Real Estate Intelligence Service, Tuesday, July 28, 2009

RBI pegs growth at 6.5%, projects 5.4% inflation

RBI pegs growth at 6.5%, projects 5.4% inflation
The Times of India, July 28, 2009, Page 21

Mumbai: Revising the growth projection to 6.5% from the earlier 5.7% for 2009-10, Reserve Bank on Monday said it expected inflation to go up to 5.4% by this fiscal end. In its macro economic review, RBI, however, said indications are that dampened growth impulses may continue due to significant delay in monsoon in certain parts of the country and persistence of global recession.

It said that recovery in export growth could be weak in the near-term, coupled with lagged impact on manufacturing growth. The review, ahead of the quarterly review of RBI's annual monetary policy on Tuesday, quoted the central bank's Professional Forecasters Survey to indicate that the average inflation in the fourth quarter of 2009-10 will be around 5.4%.

On the inflation outlook, the review said, while certain indicators suggest possible firming up of inflation over time, other developments could also help in keeping the inflationary presures subdued. The indication of inflation firming up by this fiscal could be due to high base-effect, increase in commodity prices, especially oil and global recovery, RBI said.

Noting that the global econoic environment continues to be uncertain, RBI said the conduct of the monetary policy had to contend with the scale and pace of external shocks and their spillover effects through the real, financial and confidence channels.

“The thrust of the various policy initiatives has been on providing ample rupee liquidity, ensuring comfortable US dollar liquidity and maintaining a market environment conducive for continued flow of credit to the productive sectors,” RBI said. PTI

India’s external debt at $230 billion:

India's external debt went up by $5.3 billion or 2.4% to $229.9 billion as of March 2009, RBI said. The debt denominated in US dollar accounted for 57% of total external debt. PTI

Revenue deficit will be at its highest:

Revenue deficit would be at its highest-level ever while primary deficit would both be at its highest in India’s post-reform period, RBI said, adding the rise is due to higher growth in revenue expenditure. PTI

Confidence, growth estimates better: RBI

Confidence, growth estimates better: RBI
The Financial Express, July 28, 2009, Page 1

fe Bureau, Mumbai

Two key pieces of data released by RBI on the eve of announcing its position on interest rates for the July-September quarter shows a higher growth estimate for the economy and a turnaround in business sentiment. The data is part of the Macroeconomic & Monetary Developments: First Quarter Review 2009-10.

The latest survey of professional forecasters conducted by RBI in June 2009 indicates most estimates converging on a 6.5% rate of GDP growth, higher than the 5.7% in the March survey. Average inflation in the fourth quarter is also expected to rise to 5.4% from the current negative 1.31%.

Similarly, the business expectation indices of private sector manufacturing companies has improved both for the April-June quarter and expectations for the July-September quarter. Company expectations are 20.3% and 14% more for better performance, compared with the previous quarters. The indices had dropped to their lowest level ever in the January-March quarter of 2009. RBI, however, cautioned that early indications suggest the revival impulses need to strengthen further to boost consumer and investor confidence.

Analysts, therefore, said it was difficult to take a call on possible repo and reverse repo rates the central bank would announce on Tuesday. These are the rates at which RBI respectively sells and buys surplus cash from banks, and provide a benchmark for interest rates at which banks provide credit.

Based on the RBI assessment, bond yields moved up in the debt market. The benchmark ten-year 6.90% maturing in 2019 ended at 6.95%, above Friday’s close of 6.92%, but volumes were moderate at Rs 7,640 crore after traders hedged their bets.

Yes Bank chief economist Shubhada Rao said RBI may revise its inflation forecast upwards on Tuesday, but would wait until early 2010--the fiscal fourth quarter--to drain liquidity by lifting cash reserve ratio requirements. “We believe RBI will provide comfort on the liquidity front. The fourth quarter is the one where we expect RBI to remove the ‘froth’ in liquidity,” she said.

RBI has cut repo six times since last October, lopping 425 basis points off to the present 4.75% as it tried to guard against economic deceleration in the middle of the global financial crisis. It also slashed reverse repo by 275 basis points since early December and brought down the cash reserve requirement by 400 basis points to 5% to keep credit flowing.

“The growth outlook for 2009-10 (therefore) needs to be assessed in the context of indications emerging from lead indicators so far… Indicators such as the higher growth in core infrastructure sector, positive growth in IIP, gradual revival in demand for non-food credit, improving performance of the corporate sector in terms of both sales and profitability, gradual return of risk appetite in the capital market, more optimistic business expectations and forecasts could be viewed as signs of recovery from the slowdown,” says the report.

Factors that could dampen the growth outlook, according to RBI, are the delayed progress of the monsoon, decline in exports due to the persistent global recession and the lagged impact of negative growth in manufacturing in the last quarter of 2008-09. But according to the central bank, chances of these happening are weaker.

FM LETS GOOD TIMES ROLL

FM LETS GOOD TIMES ROLL
The Economic Times, July 28, 2009, Page 1

India Inc tax sops to propel growth

With an eye on 8% growth amid difficult times, FM continues to pull out more goodies for India Inc and the aam aadmi. While industry got a slew of tax breaks, housing dreams of millions of Indians came closer to reality

Our Bureau NEW DELHI

THE government has lowered the interest rates on loans for affordable housing, extended a tax holiday given to industrial parks, and lifted the tax burden off road repair costs, adding to the four existing stimulus packages in its effort to propel GDP growth to 8-9% by the end of 2010.

Finance minister Pranab Mukherjee on Monday told Lok Sabha that home loans up to Rs 10 lakh for properties with a market value not exceeding double that amount will now come with a 1% subsidy on the interest charged by commercial banks.

The minister has earmarked Rs 1,000 crore for this, a step expected to give a leg up to lower and middle income families looking to buy a house.

Mr Mukherjee proposed an amendment to the Income-Tax Act so that profits from housing projects approved by a local authority between April 1, 2007, and March 31, 2008, will be tax-free if they are completed before March 31, 2012. He urged builders to pass on the benefit to consumers.

Renu Sud Karnad, joint managing director of HDFC, said the interest subsidy on home loans will result in increased activity in the affordable housing segment and creation of employment. “With the real estate segment directly and indirectly supporting 269 big and small industries, it will have a positive impact on the economy. Also, with the fear of below-normal rainfall looming, a step like this is a well-timed, well-thought one,” she said.

Companies working out of industrial parks can now plan long term, with tax breaks being extended by two years to March 31, 2011. Accordingly, profits from development, operation and maintenance of industrial parks will continue to be tax-free.

Industry body Ficci welcomed the measures saying these, along with the fiscal steps introduced in the Budget for 2009-10 and the stimulus packages rolled out earlier, will give a new momentum to the economic recovery currently underway.

STIMULUS UNLIMITED

FOR INDIVIDUALS
1% interest subsidy for loans up to Rs 10 lakh for a year, provided purchase price is up to Rs 20 lakh
Tax deduction on interest paid on education loans for legal guardians
I-T deductions for assessees with severe disability raised from Rs 75,000 to Rs 1 lakh

FOR INDUSTRY

Extended tax holiday for special investment zones

Tax break for realtors extended by three years

Food processing tax incentives to cover milk & meat industry

Coal bed methane gas to get tax holiday

Service tax waiver for road repair & maintenance services

Tax on new services from September 1

As part of its continuing efforts to generate activity in the infrastructure sector, the government exempted repair and maintenance of roads from service tax, a la construction of new roads. The tax break will be available immediately.

“We can push domestic demand with stimulus measures. But it is very essential that exports, which are now in the negative territory, should turn positive for faster economic growth,” said DK Joshi, director and principal economist, Crisil.

In a step that will help higher education, Mr Mukherjee said taxpayers can now deduct the interest paid on education loans availed for those under their legal guardianship. Earlier the benefit was available only on loans taken for the benefit of the taxpayer, spouse and children.

Also, the minister said the eligible deductions for assessees with severe disability will be raised from Rs 75,000 to Rs 1 lakh for purposes of income tax. Firms engaged in processing, preservation and packaging of meat, poultry, marine and dairy products have also been given exemption from tax on their profits.

The new services brought under service tax in Finance Bill 2009—those in relation to transport of goods by rail and inland water, coastal goods, legal consultancy, cosmetic and plastic surgery—will come into force only from September 1, 2009. The government also extended the tax holiday earlier proposed for natural gas production from blocks licensed under the eighth round of the national exploration licensing policy (Nelp-VIII) to natural gas production from blocks licensed under the fourth round of bidding for exploration of coal bed methane as well.

Small housing sector gets tax shelter till 2012

Small housing sector gets tax shelter till 2012
The Economic Times, July 28, 2009, Page 11

Our Bureau NEW DELHI

THE Centre’s move to extend by two years a key tax exemption available to builders of smaller homes and give interest subsidy to home buyers is likely to boost supply of lower-priced homes and could nudge fence-sitters to return to the market, industry officials say.

Finance minister Pranab Mukherjee on Monday told Parliament the government was extending the provision of section 80IB(10) of the Income Tax Act to projects approved before March 2008 and to be completed before 2012.

Earlier, the provision was limited to projects sanctioned before March 2007 and to be completed before March 2010. The extension exempts builders from paying tax on income from the sale of houses of 1,000 sq ft built-up area within 25 km of municipal limits of big cities and 1,500 sq ft in other sites.

“The government’s decision will prompt more property developers to launch smaller-sized and lower-priced homes, which is the need of the hour,” said Navin Raheja, chairman of Raheja Developers, which plans to soon launch homes in the “affordable” bracket.

Ravi Ramu, CFO of Southbased builder Purvankara, called the government move “a big step” that would increase the supply of affordable homes in the country. Purvankara has, through a subsidiary Provident Housing, entered the affordable housing segment with offerings in the sub-Rs 20 lakh price point.

The company has already launched such a housing project in Chennai and will be launching another in Bangalore soon. “It gives us confidence that we are in the right segment,” said Mr Ramu.

A realty boom between 2004 and 2007 saw many developers target large-sized and expensive homes in pursuit of higher margins. Prices rose, sometimes manifold, across categories and homes became unaffordable. The sector went into a tailspin after RBI hiked interest rates to battle rising inflation.

Many developers realised their business model had gone wrong and reworked strategies to focus on lower-priced homes. Some cut prices while others cut apartment sizes and frills to make homes affordable. All this helped rekindle interest among home buyers.

Now, with tax exemption for developers launching small homes, the lower-priced segment is likely to get a boost.

“Many developers who had their projects sanctioned earlier but were not launching them due to a realty downturn will now be incentivised to start their projects,” said Pradeep Jain, chairman of Parsvnath Developers, adding that developers would partially pass on the benefits of tax exemption to consumers.

The FM also said home buyers would get an interest subsidy of 1% on loans up to Rs 10 lakh for homes priced up to Rs 20 lakh. “This will boost housing in tier-II and tier-III cities,” said Mr Jain.

“It will result in increased activity with regard to real estate in the affordable segment, which in turn will create employment and…will have a positive impact on the economy,” said Renu Sud Karnad, joint managing director of the country’s largest housing finance company HDFC.

Realty Developers cheer Pranab announcement

Realty Developers cheer Pranab announcement
Business Standard, July 28, 2009, Page 4

Banks to offer subsidy on home loans, says FM

Banks to offer subsidy on home loans, says FM
Times of India, July 28, 2009, Page 22

New Delhi: Finance minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through commercial banks and housing companies registered with the National Housing Bank. He said to further provide stimulus to the housing sector, it will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012.

‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector,’’ he added.

The interest subsidy is aimed at mid-segment housing loan borrowers from the lower middle to middleincome groups. Even on Monday, Congress MP from Mumbai (North) Sanjay Nirupam, while speaking on the finance bill, said 42.4% of Maharashtra’s population was urbanized and trends pointed to increasing migration to cities. With home loan rates climbing steeply, there was a case for providing relief to borrowers. Providing an interest subsidy and a targeted tax break also answers in part the demand that the becalmed real estate sector needs a leg up.

The government’s message to the real estate developers is to lower prices and make housing more affordable for the aam aadmi.

The housing loan subsidy came with a slew of other concessions such as exempting road repairs and maintenance from the ambit of service tax while extending the sunset clause for tax holidays for industrial parks by a further two years up to March 2011 to boost growth in infrastructure. The FM clarified that service tax on new services and any alteration in the existing services as announced in the Budget would be effective from September 1, 2009.

‘‘It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment,’’ said Renu Sud Karnad, Joint MD, HDFC Ltd.

FM sees recovery, offers realty more sops

FM sees recovery, offers realty more sops
The Financial Express, July 28, 2009, Page 1

Steering the Finance Bill’s passage through the Lok Sabha on Monday, finance minister Pranab Mukherjee asserted that an economic recovery is underway and India would be back on a high-growth trajectory by 2010. Reiterating the government’s commitment to economic reforms, he said, “Reform will be on the agenda—it is a continuous process, not a mantra to be chanted occasionally.”

The finance minister admitted that 2009-10 is an “extremely difficult year” and the Centre had reached the limit of fiscal expansion, with tax revenues falling and stimulus measures so far adding up to Rs 2.4 lakh crore. Nevertheless, he introduced a few more concessions for industry and consumers in the Finance Bill with a firm focus on providing a further boost to economic activity.

The most tangible benefits from Mukherjee’s latest dose are expected to accrue to prospective homeowners and the realty sector. Developers of affordable housing projects (units of 1,000-1,500 sq ft) have been granted a tax holiday on profits from projects initiated in the 2007-08 financial year. Such projects would have to be completed before March 1, 2012.

At the same time, the finance minister allocated Rs 1,000 crore to grant a 1% interest subsidy on home loans up to Rs 10 lakh, provided the cost of the home is not more than Rs 20 lakh. This subsidy would be available for one year.

“I expect developers to pass on the benefit of the tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax foregone initiatives would provide relief to a large segment of prospective homeowners and help revive the real estate sector,” Mukherjee said.

While the deadline for tax sops under the Software Technology Parks of India (STPI) and Export-Oriented Units (EOU) schemes was extended to March 2011 in the Budget, Mukherjee on Monday harmonised with them the sunset clause under the Industrial Parks scheme. The scheme, which offered a tax holiday to developers of industrial parks until March 31, 2009, has now been extended to March 2011. Mukherjee hoped this would attract investment into industrial infrastructure.

The tax holiday available to natural gas producers operating blocks licensed under Nelp-VIII has also been extended prospectively those licensed to explore coal-bed methane, from the assessment year 2010-11.

While the creation of new roads and highways is a thrust area in the UPA’s second innings, the finance minister has exempted repair and maintenance work on roads from service tax.

“Construction or laying new roads is exempt from service tax. But repairs and maintenance of roads are chargeable. I propose to remove this anomaly with immediate effect,” Mukherjee said. Granting a month’s time for industry to realign its accounting systems and software to capture the new services brought under the tax ambit in the Budget, the finance minister has instructed the Central Board of Excise and Customs to make the new levies effective from September 1, 2009.

Incentives set to spur demand for housing

Incentives set to spur demand for housing
The Hindu Business Line, July 28, 2009, Page 17

Cheer to home buyers

Our Bureau, New Delhi

In a move that would cheer home buyers, the Government on Monday announced a slew of incentives, including an interest subvention of one per cent for home loan borrowers in the lower and mid-income housing space.

It has also announced a tax holiday for those projects approved during FY08 and completed before March 31, 2012. While the real estate industry feels that the interest subsidy would stimulate the hitherto flagging demand, builders appear divided over the extent of impact of the tax holiday.

Positive impact

“Both the moves would positively impact consumers and developers, and raise the demand for housing. It is a good stimulus at this point of time,” said Mr Pradeep Jain, Chairman of Parsvnath Developers.

The Government has announced an interest subvention of one per cent on all housing loans up to Rs 10 lakh to individuals, provided the cost of the house does not exceed Rs 20 lakh. The interest subsidy would be routed though the scheduled commercial banks and the housing finance companies registered with the National Housing Bank. Announcing this in the Lok Sabha, the Union Finance Minister, Mr Pranab Mukherjee, said that the interest subsidy would be available for one year.

He has also proposed to amend Section 80 IB (10) of the Income-Tax Act to allow the tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008 if such projects are completed on or before March 31, 2012.

Industry body CREDAI’s Chairman, Mr Kumar Gera, said that the announcement on interest subvention would drive demand for houses priced between Rs 12 lakh and Rs 14 lakh (as borrowers typically tend to avail themselves of loan up to 80-85 per cent of the total price). “There is already an existing demand in that price band and so the move would further push this,” he said.

Timeband impact

However, Mr Gera felt that the announcement on tax holiday would have a limited impact.

Given the time band, only select projects in a particular area may be eligible for the tax relief, he pointed out. Since all projects within a catchment area may not enjoy these sops, developers who have actually benefited could have a free hand in deciding the extent of price cuts.

The Omaxe Chairman and Managing Director, Mr Rohtas Goel, said that one-year extension on 80IB benefit was positive but may have limited impact.

FIIs bet big on real estate stocks

FIIs bet big on real estate stocks
The Times of India, July 28, 2009, Page 21

M Allirajan TNN

Coimbatore: FIIs, who resumed their buying spree after a brief pause in the run up to the Budget, are placing their bets on realty stocks. FIIs, who have net bought equity worth more than $6 billion so far this year, have increased their stakes substantially in top realty companies in three months, boosting prices of stocks in the sector.

FIIs have more than doubled their stake DLF, in the country's top real estate company. FII holding in DLF stands at 15.4% for June, the highest since its listing. FIIs have more than trebled their stake in Unitech, which has raised $900 million between April and June.

BSE Realty index, which is among the top performers in the current rally, gained most last week moving up 13.3% while sensex registered 4.3% increase. The rally was led by DLF, which zoomed 18.3% followed by HDIL and Unitech that gained 15.9% and 14.3% respectively.

"Stock prices (of realty firms) had corrected 90-95% from their peaks. But the latent demand (for property) is still high," says Gopal Agrawal, head, equity, Mirae Asset global investments. "Now, big investors have come in and realty firms have also reduced debt and as a result equity values have gone up."

FII holding in Unitech, the country's second largest property developer have jumped from 5.96% in December to 22.79% in June, the highest exposure in more than three years. FII stake in the top two realty majors has hovered between 6-8% in the past two years. FIIs have also increased their stakes in Indiabulls Real Estate (from 41.73% in March to 61.71% in June), Housing Development and Infrastructure and Orbit Corporation.

“Most of the sector's problems started due to lack of liquidity. But when global liquidity began easing out in early April the risk appetite went up," reckons Sameer Narayan, head, equity, Fortis Investments. Top realty companies are on a capital raising spree to reduce debt levels. They have raised $2.7 billion in stake sale in last few months and others are in the process of raising capital.

Muted growth in personal, Home loans

Muted growth in personal, Home loans
Hindustan Times, HT Business, July 28, 2009, Page 1

The credit growth in the banking sector remained muted in the first quarter of this year.

In its first-quarter review of macroeconomic and monetary developments, the Reserve Bank of India said home loans grew at just 5 per cent at the end of May. Personal loans too grew at only 5.5 per cent. In May, 2008 home loan growth was 13.8 per cent and personal loan growth 16 per cent.

Said Chanda Kocchar, managing director and CEO, ICICI Bank: “The assets we wanted to grow are growing even as we are allowing certain loans such as personal loans and credit cards to decline. The transformation should be reflected in our books in the second half of this financial year.”

New home sales in US shoot up

New home sales in US shoot up
The Times of India, July 28, 2009, Page 21

Jack Healy

Sales of new homes in US posted their largest monthly gain in eight years in June, the government reported on Monday, a sign that the housing market is bottoming as buyers take advantage of lower prices.

The commerce department reported that new single-family home sales rose 11% in June, an increase that dwarfed economists expectations of a 3% increase. The pace of home sales rose to a seasonally adjusted rate of 384,000 a year, the highest level since November.

Despite the monthly increase, sales of new homes were still down 21% from June 2008, and the market is still swamped by a glut of forsale houses and foreclosed properties. These are still really bad numbers, an economist at IHS Global Insight, Patrick Newport, said.

The market just couldn't have dropped much further.

As sales rose, median prices of new homes continued to fall, slipping to $206,200 from $232,100 in June a year ago. The figures were the latest evidence that a three-year slump in the country's housing market was levelling off as prices fell back and some builders and buyers began to step tentatively back into the market. Earlier this month, the government reported that housing starts rose 3.6% in June from a month earlier, and a trade group reported that sales of previously owned homes also rose for another month.

“Sales are picking up a little," a senior economist at 4Cast, David Sloan, said. "Whether it's going to pick up any momentum is really the key. I think we have to be doubtful about that." On Tuesday, a closely watched measure of home prices will be released, offering some hints about whether the long plunge in housing values is abating.

Economists are expecting a 18% year-over-year decline in prices in the S&P Case-Shiller Home Price Index. Although new-home sales have risen for three months, many economists worry that rising unemployment, stagnant wages and continued tightness in lending markets will weigh down the housing market for the rest of the year.

There are still worries that the lack of employment growth and lack of wage growth is restraining consumer income, and that's going to ensure that the recovery is quite modest, Sloan said. NYT NEWS SERVICE.

Good cities need less government

Good cities need less government
The Financial Express, July 28, 2009, Page 7

Jeffrey S Hammer

As India grows, it is going to become urban. Municipal governments are simply not ready for the influx of rural migrants and Indian cities are facing the prospect of environments so unhealthy that they would have shocked Charles Dickens. Unless more forward thinking is applied to basic infrastructure investments, development in the country will choke itself off with the stench of sewage and disease-spreading water.

Urban infrastructure via the new Rajiv Awas Yojana (RAY) as well as the much larger Jawaharlal Nehru National Urban Renewal Mission was highlighted as a priority in FM Pranab Mukherjee’s Budget speech. This is as it should be. However, infrastructure should lead and not lag development and an appropriate balance of public real investment needs to be struck.

Urban investment is directly related to rural livelihoods. Urban employment does not come at the expense of rural residents—it is already a major off-season employment option and, more importantly, is the future of the children of rural India. But the government’s role in supporting urban growth should be quite clearly focused on public goods such as sanitation and the guarantee of safety of drinking water and less on the construction of private goods such as housing that, so far, seems to take the lion’s share of budget resources. We can only hope that the RAY, the “parameters of which are being worked out”, in Minister Mukherjee’s words, takes this concept to heart and facilitates continuous and natural urban growth.

It is a fact of life that with income growth, countries’ populations become city dwellers. Some think the causal factor is that proximity to complementary business services and the easy flow of ideas that cities provide accelerate growth. Others think that higher incomes lead people to want the services that only cities have: top quality schools, healthcare, entertainment and myriad other amenities. Frankly, figuring out which way it goes is not really relevant to policy—cities and income are going to grow together no matter what.

India is a bit unusual in that its degree of urbanisation is lower than that of other countries of the same income level and its rate of urbanisation is somewhat slower as well. This is clear from a comparison of different countries’ levels of income against the proportion of their population that live in cities. This data has been compiled at a fascinating website www. gapminder. org, where each countries’ ‘dot’ is proportional to the size of its population. The proportionality of the size of the points is a great tonic against comparing India with smaller countries at the same general level of income. Especially when their populations barely make them the size of the statistical error of the estimated number of people in some of our cities. .

It may be a good thing that India’s urbanisation has been slower than average since it gives government a little more breathing space (so to speak). However, this state of affairs cannot continue. Sooner or later, possibly happening already, the lack of water, sanitation, uncongested roads and reliable electricity, among other things, will retard growth. That is, the rate of growth of urbanisation may be slow precisely because of inadequate planning of infrastructure investments that have made cities unattractive to workers and employers alike.

While lack of sanitation may not have put a brake on economic growth yet, it is likely that it has retarded the growth of peoples’ well-being. For example, recent measures of infant mortality in Delhi appear to show an increase. The lag of indicators such as mortality decline behind per capita income in cities is almost certainly due to poor sanitation, unsafe water and the occasional outbreak of mosquito-borne diseases from stagnant water, rather than lack of medical care.

Two problems stand in the way of quick action on this matter. First, while we sometimes talk as though we are still ‘planners’, the fact of the matter is that forward-looking infrastructure development is sorely lacking. The problem of inadequate infrastructure is not new. Indeed, it is almost perennial and does, in fact, require planning. If the government can ‘stick to its knitting’ and guarantee the provision of real public goods and high externality-correcting activities, it can make good progress on accommodating urban growth. If its money and energy is frittered away on ‘planning’ private goods, it won’t.

Second, India’s history of handling urban slums should remind policymakers of the need for humane policies as it provides essential services. That the focus of the RAY is the establishment of property rights for the urban poor is heartening. Such rights and humane treatment as infrastructure is built are both moral and practical imperatives. China may be able to ignore peoples’ rights; India can’t and shouldn’t. The end is improving peoples’ quality of life. The means may require inconveniencing the very same people. Laying pipes, running electricity lines and inspecting, draining or treating stagnant water all take time and disruption of daily routine, but simple bulldozing is not an option. It’s been tried, it’s been proven unacceptable. On the other hand, Delhi, at least, is currently living with construction sites for Metro stations and flyovers. Many of these are in affluent areas and people are coping. These will help with congestion but not with safekeeping public health. No one should underestimate the difficulties of implementing urban renewal to make cities livable for an expanding workforce but neither can it wait much longer.

The author is Charles and Marie Robertson Visiting Professor of Economic Development, Woodrow Wilson School of Public and International Affairs, Princeton University.