed investment demand for high-end properties, Mr Dutt said adding that the response was “significantly muted” from the NRI community this season.
The sharp corrections seen in some larger cities has also led to an “acute wait-and-watch attitude among NRIs who - just like everyone else - are now very price sensitive”, he explained.
DLF Chennai project faces buyers exit
DLF Chennai project faces buyers exit
Business Standard, February 26, 2009, Page 6
Chennai: DLF, the country’s biggest real estate developer, is facing buyer pressure, as many of them are exiting its project here on concerns of delay and issues related to implementation of the project. A customer group comprising buyers of flats in the DLF Southern Homes project claimed that as many as 600 members had issued letters of exit to the developer. A DLF spokesperson, however, said only 150 buyers had submitted letters to exit. BS Reporter
I-T dept orders special audit of DLF accounts
I-T dept orders special audit of DLF accounts
The Economic Times, February 26, 2009, Page 12
Our Bureau NEW DELHI
THE Income-Tax department has ordered a special audit of the accounts of DLF and would take necessary action after scrutiny, minister of state for finance S S Palanimanickam said on Wednesday.
“A special audit under section 142(2A) of the I-T Act has been ordered in the case of Delhi Lease and Financing Ltd, also known as DLF, for the assessment year 2006-07,” the minister said. As per the minister, the audit report ’is being examined’ for necessary action as laid down under the law.
The DLF spokesman said, “we would like to state that the assessment (of the audit report) is still to be done; it will be wrong to say that any action is being taken against DLF”.
As per DLF, FY 2005-06 was the first year in which DLF revised accounting standards as prescribed by ICAI because it had to go public. As per these standards, DLF started using Percentage of Completion Method (PoCM) for recognising revenues, and consequently, profits. Prior to this, all accounts were prepared in accordance with Indian GAAP.
Percentage of completion method mandates a realty company to book sales and profit proportionate to the level of construction achieved in any project in the given quarter. Earlier, developers would book sales and profits once the project was completed.
DLF said this accounting change led to DLF recognising an additional profit of Rs 314 crore, resulting in taxable income of Rs 334 crore (for DLF Limited as a standalone entity). DLF Limited (as a standalone entity) paid tax of Rs 114 crore on the same, which is more than the tax paid by the company in the past years.’’
Under the I-T law, in an assessment year, the tax department assesses income of preceding financial year.
Co raises Rs 2,000cr to repay short loans
DLF, India’s largest listed property developer by market cap, has raised over Rs 2,000 crore in debt from PNB, LIC, SBI and Bank of India in the past one month to repay short-term debt, a company official said. The company had earlier raised Rs 1,000 crore in debt from PNB in the December quarter, reports Sanjeev Choudhary from New Delhi. In all, the company has borrowed Rs 1,700 crore from Punjab National Bank, Rs 350 crore from State Bank of India, Rs 220 crore from Bank of India and Rs 720 crore through sale of nonconvertible debentures to LIC in the past three months. All these loans are long-term loans for a period exceeding three years and at an average rate of interest of 14%.
The Economic Times, February 26, 2009, Page 12
Our Bureau NEW DELHI
THE Income-Tax department has ordered a special audit of the accounts of DLF and would take necessary action after scrutiny, minister of state for finance S S Palanimanickam said on Wednesday.
“A special audit under section 142(2A) of the I-T Act has been ordered in the case of Delhi Lease and Financing Ltd, also known as DLF, for the assessment year 2006-07,” the minister said. As per the minister, the audit report ’is being examined’ for necessary action as laid down under the law.
The DLF spokesman said, “we would like to state that the assessment (of the audit report) is still to be done; it will be wrong to say that any action is being taken against DLF”.
As per DLF, FY 2005-06 was the first year in which DLF revised accounting standards as prescribed by ICAI because it had to go public. As per these standards, DLF started using Percentage of Completion Method (PoCM) for recognising revenues, and consequently, profits. Prior to this, all accounts were prepared in accordance with Indian GAAP.
Percentage of completion method mandates a realty company to book sales and profit proportionate to the level of construction achieved in any project in the given quarter. Earlier, developers would book sales and profits once the project was completed.
DLF said this accounting change led to DLF recognising an additional profit of Rs 314 crore, resulting in taxable income of Rs 334 crore (for DLF Limited as a standalone entity). DLF Limited (as a standalone entity) paid tax of Rs 114 crore on the same, which is more than the tax paid by the company in the past years.’’
Under the I-T law, in an assessment year, the tax department assesses income of preceding financial year.
Co raises Rs 2,000cr to repay short loans
DLF, India’s largest listed property developer by market cap, has raised over Rs 2,000 crore in debt from PNB, LIC, SBI and Bank of India in the past one month to repay short-term debt, a company official said. The company had earlier raised Rs 1,000 crore in debt from PNB in the December quarter, reports Sanjeev Choudhary from New Delhi. In all, the company has borrowed Rs 1,700 crore from Punjab National Bank, Rs 350 crore from State Bank of India, Rs 220 crore from Bank of India and Rs 720 crore through sale of nonconvertible debentures to LIC in the past three months. All these loans are long-term loans for a period exceeding three years and at an average rate of interest of 14%.
Wednesday, February 25, 2009
Service tax, excise duty slashed 2%
30K-CR FAREWELL
Service tax, excise duty slashed 2%
The Economic Times, February 25, 2009, Page 1
Before the poll code of conduct sets in, the UPA govt has provided the final booster dose for the economy. It’s PARTY TIME for both consumers and Corporate India...
Our Bureau NEW DELHI
CHEAPER housing, TV sets, phone bills, visits to the beauty parlour. Such is the consumer bounty arising from the third fiscal stimulus package announced by the government on Tuesday in the form of Rs 30,000 crore worth of cuts in service tax, excise duty and countervailing duty on imports. This package is likely to be followed up with interest rate cuts by the central bank.
Products that attracted 10% excise duty will now be taxed at 8% while service tax has been reduced 2% across the board to 10%. The Customs duty exemption on naphtha imports for power generation has also been extended beyond March 31, 2009. The stimulus package, the third in a row after those announced on December 2 and January 7, came as part of acting finance minister Pranab Mukherjee’s reply to the debate in Parliament on the interim budget presented on February 16. These rate cuts, as well as the 4% excise duty cut announced in December, will continue beyond March 31, as well. Lok Sabha passed the interim budget after Mr Mukherjee’s reply to the debate.
Ninety per cent of manufactured goods that attract an excise duty of 10% at present, including colour TV sets, washing machines, refrigerators, soap, detergents, cola, hybrid cars and commercial vehicles, are expected to become cheaper as a result of the excise duty cut. Phone bills, airline tickets, credit card charges, insurance premia, tour packages etc will also cost less, thanks to the cut in service tax rates. The cess on health and education will also come down, as these are levied as a proportion of the total price, including the indirect taxes that have now been reduced.
The reduction in service tax will serve the twin objectives of giving relief to the service sector that constitutes 50% of the country’s GDP and the move towards the unified goods and service tax regime, scheduled to kick in from the next fiscal.
In December, the government had slashed median excise rates by 4% while announcing a Rs 20,000-crore additional spending plan to boost economic activity. Special packages were also announced for textiles and handicrafts.
Service tax, excise duty slashed 2%
The Economic Times, February 25, 2009, Page 1
Before the poll code of conduct sets in, the UPA govt has provided the final booster dose for the economy. It’s PARTY TIME for both consumers and Corporate India...
Our Bureau NEW DELHI
CHEAPER housing, TV sets, phone bills, visits to the beauty parlour. Such is the consumer bounty arising from the third fiscal stimulus package announced by the government on Tuesday in the form of Rs 30,000 crore worth of cuts in service tax, excise duty and countervailing duty on imports. This package is likely to be followed up with interest rate cuts by the central bank.
Products that attracted 10% excise duty will now be taxed at 8% while service tax has been reduced 2% across the board to 10%. The Customs duty exemption on naphtha imports for power generation has also been extended beyond March 31, 2009. The stimulus package, the third in a row after those announced on December 2 and January 7, came as part of acting finance minister Pranab Mukherjee’s reply to the debate in Parliament on the interim budget presented on February 16. These rate cuts, as well as the 4% excise duty cut announced in December, will continue beyond March 31, as well. Lok Sabha passed the interim budget after Mr Mukherjee’s reply to the debate.
Ninety per cent of manufactured goods that attract an excise duty of 10% at present, including colour TV sets, washing machines, refrigerators, soap, detergents, cola, hybrid cars and commercial vehicles, are expected to become cheaper as a result of the excise duty cut. Phone bills, airline tickets, credit card charges, insurance premia, tour packages etc will also cost less, thanks to the cut in service tax rates. The cess on health and education will also come down, as these are levied as a proportion of the total price, including the indirect taxes that have now been reduced.
The reduction in service tax will serve the twin objectives of giving relief to the service sector that constitutes 50% of the country’s GDP and the move towards the unified goods and service tax regime, scheduled to kick in from the next fiscal.
In December, the government had slashed median excise rates by 4% while announcing a Rs 20,000-crore additional spending plan to boost economic activity. Special packages were also announced for textiles and handicrafts.
Pranab unveils 3rd package
Pranab unveils 3rd package
The Financial Express, February 25, 2009, Page 1
Economy Bureau
Announcing the third stimulus package in as many months to boost flagging demand, the UPA government on Tuesday announced fiscal sops amounting to Rs 30,000 crore, the most significant being an across-the-board 2% cut in central excise duty and service tax.
Though industry chambers hailed the incumbent administration’s farewell gifts, they stressed that an interest rate cut by RBI was imperative to spur investment, consumption and reduce pressure on bond yields due to increased government borrowings.
While central excise duty has been slashed to 8% from the earlier 10%, service tax will be levied at 10% from the previous 12%. As a further sweetener to corporate India, the 4% excise duty cut announced under the first stimulus package in December has been extended beyond March 31, 2009.
Finance minister Pranab Mukherjee also announced measures to address sectoral concerns. Bulk cement will now attract central excise at 8%, or Rs 230 a metric tonne, whichever is higher, from the existing 10% or Rs 290 a mt. Similarly, to provide relief to the power sector, naphtha imported for the generation of electricity has been fully exempt from basic customs duty beyond this fiscal.
After the tax breaks, prices of commercial vehicles and consumer durables like refrigerators and washing machines are expected to come down. Similarly, steel companies producing long products like Sail and Tata Steel are expected to benefit. Since the price of naphtha has also been clipped, projects like NTPC’s Kawas will be in a better financial position.
Explaining the rationale behind the steps, Mukherjee said, “Latest figures confirm that our two fiscal packages are steps in the right direction. These are encouraging signs (but) the full impact of the recession in other parts of the world, especially Europe and Asia, is yet to unfold. Due to the strong export linkages with these economies, it is likely that the Indian economy may feel a further impact in coming months.”
The sops won’t come cheap. “The measures will lead to revenue loss of Rs 13,000 crore in service tax, Rs 8,500 crore in excise duty and Rs 6,600 crore in customs duty,” Central Board of Excise & Customs chairman PC Jha said. The Centre has already revised its tax collection figures for 2008-09 downwards to Rs 6,27,949 crore from the budgeted target of Rs 6,87,715 crore.
Consequently, the fiscal deficit for 2008-09 will probably overshoot the estimated 6% of GDP. “They are trying to revive demand in the economy, but I am not sure if it is a prudent move. The tax cuts will increase the fiscal deficit by another 0.5% at least, and in a fiscally strained situation, this will add to the stress,” said National Institute of Public Finance & Policy director M Govinda Rao.
Nevertheless, Mukherjee was under pressure to provide sops after the interim Budget offered little to help the economy despite industrial production contracting by 2% in December. “The government is keen that business confidence in the services sector is restored,” the finance minister said during his reply to the debate on the interim Budget in the Lok Sabha.
Meanwhile, giving further leeway to state governments to announce their own stimulus measures, the Centre has also given them the flexibility to deviate from their fiscal consolidation targets for another year and borrow an additional 0.5% of state GDP to “spur the development of infrastructure and employment generation”.
“This arrangement could be further reviewed, if necessary,” Mukherjee said. States are currently sitting on around Rs 91,000 crore in cash and have been permitted to borrow up to 3.5% of state GDP in 2008-09. Following the discussion, the interim Budget was passed by the Lok Sabha.
Domestic equity bourses, which witnessed heavy sell-offs by FIIs following the overnight sharp plunge on Wall Street, recovered sharply with government’s announcement. The 30-share Sensex of the BSE, which slipped to an intra-day low of 8,619.22 points after shedding 224 points in early trading, closed the day with only a marginal loss of 21.15 points, or 0.24%, at 8,822.06 points. Similarly, the 50-share Nifty of the NSE closed at 2,733.90 points, a marginal loss of 2.55 points, recovering sharply from the day’s low of 2,677.55 points.
Reacting to the government’s measures, KPMG executive director Pratik Jain said, “The duty cuts are a positive move and will help generate demand, especially in manufacturing and consumer goods. But the measures may take some time to take effect.”
A Sakthivel, president of Federation of Indian Export Organisations, said the measures would give the economy only a limited boost. He said the service tax cut would add to export competitiveness by about 0.25%.
Farewell gift
• Package to cost exchequer Rs 30,000 crore
• Excise duty and service tax reduced by 2%
• Excise duty on bulk cement trimmed to 8%
• Earlier 4% relief extend beyond March 2009
• States may borrow 0.5% more of their GDP
Cement TO GET CHEAPER: Cos to cut prices by Rs 5 per 50-kg bag from Mar
Cement TO GET CHEAPER: Cos to cut prices by Rs 5 per 50-kg bag from Mar
The Economic Times, February 25, 2009, Page 11
CEMENT prices in India will drop Rs 4-5 for every 50 kg-bag from March 1, following Tuesday’s excise duty cut. Executives of leading cement makers like Grasim Industries, ACC, Shree Cement and Binani Cement said the duty cut will be passed on to customers. In a move to boost infrastructure projects and construction activity, the government has cut excise duty by 2% on bulk cement. Once the companies announce a price cut, cement prices will drop to Rs 222 in key markets like Mumbai while it will vary between Rs 210 and Rs 230 in other regions, according to industry circles. At present, a bag of cement costs Rs 215-235. According to Binani Cement MD Vinod Juneja: “Prices will reduce by Rs 4-5 per bag as companies will pass on the benefit. A slowdown in the property market will also help to bring down prices.” The real estate sector accounts for nearly 60% of India’s cement demand. Ambuja Cements MD AL Kapur also said the duty benefit would be automatically passed on to bulk cement traders. The country’s two largest cement makers, the Aditya Birla group and ACC, have called meetings to take stock of the situation. Grasim Industries whole-time director & CFO DD Rathi said, “We are studying the entire thing and if required, will take a decision on pricing in the next few days.” However, the 2% duty cut has not cheered cement companies in south India as bulk cement accounts for a small portion of their overall revenues.
TEAM ET
Steel PRICES TO SOFTEN: Cos to reduces prices by Rs 500-600 a tonne
Steel PRICES TO SOFTEN: Cos to reduces prices by Rs 500-600 a tonne
The Economic Times, February 25, 2009, Page 11
PRICES of steel, widely used by makers of cars and consumer goods, are expected to come down by Rs 500-600 per tonne after the government on Tuesday reduced excise duty by 2%. While agreeing to pass on the benefits, steel industry executives said that along with the duty cuts, if interest rates were also reduced, it would spur domestic demand. The government cut the excise duty to 8% from the existing 10% as part of its efforts to stimulate the economy. In its vote-on-account measures announced last week, Union finance minister Pranab Mukherjee had announced large government expenditure for the infrastructure sector. Most steelmakers, including Essar Steel, JSW and Ispat Industries, have said they will pass on the benefits of the reduced excise tax to endusers. Essar Steel Holdings director J Mehra said: “Steel users will benefit as the excise duty burden on the final product will come down by 2%. These are, however, temporary measures. The government should increase spending on the infrastructure sector as it will be a key driver of growth in the future.” Steel prices (inclusive of taxes) are currently hovering between Rs 33,000 and Rs 35,000 per tonne, a drop of more than 30% from the peak of Rs 50,000 in April last year. Prior to the announcement made by the government, steel companies were paying excise tax of 10%. “We intend to pass on the excise duty cut benefits to the end users in the form of reduced final product prices. Traders will also benefit from the move,” said an executive of Ispat Industries.
TEAM ET
PRICES of steel, widely used by makers of cars and consumer goods, are expected to come down by Rs 500-600 per tonne after the government on Tuesday reduced excise duty by 2%. While agreeing to pass on the benefits, steel industry executives said that along with the duty cuts, if interest rates were also reduced, it would spur domestic demand. The government cut the excise duty to 8% from the existing 10% as part of its efforts to stimulate the economy. In its vote-on-account measures announced last week, Union finance minister Pranab Mukherjee had announced large government expenditure for the infrastructure sector. Most steelmakers, including Essar Steel, JSW and Ispat Industries, have said they will pass on the benefits of the reduced excise tax to endusers. Essar Steel Holdings director J Mehra said: “Steel users will benefit as the excise duty burden on the final product will come down by 2%. These are, however, temporary measures. The government should increase spending on the infrastructure sector as it will be a key driver of growth in the future.” Steel prices (inclusive of taxes) are currently hovering between Rs 33,000 and Rs 35,000 per tonne, a drop of more than 30% from the peak of Rs 50,000 in April last year. Prior to the announcement made by the government, steel companies were paying excise tax of 10%. “We intend to pass on the excise duty cut benefits to the end users in the form of reduced final product prices. Traders will also benefit from the move,” said an executive of Ispat Industries.
TEAM ET
Upbeat realty sector seeks to tame job cuts
Upbeat realty sector seeks to tame job cuts
The Financial Express, February 25, 2009, Page 5
fe Bureau
With the third stimulus package announced, real estate developers and market analysts anticipate an improvement in the margins of the real estate sector and no further job cuts. The booster package includes reduction in service tax and an excise cut of 2%.
Hiranandani Constructions managing director Niranjan Hiranandani told FE, “The third stimulus package is very good. As an impact, there would be no job cuts further in the construction sector that has witnessed 1.5 million job cuts in the past 12 months. Besides, the 2% excise cut on cement is another positive news for the construction sector. In the near future, the real action in the real estate sector could be seen in terms of developers re-starting constructions within their existing projects. Also, SBI’s new home loan scheme whereby a customer pays 8.5% for loans upto Rs 5 lakh and 9.25% for loans between Rs 5 lakh and Rs 20 lakh is encouraging for end-buyers. Hence, even we feel that we should start planning to restart construction of new buildings within the existing projects.”
Similarly, chairman Akruti City Hemant Shah, said, “The third stimulus package in the right direction as it will surely help corporates across the board, and even real estate players to some extent, in improving the margins and recovering costs. It seems now that the economy is all set to improve”.
Even the market is upbeat with positivity for the sector. Says Hitesh Agrawal, Angel Broking research head, “In continuation of the stimulus measures announced over the past three-four months, the government has announced some more relief to the Indian economy. The cut in excise duty and reduction in the service tax rates is a welcome relief for the manufacturing and the services sector of the economy, which combined contributes to almost 80% of the country’s GDP. Notably, while the government has refrained from making any announcements in the interim Budget and had also indicated earlier of no further measures on the stimulus front, the current move is more or less in the form of a third stimulus package, this time benefiting a wide range of sectors. However, the impact of these either to prop up consumer demand or to the economy at large would not be significant.”
Nayan Shah, CEO Mayfair Housing has also welcomed the government’s move. He opined, “We welcome the announcement by the central government to reduce excise and service tax rate. In fact, in the last 60 days the central government has announced three stimulus packages. However, announcement by the state government to impose 1% registration fee on February 17 on transaction is a negative move as compared to earlier 1% or Rs 30,000, whichever is lower. This will have a negative effect on the real estate sector and end-buyers as demand for properties will drop further now.”
Construction, infra sector hopeful
Construction, infra sector hopeful
The Times of India, February 25, 2009, Page 26
TEAM TOI
The construction and infrastructure industry is hoping for some cost amelioration after the reduction in excise duty on bulk cement, as well as the cut in service tax. Larsen and Toubro CFO Y M Deosthale said, “It is a good measure, but the impact of the reduction in excise duty on bulk cement will depend on how much of the benefits the manufacturers will pass on to the consumers. Even if 50% of benefits are passed on, it will have an impact on infrastructure.’’
Officials at Mumbai-based Hindustan Construction Company (HCC), which is constructing the Bandra-Worli sealink, were, however, not optimistic. “The impact of these measures on our projects will be minimal,’’ they said.
Civil engineers working on another city brige project explained: “Currently the price of cement is Rs 4,500 per tonne and the cost content of cement in large bridge projects is between 4-5%. In the case of large concrete dam projects, the cement content is higher and the cost is between 8-9%. The impact of the reduction in cement prices might amount to anywhere between 1-0.5% on most civil engineering projects.’’
CII director general Chandrajit Banerjee said: “The reduction in excise duty on bulk cement to 8% will also help reduce costs of real estate and infrastructure development.’’ But, he also had some additional demands: “These fiscal measures should be coupled with further monetary measures as inflation has now come down to below 4%.’’
The Times of India, February 25, 2009, Page 26
TEAM TOI
The construction and infrastructure industry is hoping for some cost amelioration after the reduction in excise duty on bulk cement, as well as the cut in service tax. Larsen and Toubro CFO Y M Deosthale said, “It is a good measure, but the impact of the reduction in excise duty on bulk cement will depend on how much of the benefits the manufacturers will pass on to the consumers. Even if 50% of benefits are passed on, it will have an impact on infrastructure.’’
Officials at Mumbai-based Hindustan Construction Company (HCC), which is constructing the Bandra-Worli sealink, were, however, not optimistic. “The impact of these measures on our projects will be minimal,’’ they said.
Civil engineers working on another city brige project explained: “Currently the price of cement is Rs 4,500 per tonne and the cost content of cement in large bridge projects is between 4-5%. In the case of large concrete dam projects, the cement content is higher and the cost is between 8-9%. The impact of the reduction in cement prices might amount to anywhere between 1-0.5% on most civil engineering projects.’’
CII director general Chandrajit Banerjee said: “The reduction in excise duty on bulk cement to 8% will also help reduce costs of real estate and infrastructure development.’’ But, he also had some additional demands: “These fiscal measures should be coupled with further monetary measures as inflation has now come down to below 4%.’’
Steel prices set to fall... Will Get Cheaper By Up To Rs 600 A Tonne
Steel prices set to fall...
Will Get Cheaper By Up To Rs 600 A Tonne
The Times of India, February 25, 2009, Page 26
TEAM TOI
Steel makers, who choose to pass the full benefit of the 2% point excise duty cut announced on Tuesday, could soon announce price cuts to the extent of Rs 500-600 per tonne on hot rolled coil (HRC) steel and TMT (thermo mechanically treated) bars. For the ‘aam aadmi’, the reduction in steel prices could mean reduction in the construction costs of a house and lower input costs for automobiles, besides other capital goods.
Though Tata Steel declined to comment, JSW Steel said it will pass on the excise duty cut to customers. “This excise duty cut will have a definite impact just like any other reduction on indirect taxes has brought so far. A 2% cut is significant and we will pass it on immediately,’’ JSW Steel finance director Seshagiri Rao said. Industry experts say that excise duty cuts are usually passed on by companies in form of price-cuts, or discounts. Last time when the excise duty was cut, steel companies swiftly passed on the benefits to customers.
After a continuous decline from September 2008, HRC steel is currently selling at Rs 26,500 a tonne while rebars/TMT bars fetch Rs 26,300 a tonne. A 2% excise cut will mean that prices will fall by Rs 500-600, if companies pass on the full benefit, said Pawan Burde of Angel Broking. He said companies’ profitability will not be affected and this excise cut may even support flagging growth of steel.
Domestic steelmakers have raised production from the low levels of November-December 2008 and many expect sales volume to improve on a quarter-on-quarter basis for the January quarter. Vikram Amin, director, sales & marketing, Essar Steel, said, “The reduction of excise duty in the present economic condition will be beneficial as this will have a possibility of increasing demand and give a boost to the sagging economy.’’
Will Get Cheaper By Up To Rs 600 A Tonne
The Times of India, February 25, 2009, Page 26
TEAM TOI
Steel makers, who choose to pass the full benefit of the 2% point excise duty cut announced on Tuesday, could soon announce price cuts to the extent of Rs 500-600 per tonne on hot rolled coil (HRC) steel and TMT (thermo mechanically treated) bars. For the ‘aam aadmi’, the reduction in steel prices could mean reduction in the construction costs of a house and lower input costs for automobiles, besides other capital goods.
Though Tata Steel declined to comment, JSW Steel said it will pass on the excise duty cut to customers. “This excise duty cut will have a definite impact just like any other reduction on indirect taxes has brought so far. A 2% cut is significant and we will pass it on immediately,’’ JSW Steel finance director Seshagiri Rao said. Industry experts say that excise duty cuts are usually passed on by companies in form of price-cuts, or discounts. Last time when the excise duty was cut, steel companies swiftly passed on the benefits to customers.
After a continuous decline from September 2008, HRC steel is currently selling at Rs 26,500 a tonne while rebars/TMT bars fetch Rs 26,300 a tonne. A 2% excise cut will mean that prices will fall by Rs 500-600, if companies pass on the full benefit, said Pawan Burde of Angel Broking. He said companies’ profitability will not be affected and this excise cut may even support flagging growth of steel.
Domestic steelmakers have raised production from the low levels of November-December 2008 and many expect sales volume to improve on a quarter-on-quarter basis for the January quarter. Vikram Amin, director, sales & marketing, Essar Steel, said, “The reduction of excise duty in the present economic condition will be beneficial as this will have a possibility of increasing demand and give a boost to the sagging economy.’’
...Cement could become marginally cheaper...
...Cement could become marginally cheaper...
The Times of India, February 25, 2009, Page 26
TEAM TOI
The government’s move to reduce excise duty on bulk cement from 10% to 8% will result in a marginal drop of Rs 3-4 a 50 kg bag on retail levels. “The move to drop levies on bulk cement is to allign it with cement sold in bags, which is already taxed at 8%. This is more of a correction of an anomaly in the system,’’ said Rakesh Singh, V-P (marketing), The India Cements.
Therefore, in his view, prices for bulk-buyers, like ready mix concrete (RMC) batching units, could drop marginally. A V Dharmakrishnan, executive director, Madras Cements, said the move to lower duties would result in a price cut of Rs 3-4 a 50kg bag at the retail level.
Industry players said the drop would be between Rs 60 and 70 a tonne for bulk buyers like construction companies and RMC units.
“Typically for a large cement company, bulk sale is only 6-10% of turnover. Also, even if it means lower prices at the retail level this move would mean Rs 3-4 reduction per bag. For a product being sold at Rs 220 or Rs 230 at the retail levels this (reduction) is hardly anything,’’ industry sources added.
Besides, cement buying doesn’t get influenced by lowering excise duties marginally. “You buy cement when you construct. It has got to do more with sentiment rather than prices. True, the government is trying to perk up spending. Cement demand is inelastic to price, therefore lowering prices will not result in higher demand,’’ sources added.
The Times of India, February 25, 2009, Page 26
TEAM TOI
The government’s move to reduce excise duty on bulk cement from 10% to 8% will result in a marginal drop of Rs 3-4 a 50 kg bag on retail levels. “The move to drop levies on bulk cement is to allign it with cement sold in bags, which is already taxed at 8%. This is more of a correction of an anomaly in the system,’’ said Rakesh Singh, V-P (marketing), The India Cements.
Therefore, in his view, prices for bulk-buyers, like ready mix concrete (RMC) batching units, could drop marginally. A V Dharmakrishnan, executive director, Madras Cements, said the move to lower duties would result in a price cut of Rs 3-4 a 50kg bag at the retail level.
Industry players said the drop would be between Rs 60 and 70 a tonne for bulk buyers like construction companies and RMC units.
“Typically for a large cement company, bulk sale is only 6-10% of turnover. Also, even if it means lower prices at the retail level this move would mean Rs 3-4 reduction per bag. For a product being sold at Rs 220 or Rs 230 at the retail levels this (reduction) is hardly anything,’’ industry sources added.
Besides, cement buying doesn’t get influenced by lowering excise duties marginally. “You buy cement when you construct. It has got to do more with sentiment rather than prices. True, the government is trying to perk up spending. Cement demand is inelastic to price, therefore lowering prices will not result in higher demand,’’ sources added.
... But service tax cuts, not lower duty, to help realty
... But service tax cuts, not lower duty, to help realty
The Times of India, February 25, 2009, Page 26
TEAM TOI
The real estate industry is not enthused by the cut in duty on bulk cement from 10% to 8%. However, the cut in service tax rate from 12% to 10% will benefit those who have taken large commercial properties on rent.
Gera Developments CMD Kumar Gera said the reduction of 2% will have no impact at all. “It will make a difference of just Re 1 per square foot on the cost of construction. It is irrelevant and means nothing for the industry,’’ Gera said.
Real estate consultant Ashok Narang too felt that the reduction on bulk cement duty would make no difference on real estate. “The market will kickstart only when banks bring down interest rates to about 7% for a longer period. This cut in duty is just an eyewash. There need to be more incentives for the housing sector.’’
The head of a large real estate company said the cut in service tax will benefit those who are on rent in large commercial complexes. “For example, someone paying Rs 1 crore as rent annually for an office space. Earlier, he would have paid Rs 12 lakh as service tax. Now he would save Rs 2 lakh annually since under the new rate his service tax outgo will be Rs 10 lakh,’’ said the official.
However, industry players feel the government decision could have a positive impact on people’s sentiment. Property redeveloper Pujit Agarwal said that at a time when market sentiments are low, any kind of incentive is helpful, however small. “The duty cuty will bring down the cost of construction by just 1.5%. It is not much, but nevertheless a breather for the industry. The government wants to show it is being proactive,’’ he said.
South Mumbai developer R C Chaturvedi said a cement bag currently costs Rs 260. “With this reduction the saving per bag will be just 1.2%. This will not make much difference on the cost of construction,’’ he added. Developer Sunil Mantri of Mantri Realty said a cement bag will now be cheaper by Rs 5 to Rs 7. “Its a good step by the government, although a small one,’’ he observed.
Developer Pravin Doshi, who is also the president of the Maharashtra Chamber of Housing Industry, however, observed that this will make a difference on big projects. “It will help a lot. The cost of construction will reduce by at least 7% to 8%. It is a good decision.’’
S&P outlook a cause for concern
S&P outlook a cause for concern
The Financial Express, Corporates & Markets, February 25, 2009, Page I
Overseas borrowing costs to rise, risk aversion to worsen, but no reason to panic yet
fe Bureau, Mumbai
The move by international credit rating agency Standard & Poor’s (S&P) Ratings Services on Tuesday to revise its outlook on the long-term sovereign credit rating on India to negative from stable has set off a flurry of concern amongst India Inc and fund managers. While, the concern that the outlook downgrade will be followed by an actual ratings downgrade seems well placed, some experts mention that this could not be a reason for a panic.
Says, Amit Goyal, president Confederation of Indian Apparel Exporters (CIAe),“The negative ratings will have an adverse impact on foreign investment in India Inc. The ratings will take India in the defaulter’s league internationally.”
Amit Tandon, managing director, Fitch Ratings reckons that this move could pose a problem for Indian corporates, especially those who had plans to raise funds overseas.
The telecom sector is expected to face the wrath of the change in outlook. Indranil Deb, principal, Mobius Strip Capital Advisor says, “Corporates in the telecom sector would usually source from countries like Japan where the inflation was much less and the borrowings were at a lower interest rate. But now, the projects on which these telcos were backing on are becoming riskier and therefore they themselves would shy away. Where as, international investors would be reluctant to pool in investments as the sovereign ratings are negative and there is a high chance of default.”
The international rating agency said, the outlook revision reflects its view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term.
However, disagreeing with India’s growth towards the negative curve, Goyal added that despite a whirl of global summitry, India’s growth rate is projected at 6% compared to its neighbouring countries that are growing at an alarming rate of not more than 2-3%.
The banking community does not seem much perturbed about the change in outlook. KC Chakrabarty, chairman and managing director, Punjab National Bank, while mentioning that the cost of borrowing overseas could escalate, says, “The credit rating agency has just revised India’s outlook to a negative one and the next stage will be the downgrading of the country’s rating which has not happened so far.” TS Narayanasami, chairman and managing director, Bank of India reckons that stronger companies would still be able to raise funds at competitive rates overseas. He also adds, “There is no scarcity of money on the domestic front for other companies in the country.”
Another banker with an overseas bank avers that India has been through these outlooks and ratings earlier and has managed to come out glowing. “This is another test for the country, and it has to shine through,” he adds.
A section of analysts were expecting this move and reckon that this was inevitable considering the crisis that the global economies and India faced. It was something the government and the policy makers had to do in order to tide over the difficulties, they reckon. The move will definitely have consequences in terms of rising borrowing cost and increased risk aversion, however, it is being seen as a lesser of an evil. “At this time, increasing the fiscal deficit is the wisest step taken by the government. In such a scenario, private spending would take a backseat. It would concern us if the demand does not increase. It would be a setback for the economy,” says Hitesh Agrawal, head of research, Angel Broking
“The downgrade by S&P will have some impact from the FII perspective. These kinds of country rating might impact the inflow of investment. However the rating would not impact economic activities,” commented Aparup Sengupta, managing director and chief executive officer, Aegis.
DLF rates go south,rivals may follow
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DLF rates go south,rivals may follow
The Economic Times, February 25, 2009, Page 1
Prices Cut 20-30%, Customers Who Bought At Higher Rates To Get Refunds
Our Bureaus NEW DELHI I CHENNAI
THE COUNTRY’S largest property developer, DLF, has cut home prices by up to a third at its ongoing projects in Chennai and Bangalore, triggering hopes that other big real estate firms will follow its lead to try and boost sagging demand.
Customers who have bought homes at its Garden City project in Chennai and Westend Heights in Bangalore at higher rates will be eligible for a refund, a DLF official said, and indicated that a drop in prices may be in the offing in other cities too.
Rates for the Garden City project—the company has already sold 2,000 of the total 3,500 apartments there—have been cut by 17% to Rs 2,650 per sq ft. DLF has slashed prices by 32% to Rs 1,850 per sq ft for the Bangalore project, where it is building 2,000 homes.
A DLF official said the decision to reduce prices was in response to the changed conditions in the real estate sector because of “unprecedented global events and changes in raw material costs”.
Already, many buyers are said to be queuing up to consider DLF’s offer in Chennai. While one group of buyers claims to have mobilised 600 exit letters, DLF authorities maintain that it is only between 150 and 200 members.
Several analysts have been saying a 30-35% decline in prices is essential to spur demand. Home buying has fallen off sharply since the middle of 2008 because of high property prices and finance costs as well as uncertainties over job security. As sales dried up, credit became expensive and private equity funds vanished, property companies ran into a severe cash crunch. Realty firms have also been under pressure from banks and the government to reduce prices.
While developers have been slow in reacting to the changes, DLF’s decision has the potential to influence the entire market.
“DLF’s bold move will prompt other companies as well to reduce prices,” said Anshul Jain, CEO of property consultancy DTZ India.
DLF’s closest rival, Unitech, which hasn’t launched any new project in the recent past, says it is “still watching the market”.
R Nagaraju, the head of strategy and planning, said the company’s new launches will definitely be at lower price points.
DLF’s move to extend the price cut to existing customers in ongoing projects is being seen as particularly significant. Most realty companies have so far refused to lower rates in ongoing projects, unwilling to provide refunds for apartments already sold.
DLF, along with other realty companies, has been battling falling sales and put construction on more than half of its commercial projects on hold due to lack of demand. The company reported a 69% decline in profit in the December quarter.
The Economic Times, February 25, 2009, Page 1
Prices Cut 20-30%, Customers Who Bought At Higher Rates To Get Refunds
Our Bureaus NEW DELHI I CHENNAI
THE COUNTRY’S largest property developer, DLF, has cut home prices by up to a third at its ongoing projects in Chennai and Bangalore, triggering hopes that other big real estate firms will follow its lead to try and boost sagging demand.
Customers who have bought homes at its Garden City project in Chennai and Westend Heights in Bangalore at higher rates will be eligible for a refund, a DLF official said, and indicated that a drop in prices may be in the offing in other cities too.
Rates for the Garden City project—the company has already sold 2,000 of the total 3,500 apartments there—have been cut by 17% to Rs 2,650 per sq ft. DLF has slashed prices by 32% to Rs 1,850 per sq ft for the Bangalore project, where it is building 2,000 homes.
A DLF official said the decision to reduce prices was in response to the changed conditions in the real estate sector because of “unprecedented global events and changes in raw material costs”.
Already, many buyers are said to be queuing up to consider DLF’s offer in Chennai. While one group of buyers claims to have mobilised 600 exit letters, DLF authorities maintain that it is only between 150 and 200 members.
Several analysts have been saying a 30-35% decline in prices is essential to spur demand. Home buying has fallen off sharply since the middle of 2008 because of high property prices and finance costs as well as uncertainties over job security. As sales dried up, credit became expensive and private equity funds vanished, property companies ran into a severe cash crunch. Realty firms have also been under pressure from banks and the government to reduce prices.
While developers have been slow in reacting to the changes, DLF’s decision has the potential to influence the entire market.
“DLF’s bold move will prompt other companies as well to reduce prices,” said Anshul Jain, CEO of property consultancy DTZ India.
DLF’s closest rival, Unitech, which hasn’t launched any new project in the recent past, says it is “still watching the market”.
R Nagaraju, the head of strategy and planning, said the company’s new launches will definitely be at lower price points.
DLF’s move to extend the price cut to existing customers in ongoing projects is being seen as particularly significant. Most realty companies have so far refused to lower rates in ongoing projects, unwilling to provide refunds for apartments already sold.
DLF, along with other realty companies, has been battling falling sales and put construction on more than half of its commercial projects on hold due to lack of demand. The company reported a 69% decline in profit in the December quarter.
DLF slashes rates by up to Rs 13 lakh in Chennai
DLF slashes rates by up to Rs 13 lakh in Chennai
Business Standard, February 25, 2009, Page 6
In a move that may put pressure on other players to follow suit, DLF, India’s largest property developer, today announced a reduction of up to Rs 13 lakh in the prices of flats at its new residential project in Chennai.
This is the third city, after Bangalore and Hyderabad, where residential projects with reduced price tags have been announced in the last few weeks. Gurgaon, Panchkula and Kochin may also see similar project launches from DLF in the coming days, an executive of the company said. The decision is in line with the company’s recent announcement, which said it was strengthening its focus on the “affordable housing” segment in select cities.
Both existing customers as well as new customers will benefit from the price cuts announced in Chennai today.
“We have not waited for the government to provide further stimulus to announce a cut in prices. The prices are 20-30 per cent lower than the earlier announced rates. This was possible after we improved our efficiencies and made some changes in the project specifications,” Rajeev Talwar, group executive director, DLF, said.
According to a DLF spokesperson, the price at the time of the soft-launch of the project in March 2008 was Rs 2,800 per sq ft for flats in the range of 1,200-2,000 sq ft. Once the project was announced, it went up to Rs 3,000 per sq ft. The amount has now been revised to Rs 2,500 per sq ft for the initial customers and Rs 2,550 per sq ft for the subsequent ones.
Overall, there are 3,493 houses, of which almost 1,500 are available under the early bird scheme.
“There would be a benefit of between Rs 3.5 lakh and Rs 13 lakh per unit from the reduction, depending on the size of the apartment,” the spokesperson said.
In the case of Hyderabad and Bangalore, where new projects were announced recently, the company reduced the size of the flats and also the price. The reconfigured prices were Rs 1,850 per sq ft for flats in the range of 1,088 to 1,500 sq ft.
The DLF move is expected to compel other players also to revise their prices for existing and new projects.
Business Standard, February 25, 2009, Page 6
In a move that may put pressure on other players to follow suit, DLF, India’s largest property developer, today announced a reduction of up to Rs 13 lakh in the prices of flats at its new residential project in Chennai.
This is the third city, after Bangalore and Hyderabad, where residential projects with reduced price tags have been announced in the last few weeks. Gurgaon, Panchkula and Kochin may also see similar project launches from DLF in the coming days, an executive of the company said. The decision is in line with the company’s recent announcement, which said it was strengthening its focus on the “affordable housing” segment in select cities.
Both existing customers as well as new customers will benefit from the price cuts announced in Chennai today.
“We have not waited for the government to provide further stimulus to announce a cut in prices. The prices are 20-30 per cent lower than the earlier announced rates. This was possible after we improved our efficiencies and made some changes in the project specifications,” Rajeev Talwar, group executive director, DLF, said.
According to a DLF spokesperson, the price at the time of the soft-launch of the project in March 2008 was Rs 2,800 per sq ft for flats in the range of 1,200-2,000 sq ft. Once the project was announced, it went up to Rs 3,000 per sq ft. The amount has now been revised to Rs 2,500 per sq ft for the initial customers and Rs 2,550 per sq ft for the subsequent ones.
Overall, there are 3,493 houses, of which almost 1,500 are available under the early bird scheme.
“There would be a benefit of between Rs 3.5 lakh and Rs 13 lakh per unit from the reduction, depending on the size of the apartment,” the spokesperson said.
In the case of Hyderabad and Bangalore, where new projects were announced recently, the company reduced the size of the flats and also the price. The reconfigured prices were Rs 1,850 per sq ft for flats in the range of 1,088 to 1,500 sq ft.
The DLF move is expected to compel other players also to revise their prices for existing and new projects.
Unitech sells off Gurgaon Hotel for Rs 230 crore
Unitech sells off Gurgaon Hotel for Rs 230 crore
Business Standard, February 25, 2009, Page 6
Arun Kumar / New Delhi
Unitech, the country’s second largest real estate firm, has sold its 200-room budget hotel – Courtyard by Marriott – in Gurgaon to Delhi-based Roop Madan, a high net worth individual (HNI), for around Rs 230 crore. According to sources, the agreement has already been signed and a formal announcement is expected in the next couple of days.
Interestingly, Unitech has also withdrawn its proposal to raise Rs 5,000 crore through issues in overseas markets. Earlier, the company had applied to the Foreign Investment Promotion Board (FIPB) seeking some exemption to bring in more foreign investment in the holding company.
When contacted, a Unitech spokesperson said, “We are in advance stages of negotiations with some of the HNIs and expect to close the transaction shortly.” On the issue of withdrawing its application from FIPB, he refused to comment.
Roop Madan, the buyer of Courtyard by Marriott, has interests in imports, in premium liquor and cigarette trade with investments in many real estate projects, sources said.
This would be the first asset sale by Unitech, which has decided to mop up funds by selling assets such as hotel, commercial real estate and institutional land. The company, which currently has a debt of Rs 8,200 crore, is expected to raise around Rs 1,500 crore from sale of hotels and commercial space.
Sources said that Unitech was also in discussion with a group of HNIs to divest 225,000 sq ft of office space in South Delhi for around Rs 500 crore. The company is planning to sell the office space on a floor basis to HNIs. “In this market, it is difficult to sell large property to an individual buyer,” sources said, and added, “The deal, to be closed in early March, is expected to fetch around Rs 500 crore.”
The Gurgaon hotel’s sale comes at a time when the hotel business has slowed down considerably, with January being one of the worst months in the recent past. Unitech invested Rs 100 crore on this project, including Rs 10 crore on real estate.
The Gurgaon hotel was almost ready and could be opened soon after making marginal changes, sources said. Given the bad sentiment faced by the hospitality sector, no conventional hotelier was keen to buy the property. In fact, a recent auction by a GMR-led consortium at Delhi International Airport for hotel projects received a lukewarm response.
Govt rushes to get land acquisition, rehab bills passed
Govt rushes to get land acquisition, rehab bills passed
The Economic Times, February 25, 2009, Page 2
Our Political Bureau NEW DELHI
IN an attempt to prevent skirmishes of the kind that left the Buddhadeb Bhattacharjee government badly bruised in the wake of Nandigram and Singur clashes, the Manmohan Singh government is racing against time to get the Land Acquisition (Amendment) Bill, 2007, and the Rehabilitation and Resettlement Bill, 2007, passed in the remaining two days of Parliament.
The proposed bills, which were cleared by GoM on Tuesday, allow states to acquire 30% of land for private developers provided they have acquired the remaining 70% for setting up industrial and SEZ projects. Thus, the state would come into picture much later. This has been weaved in only to prevent a repetition of the ugly clashes that rocked Singur, Nandigram and other places where large industrial projects were on the anvil.
The R&R Bill, which is designed to give a statutory status to the National R&R Policy, 2007, makes it mandatory for parties concerned to get a social impact assessment prepared by independent multi-disciplinary expert group in cases where 400 or more families are displaced in plain areas and 200 or more families in tribal and hilly areas.
With the ongoing session of Parliament meandering to a close, the government only has two days left to secure the passage of the two Bills, which were cleared by the GoM after endorsing the suggestions put forward by the Union rural development ministry. Given the procedural constraints faced by him, it remains to be seen whether Mr Raghuvansh Prasad Singh is able to steer the two bills through in the two Houses within this time-frame.
The Land Acquisition (Amendment) Bill seeks to amend several provisions of the antiquated Land Acquisition Act, 1894, in an attempt to balance the need for land for developmental and other purposes with the interests of the people whose land is to be acquired.
The revised bill redraws the definition of “public purpose”, making it clear that governments could wield land acquisition powers only for three purposes—strategic uses such as those aimed at the armed forces, public infrastructure projects and where a project being set up by a person (which includes companies) serves a larger public interest and meets the 70% norm.
The policy provides for land-for-land compensation, besides preference to affected families for jobs in projects coming up on their plots. Land-owners entitled to compensation would be made stakeholders in the development process by allowing them to take up to 20% of the amount in the form of equity stakes, provided the acquiring entity is authorised to issue these instruments. The proportion of these shares could be enhanced to up to 50% with the prior approval of the government. The policy discourages speculative transactions of land acquired for public purposes.
The R & R Bill has also revised the quantum of compensation (solatium) to be given to persons whose land is to be acquired by the state. It’d be 60% of the land’s market value in the case of normal acquisition, and as much as 75% in the case of urgent acquisition.
Land would be acquired at existing market prices or area floor rate, whichever is higher. In case of a dispute, landowners will be able to approach the Land Acquisition Disputes Settlement Authority, which would be set up in every state. The benefits include allotment of land to the extent available with the government in resettlement areas and preference in employment to at least one person from each nuclear family affected by the project.
There will be special provisions for STs and SCs in the rehabilitation package. The new policy would replace the existing national policy on R&R for project-affected families, enacted during the NDA regime in 2003. The benefits under the new policy would be available to all affected persons and families whose livelihood have been affected. This would also include replacement because of natural calamities and their will be no cap on the number of people or families for the purpose of compensation. The benefits also include scholarship for education, preference in allotment of contracts and housing benefits, including houses to the landless affected families.
AVOIDING NANDIGRAM
The proposed bills allow states to acquire 30% of land for private developers provided they have acquired the remaining.
The R&R Bill makes it mandatory to get a social impact assessment prepared by independent group.
Governments can wield powers only for 3 purposes—strategic uses, public infrastructure projects and where a project serves a larger public interest and meets the 70% norm.
The Economic Times, February 25, 2009, Page 2
Our Political Bureau NEW DELHI
IN an attempt to prevent skirmishes of the kind that left the Buddhadeb Bhattacharjee government badly bruised in the wake of Nandigram and Singur clashes, the Manmohan Singh government is racing against time to get the Land Acquisition (Amendment) Bill, 2007, and the Rehabilitation and Resettlement Bill, 2007, passed in the remaining two days of Parliament.
The proposed bills, which were cleared by GoM on Tuesday, allow states to acquire 30% of land for private developers provided they have acquired the remaining 70% for setting up industrial and SEZ projects. Thus, the state would come into picture much later. This has been weaved in only to prevent a repetition of the ugly clashes that rocked Singur, Nandigram and other places where large industrial projects were on the anvil.
The R&R Bill, which is designed to give a statutory status to the National R&R Policy, 2007, makes it mandatory for parties concerned to get a social impact assessment prepared by independent multi-disciplinary expert group in cases where 400 or more families are displaced in plain areas and 200 or more families in tribal and hilly areas.
With the ongoing session of Parliament meandering to a close, the government only has two days left to secure the passage of the two Bills, which were cleared by the GoM after endorsing the suggestions put forward by the Union rural development ministry. Given the procedural constraints faced by him, it remains to be seen whether Mr Raghuvansh Prasad Singh is able to steer the two bills through in the two Houses within this time-frame.
The Land Acquisition (Amendment) Bill seeks to amend several provisions of the antiquated Land Acquisition Act, 1894, in an attempt to balance the need for land for developmental and other purposes with the interests of the people whose land is to be acquired.
The revised bill redraws the definition of “public purpose”, making it clear that governments could wield land acquisition powers only for three purposes—strategic uses such as those aimed at the armed forces, public infrastructure projects and where a project being set up by a person (which includes companies) serves a larger public interest and meets the 70% norm.
The policy provides for land-for-land compensation, besides preference to affected families for jobs in projects coming up on their plots. Land-owners entitled to compensation would be made stakeholders in the development process by allowing them to take up to 20% of the amount in the form of equity stakes, provided the acquiring entity is authorised to issue these instruments. The proportion of these shares could be enhanced to up to 50% with the prior approval of the government. The policy discourages speculative transactions of land acquired for public purposes.
The R & R Bill has also revised the quantum of compensation (solatium) to be given to persons whose land is to be acquired by the state. It’d be 60% of the land’s market value in the case of normal acquisition, and as much as 75% in the case of urgent acquisition.
Land would be acquired at existing market prices or area floor rate, whichever is higher. In case of a dispute, landowners will be able to approach the Land Acquisition Disputes Settlement Authority, which would be set up in every state. The benefits include allotment of land to the extent available with the government in resettlement areas and preference in employment to at least one person from each nuclear family affected by the project.
There will be special provisions for STs and SCs in the rehabilitation package. The new policy would replace the existing national policy on R&R for project-affected families, enacted during the NDA regime in 2003. The benefits under the new policy would be available to all affected persons and families whose livelihood have been affected. This would also include replacement because of natural calamities and their will be no cap on the number of people or families for the purpose of compensation. The benefits also include scholarship for education, preference in allotment of contracts and housing benefits, including houses to the landless affected families.
AVOIDING NANDIGRAM
The proposed bills allow states to acquire 30% of land for private developers provided they have acquired the remaining.
The R&R Bill makes it mandatory to get a social impact assessment prepared by independent group.
Governments can wield powers only for 3 purposes—strategic uses, public infrastructure projects and where a project serves a larger public interest and meets the 70% norm.
Tuesday, February 24, 2009
Centre clears ten SEZs, three petrochem hubs
Centre clears ten SEZs, three petrochem hubs
The Financial Express, February 24, 2009, Page 1
Economy Bureau, New Delhi
The UPA government on Monday cleared a slew of proposals to boost big-ticket investments, even as it sought to play down concerns about the economy and held out the promise of more sops for embattled exporters.
The board of approvals for special economic zones (SEZs), the UPA’s flagship investment idea, cleared ten more zones, including the country’s largest zone to date, while the Cabinet paved the way for three massive petrochemical hubs, an outcome of another pet policy formulated in May 2007.
RBI governor Duvvuri Subbarao has, meanwhile, said he would “take appropriate policy action” (read: rate cuts), at a meeting with finance minister Pranab Mukherjee. “The Bank is constantly monitoring the situation,” an RBI statement said.
Besides the new SEZs, the rate cuts should help spur investments in the three petroleum, chemical & petrochemical investment regions (PCPIRs) in West Bengal’s Haldia, AP’s Visakhapatnam and Gujarat’s Dahej that the Cabinet cleared on Monday. These regions will be set up through the PPP route.
The government’s PCPIR policy envisages faster statutory and environmental clearances, quick approval from the Foreign Investment Promotion Board, with the Central and state governments ensuring better road, rail, port and airport connectivity. The region would be a combination of production units, public utilities, logistics, environmental protection mechanisms, residential areas and administrative services. A PCPIR could also include one or more SEZs, industrial parks, free trade & warehousing zones and export-oriented units.
Among the SEZs approved on Monday was an application to merge three notified SEZs of the Adani group to create a single 6,214-hectare SEZ. The company has two port SEZs of 4,846 hectare and 1,074.17 hectare, along with a 293.88 hectare power SEZ. The total investment proposed is Rs 1 lakh crore and the zone is expected to employ 5 lakh people in the next ten years.
This is the first time after an empowered group of ministers fixed a 5,000-hectare cap on SEZ projects that the Centre has allowed the cap to be breached. The board of approvals nod came as the notified areas of all three SEZs are contiguous and treating them as one SEZ would help prevent duplication of administrative requirements, do away with separate boundaries for each SEZ and also ensure that the developers could build seamless infrastructure connecting all three.
The other SEZs cleared include the Navi Mumbai gems & jewellery SEZ promoted by an aide of Reliance Industries chairman Mukesh Ambani, and L&T’s shipbuilding SEZ. This takes the total number of approved SEZs to 714.
The government has also decided that commerce & industry minister Kamal Nath would unveil an interim foreign trade policy akin to the interim Budget. The policy will do away with many procedural bottlenecks to reduce the transaction costs of exporters and also extend the period of export obligation under various schemes like the export-oriented unit scheme, advance licensing scheme and Export Promotion Capital Goods scheme.
While the interim Budget extended interest subsidy on pre- and post-shipment credit for exporters in labour-intensive sectors like gems & jewellery, the commerce ministry would announce more measures, including procedural simplification, on February 26 to help tide over the global demand slowdown.
Government sources, meanwhile, said total exports are likely to contract on a year-on-year basis to June 2009. They said this was because shipments from India were lying at several godowns abroad due to the drastic fall in demand in major markets like the US and EU.
In a final stock taking of the economy before the polls, finance minister Pranab Mukherjee said despite the financial crisis, the government would collect Rs 6.7 lakh crore in gross tax revenues. “We may not exceed the Budget estimate, but in nominal terms, we will exceed the 2007-08 tax collections,” revenue secretary PV Bhide also said.
Relaxed green norms to speed up projects
Relaxed green norms to speed up projects
The Financial Express, February 24, 2009, Page 1
Sandip Das, Arun S
The government is all set to relax the Environment Impact Assessment (EIA) norms for infrastructure, housing and IT projects to expedite flow of funds and speed up implementation.
Official sources told FE this is being done as it has come to light that problems relating to land acquisition and the difficulties in obtaining an environment clearance were the main reasons that delay projects in these sectors. Reacting to this, the ministry of environment and forest, in a draft notification, has proposed to change certain norms concerning EIA notification, which was issued in 2006.
Under the draft notification, issued on January 19, 2009, the ministry has proposed that there is no need for EIA if ‘modernisation or expansion proposals without any increase in pollution load and or without any additional water and or land requirement are exempted from the provision of EIA’.
However, in case of expansion of projects involving enhancement of production by more than 50%, holding of public consultation shall be essential and no exemption in this regard shall be provided. But the notification points out that all state highway projects and state highway expansion projects in hilly terrain or in ecologically sensitive areas will come to EIA ambit.
The draft notification, for which the environment ministry has sought comments from public, would be taken up for final nod after expiry of sixty days from the date of notification.
The draft notification also states that in case of air strips, which do not involve refuelling facility or air traffic-control, are exempted from EIA.
The ministry move comes at a time when many builders have told the government that getting environment clearance for each small apartment and IT park have made it difficult for them to complete the projects on time.
The first stimulus package announced by the government in December 2008 authorised India Infrastructure Finance Company Limited to raise Rs 10,000 crore to refinance bank lending for infrastructure projects and another Rs 4,000 crore to National Housing Banks for taking up refinancing.
The scheme for housing also had an interest subsidy for houses below Rs 20 lakh. The government’s aim was to ensure that in the next three months at least 10-20 lakh houses are built across the country, including under the Indira Awas Yojana. This will, in turn, spur demand for steel, cement, bricks, furniture, wood and several items needed for the construction of the houses.
But a majority of these measures are yet to take-off as each infrastructure project has to get an EIA prior to the launch.
EIA certification has been a contentious issue, as most of the infrastructure projects need to get a mandatory certification from the environment ministry prior to its launch. NGOs and activists have been stating that environment ministry does not have expertise to judge the environment impact of each and every project while many project developers have been stating that due to delay in awarding EIA certification, the small projects like IT or housing get delayed.
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