Real Estate Intelligence Service, Wednesday, July 29, 2009

RBI leaves rates untouched

RBI leaves rates untouched
The Financial Express, July 29, 2009, Page 1

fe Bureau, Mumbai

The Reserve Bank of India (RBI) kept policy rates unchanged in its first-quarter review of monetary policy for 2009-10, indicating that it was preparing to abandon pumping more money into the economy as inflation concerns return. But the finance ministry, while welcoming RBI’s focus on growth, said the time was not ripe for such an ‘exit’ policy. Finance secretary Ashok Chawla told reporters, “An exit policy is certainly at the back of the mind of central banks all over the world. But there is nothing at this point of time…”

In turn, RBI governor D Subbarao has blamed high government borrowing that “clearly militated against the low interest-rate regime the economy requires in the current situation”. On the way forward, his policy said RBI would have to reverse the expansionary measures to “anchor inflation expectations and subdue inflationary pressures while preserving the growth momentum”. According to the finance secretary, however, “(RBI does) not see the need at this point in time of reversing the accommodative and balanced policy, which they have been following so far.”

The end of the soft monetary policy, which was initiated last October, was criticised by industry. Ficci president Harsh Pati Singhania said, “There are signs of revival in business confidence and some reduction in policy rates at this stage would have helped to provide a fillip to corporate investment, thereby boosting economic growth.”

Industry expected a slight easing of the reverse repo—the rate at which RBI buys surplus cash from banks from the current 3.25%. CII director-general Chandrajit Banerjee also said, “The economy could grow at around 7%, as the fiscal and monetary measures have (an) impact on domestic demand.”

In choppy trade, the BSE Sensex closed 43.10 points lower at 15,331.94. But bankers said they did not anticipate lending rates to rise immediately. SBI chairman OP Bhatt said “There is ample liquidity in the system. Rates will remain the same as long as liquidity is comfortable. As credit growth picks up, there may be some pressure on rates.”

Credit rating agency Moody’s said, “Although the global climate is still a little unstable, cutting rates cannot help to immediately boost domestic activity. Instead, policymakers are counting on previous rate cuts to influence market rates now.”

RBI has raised its inflation forecast for the year to 5 % from its April estimate of 4% and pushed the GDP estimate for 2009-10 to 6%, with an upward bias. “The overall macroeconomic scenario continues to be uncertain, although it is expected that the fiscal and monetary stimulus measures will supplement domestic demand in 2009-10. On balance, an uptrend in the growth momentum is unlikely before the middle of 2009-10,” the policy stated.

RBI has argued that inflation will rise because of the large government expenditure and the accompanying borrowing programme, 54% more than in 2008-09. Subbarao said the abrupt increase in government borrowing has resulted in a hardening of yields, which clearly militated against the low interest-rate regime.

According to him, “The first challenge is to manage the balance between the short-term compulsions of providing ample liquidity and the potential build-up of inflationary pressure on the way forward by maintaining the accommodative monetary stance until demand conditions further improve and credit flow takes hold.”

Endorsing the position, ICICI Bank MD & CEO Chanda Kochhar said, “The strong commitment to managing the government borrowing programme in a manner that is not disruptive to markets and does not crowd out private sector investment should give confidence to market participants.”

Subbarao said the challenges for RBI included maintaining policy rates and liquidity conditions conducive to spurring private investment demand, which has been dented by the crisis. RBI has said the government needs to return to a path of fiscal consolidation, which would lend credibility to the fiscal stance and also give predictability to economic agents. It is also necessary to focus on the quality of fiscal adjustment even while pursuing quantitative targets.

According to Subbarao, RBI’s steps had augmented actual and potential liquidity of over Rs 5,61,700 crore since last October.

Rates unchanged, RBI hints at tightening

Rates unchanged, RBI hints at tightening
The Economic Times, July 29, 2009, Page 1

Pegs Growth Rate At 6%, Prods Banks To Lend

Our Bureau MUMBAI

INDIA Inc should take the hint. While prodding banks to cut rates and assuring easy money to stoke growth, the Reserve Bank of India (RBI) indicated on Tuesday that interest rates will not remain low forever and banks will not continue to sit on a mountain of cash.

As inflation rises, interest rates will harden and the surplus money sloshing around in the system will be mopped up by RBI. But till there are “robust signs of recovery”, the central bank has promised liquidity to help a decent GDP growth, which it has pegged at 6% with an upward bias. RBI’s decision to keep key interest rates unchanged in Tuesday’s quarterly monetary policy statement perhaps marks the end of a rate-cut cycle.

In the policy document, RBI governor Duvvuri Subbarao said, “The accommodative monetary stance is not the steady state stance. On the way forward, RBI will have to reverse the expansionary measures...The exit strategy will be modulated in accordance with the evolving macroeconomic developments.”

No one knows when the U-turn will happen, but the money market is already talking about a rate hike next year. “I think the central bank will hike interest rates in April...It will watch inflation, particularly food prices, very carefully and move swiftly when it goes for an unwinding,” said Pradeep Madhav, MD of the biggest bond house, STCI Primary Dealer.

In the next few weeks, only a few banks may give in to RBI’s persuasion and go for a token rate cut.

BEHIND CLOSED DOORS

Guv: There’s room for lending rates to come down
Bankers: But we won’t be able to cut rates further... look at corporates, they haven’t cut prices. Overall demand will rise when companies also lower prices of their products

Guv: So far, lending rate cuts have been less than adequate...
Bankers: Not exactly. A comparison of this quarter’s corporate numbers with the preceding quarter and June ‘08 will show that interest cost has come down

Guv: Loans are getting restructured, so what’s the view on credit quality?
Bankers: Non-performing assets could rise in a few sectors, but bad loans will not go up to the extent the market fears

Guv: Infrastructure projects are a must to boost growth. Can you fund them?
Banks: One-year deposit is as high as 72% of total liability, compared to 52% a few years ago... depositors are not renewing their money with banks. It’s tough to fund long-term assets with such short-term liabilities

India Inc: no news, good news

India Inc: no news, good news
The Financial Express, July 29, 2009, Page 1

fe Bureau, Mumbai

Corporate India on Tuesday said it could live with interest rates unchanged by RBI, though the real estate and textiles sectors were clearly disappointed that rates had not come down.

A dipstick survey of companies by FE spanning the manufacturing and services sectors show they are pinning greater faith on government spending to improve top lines, rather than policy rates to keep their bottom lines strong. This is because in the current financial year up to June, aggregate credit flow to the commercial sector dwindled to just Rs 5,697 crore, compared with Rs 30,631 crore in the same period of 2008-09--a massive 81% decline, according to RBI data.

However, Niranjan Hiranandani of the eponymous Hiranandani Constructions said, “Due to the unchanged policy, the cost of property construction is expected to increase, leading to lower supply of properties. This will ultimately increase real estate prices in the long term.” He further added that any concession is beneficial in today’s difficult times. Shree Cement Ltd CMD HM Bangur said, “I think there will be adequate finance available in the system for growth and, hence, it is positive.”

RBI data shows that as on May 22, while bank credit to the real estate sector has risen 52% over that of last year, growth in credit for housing has dipped sharply to just 5%.

Echoing the feeling of relief that RBI had not increased rates, Ispat Industries executive director (finance) Anil Surekha said, “As long as rates are unchanged, it’s always good. I think this indicates that the government will not allow banks to increase interest rates. This comes as a good sign for industry as a whole.” “No change is always good,” echoed Grasim president & deputy CFO Sanjeev Bafna.

Until April, the slowdown had caused a drastic fall in domestic as well as international demand, with international prices falling between 15%-40% for various categories of steel. However, following the stimulus package announced by the gov-ernment, and with the higher spend on infrastructure, the sector has seen a recovery.

The sectoral flow of credit from banks to industry slipped to 21.2% by May 22, compared with 27.1% in 2008-09. Overall credit to all sectors declined to 17.6%, against 24.2% year on year.

Banks may not take RBI’s call

Banks may not take RBI’s call
The Economic Times, July 29, 2009, Page 13

While A Few May Cut Lending Rates Marginally, Most Banks Likely To Hold Rates At Current Levels

Our Bureau MUMBAI

AFEW lenders may fall in for RBI’s moral suasion and cut their lending rates marginally, but most banks are likely to maintain status quo. The general consensus seems to be that rates are likely to go up from the next calendar year.

RBI governor D Subbarao has been categorical that lending rates have to come down even without a revision in policy rates. “There is scope for reduction of lending rates within the policy rate adjustment already done by RBI... The lending rate should have come down to 9.5% but they are now at around 10.5% and above so there is scope for banks to reduce lending rates. We have also said that as deposits contracted at higher rates mature and get repriced, the cost of funds will go down for banks and they can reduce lending rates further,” he said.

Incidentally, a host of bankers made it clear to the governor on Tuesday that there was no scope for bringing down lending rates from their current levels. During an interaction with the RBI governor, CEOs of some of the bigger banks said that net interest margins were under pressure. They also told him that while banks had lowered the interest rates for borrowers, corporates have refrained from lowering the cost of their products. In fact, bankers pointed out to RBI that the first quarter results declared by companies clearly indicate that their expenses on account of ‘interest paid to lenders’ have come down over the preceding and year-earlier quarters. This indicates that the cost of funds for corporates has come down.

“Banks have passed on the benefit of easing interest rates to borrowers,” MV Nair, CMD of Union Bank of India, told ET. “Going forward, interest rates are not likely to fall from their current levels.”

Chanda Kochhar, MD & CEO, ICICI Bank, said, “We have cut our prime lending rate by 1.5%, the maximum by any private sector bank. Going forward, the rates would be dependent on credit growth. The rates currently are likely to be stable with a very minimal downward bias.”

Adds Neeraj Swaroop, regional CEO (India & South Asia), Standard Chartered Bank, “Over 90% of our lending is not linked to BPLR and judging our interest rates by BPLR doesn’t reflect the actual situation. Our rates have come down as much as the market rates have come down. We keep reviewing our BPLR from time to time.”

However, some bankers, on condition of anonymity, said they expected any reduction in lending rates to be marginal, at 25 bps. “We do not expect any changes in interest rates immediately. Historically, there is a time lag in terms of repricing of deposits. Therefore, a reduction in lending rates can happen only at a later date. Meanwhile, we feel that rates have almost bottomed out, given that inflation is expected to rise in the second half coupled with high chances of pick-up in credit,” said M Narandran, ED, Bank of India.

Most bank CEOs told the governor that there has been a pick-up in credit. Private and foreign bankers point out that BPLR has lost its relevance. “The borrower owes us no loyalty. If our rates are not competitive, they will go to some other bank. There are very few loans which are linked to the BPLR,” said an official from Axis Bank.

‘There is scope for banks to reduce lending rates’

‘There is scope for banks to reduce lending rates’
The Economic Times, July 29, 2009, Page 13

As Deposits Mature And Get Re-Priced, Banks’ Cost Of Funds Will Go Down And They’ll Have Room For Cutting Lending Rates

Unlike his predecessors, RBI governor D Subbarao is quite direct on what action banks should take place on the interest rate front. The governor has repeatedly stressed on the central bank’s efforts to work in a transparent manner. Following his monetary policy meeting with chairmen of banks, Mr Subbarao addressed the media on RBI’s take on the economy and what transpired in his meeting with bankers . Excerpts:

On the scope for bank lending rates to come down…
There is scope for a reduction in lending rates within the policy rate adjustment already done by RBI. Even if we take into account the inflation rate and returns to depositors, the lending rate should be around 9.5%, but they are 10.5% and above… so there is scope for banks to reduce lending rates. We have also said in the policy statement that as deposits mature and get repriced, the cost of funds will go down for banks and they will have room for reduction of lending rates.

On when can the market expect a reversal of the exapansionary monetary policy…
We will look at non-oil imports, we will look at credit growth, we will look at inflation and we will look at manufacturing. However, it will be inappropriate and improper to speculate on the future. We have been debating to exit strategies in our internal meetings, but are not in a position to give any more details. In fact, central banks around the world have been talking of exit strategies… you must have heard Fed chairman Ben Bernanke’s statements and US president Barack Obama’s roadmap.

On the math behind RBI’s 6% growth rate estimate…
We debated a lot internally on the growth rate for the economy. Besides numbers, we also looked at when the forecasts were made. Several of the forecasts were made before the monsoon situation became clear. But let us first consider the risk factors for the economy. A lot will depend on agriculture. We all know the rainfall situation at present is 19% below normal. The foodgrain production-weighted rainfall index number is at 69 against 129 at this time last year. The agriculture performance could spill into industry and services, with a lag effect. Exports have been negative for the past eight months. Although exports only account for 15% of the economy, they are significant, but they will depend on the state of the global economy. Lastly, investments (in the economy) also have to pick up, although some bankers said credit from the housing and retail side have picked up.

On RBI’s stance on open market operations…
We will follow the calendar that we have laid out in respect of OMOs and MSS desequestering. But let me clarify that the calendar is only indicative. It is very difficult to predict liquidity, but we do try to estimate it regularly. Should the numbers deviate from our estimates, we will tailor the OMO programme accordingly. But, by and large, we will stick to the calendar. We want to give the market as much certainty as we have, but cannot give you what we do not have.

On the need for a government roadmap for fiscal consolidation…
The government has given a number of 6.8% for the current year and I believe in the mediumterm policy document, there are numbers for the next year and the year after.... we have said it will be good for the economy, the government, the central bank for everybody if those numbers are fleshed out. They have to be backed up by expenditure and revenue numbers. Also, in the process, the focus is on the quality of fiscal adjustment, i.e, how much do you spend on capital expenditure and how much do you spend on plan expenditure. Since I have been with the finance ministry in the past, now I can step back and speak more comfortably about fiscal adjustments from the Centre. But, it’s really the quality of fiscal adjustments that will be important. We do not expect market borrowings to be higher than what was mentioned in the Budget. Even the fiscal implications of the measures announced this week are small. Having said that, should there be any increase in borrowings from the government, RBI should (be able to) manage that.

On analysts’ concerns that restructuring is dressing up of books…
The focus on restructuring is not to hide anything. It is to provide liquidity to sectors that would have found it otherwise unviable. It’s so that they can get over difficult conditions and get back to business. Besides, its not that restructuring does not require provisioning. In fact, we are providing floating provisioning facility to banks for the restructured assets. So, the risk management systems are still in place. Some of the restructured loans could turn sour, but bankers tell us these are at acceptable levels. However, there is no proposal to extend the restructuring deadline from hereon. On continuation of floating provisions facility, we have an open stance and are awaiting international norms.

On the weakening correlation between CPI and WPI inflation indices…
Historically, the CPI has tracked WPI. The last time when I had come for the April policy, we had done some research which showed that the tracking has somewhat lagged. Now, we find that the correlation between CPI and WPI is further weakening. I had said earlier that all four CPI indices are at an elevated level and in the past month have moved up. So there is concern over prices that ordinary consumers are seeing in the market and that is a concern that we have kept in our mind while formulating this policy.

SBI rates may increase

SBI rates may increase
Hindustan Times, HT Business, July 29, 2009, Page 1

FM's new subsidy prompts realtors to promise more sub-Rs 20 lakh homes

FM's new subsidy prompts realtors to promise more sub-Rs 20 lakh homes
Business Standard, July 29, 2009, Page 16

Raghavendra Kamath & Neeraj Thakur / Mumbai/ New Delhi

Property developers plan more launches in the sub-Rs 20 lakh category of homes, after yesterday’s Budget concession.

The finance minister had said there would be an interest subsidy of 1 per cent for one year on loans up to Rs 10 lakh for properties worth less than Rs 20 lakh. This is expected to boost this housing segment.

Developers such as Unitech, Omaxe, Puravankara, Lodha Developers and Ansal had already moved into the sub-Rs 20 lakh category, as the economic downturn, coupled with fear of job losses and salary cuts, slowed sales of premium housing projects, lowering their cash flows.

''We will try to cater to the whole demand that would arise after the government's decision. Our Uni Homes project will benefit from this project," said R Nagaraju, general manager, corporate planning, Unitech, the country's second largest developer.

Unitech has recently launched a new brand, Uni Homes, for low income projects in the Rs 10-30 lakh range and is planning to launch projects in seven cities, including Noida, Greater Noida, Chennai, Bangalore and Kolkota. The first such project would be announced next week.

Ravi Ramu, director of Bangalore-based Puravankara, which has set up Provident Housing to launch affordable housing projects, said the extra savings made by home loan borrowers (due to the Budget decision) is expected to drive sales of its housing projects. Provident is planning to launch a few thousand homes in the Rs 14.9-18.9 lakh category this week in Bangalore.

The company is planning to launch around 12 million sq ft of projects under this category this fiscal in many parts of the country, he said.

The Delhi-based Raheja Developers and Mumbai-based Sunil Mantri Realty say they’re planning to launch 20,000 homes and 10,000 homes, respectively, in the sub-Rs 20 lakh categry in the next one year.

The FM's announcement is expected to save Rs 60 for every Rs 1 lakh on a home loan borrowing per month.

"The announcement has come in at the right time, when sentiment in the realty market is turning positive and home buyers and investors are returning. With developers moving to affordable housing from premium housing and government announcing incentives, the momentum is building. I feel it is a good opportunity for developers to focus on this segment now,'' said Sanjay Dutt, chief executive, business, at property consultancy Jones Lang LaSalle Meghraj.

However, developers are not enthused by the FM's announcement to give tax holiday for developers under section 80 1B (10) of the IT Act on profits from projects approved between April 1, 2007, and March 31, 2008.

"Tax holiday for 2007-08 is historical. We cannot take the benefits from this announcement as we have sold our projects. Otherwise, we would have tailormade our projects and passed on the benefits to buyers,'' Ramu of Puravankara said.

More malls vacant in cities as retail pace slows

More malls vacant in cities as retail pace slows
The Hindu Business Line, July 29, 2009, Page 13

Where are the crowds?

Our Bureau, New Delhi

Even as demand seems to be returning slowly to the residential space, the retail real estate market continues to look disappointing.

The average vacancy across malls in major cities shot up to 19 per cent during the second quarter (April-June) of 2009 against 10 per cent in the last quarter. It is also expected that over 50 per cent of the estimated mall supply planned for 2009 will be delayed due to slowing construction and deferment of mall space, and also withdrawal of previously-announced retail projects.

According to global property consultant Cushman and Wakefield, the Delhi NCR (National Capital Region) is expected to see the maximum deferment of mall supply in this regard at 3.9 million sq ft, followed by Kolkata at 2.5 million sq ft.

According to the quarterly report by the consultant, this quarter too was marked by subdued retail activity, as retailers continued to remain cautious about expansion. “Mall supply was only marginally higher by 3 per cent from the previous quarter and was recorded at 1.14 million sq. ft. Expected mall supply by the end of 2009 is reduced to 8.55 million sq. ft — about 50 per cent lower than what was estimated at the beginning of the year,” it said.

Surge in supply

The vacancy rates rose on the back of a slowdown in uptake of mall space and churn among existing clients. This, in turn, prompted a further correction in the mall rentals. Surge in supply but a relatively slower absorption of malls space in the NCR led to vacancy of nearly 26 per cent in the second quarter of 2009. The vacancy level in Mumbai continued at nine per cent, while Chennai — in the absence of fresh mall supply and restrained churn — witnessed mall vacancy of only one per cent.

New malls

Hyderabad witnessed the largest infusion of mall supply of about 450,000 sq. ft., followed by Bangalore, which saw an addition of 300,000 sq. ft. in fresh mall supply. Kolkata (215,000 sq. ft.) and the NCR (175,000 sq. ft.) were the other markets that saw fresh additions to mall supply. “Many upcoming malls have been deferred or in certain cases withdrawn given the rather lukewarm response from retailers,” the report said.

The demand for mall space across most micro-markets remained slow due to conservative approaches from retailers and overall slowdown in consumer demand, it said. Slowing retail demand in many micro-markets led to rental values either remaining stable or correcting marginally, in the range of 5-10 per cent, over the previous quarter.

According to Mr Jaideep Wahi, Director, Agency, Retail Services, Cushman & Wakefield, there could be more corrections as a result of renegotiations. “Retailers are looking at changing their business understanding with upcoming malls into a revenue share or minimum guarantee model as an alternative to the fixed rental model previously employed,” Mr Wahi said.

India’s first housing price index

India’s first housing price index
The Economic Times, July 29, 2009, Page 12

The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale, says Raj Pal

MOVEMENTS in prices of real estate, particularly residential housing, is of vital importance to the macroeconomy as well as to individual households. For most Indians, a house is the single largest component of wealth and one that has been acquired with considerable efforts and possibly, some sacrifice. Besides the obvious wealth effect and implications for households, at the macro level, housing prices have emerged as a good indicator of output, inflation and financial health, which can be useful in developing appropriate monetary policy responses and establishing financial stability framework. It has acquired added importance in the light of increase in property prices in the resent past (till 2007). In the context of the perceived overheating of the housing market during the past few years as well as the recent slump in the housing market, a number of questions arise. What are the determinants of the housing prices? Can we assess a housing bubble? How do we measure the role of liquidity in housing price increases?

Most of the developed countries and some developing countries have housing price indices. These indices have multiple uses and are utilised by planners, real estate developers, building material industries, financial institutions as well as the individual home buyers. Measuring house prices accurately over time is not simple or straightforward. The complex nature of markets for real estate is one of the major challenges towards constructing a representative house price index. The housing market is generally illiquid, the resale transactions are generally negotiated and actual transaction price is often not reported. Houses are sold infrequently and the composition and quality of houses transacted in the market changes over time.

Being a heterogeneous good in terms of qualitative and quantitative attributes — like location, covered area, quality of construction, etc, — determination of housing prices is an outcome of complex interaction of various factors. Such characteristics pose a challenge in choice of appropriate methodology, selection of sample basket of houses and collection of data for construction of a house price index.

There are numerous methods for constructing house price indexes, each with their own advantages and disadvantages. Some of these methods are based on simple summary measures (averages), such as the median price of houses transacted in a particular period. The advantage of these methods lies in their relative simplicity, both in terms of computation and the interpretation of results. However, such simple measures are likely to suffer from compositional and quality problems. Recent advances in more sophisticated methods (such as hedonic regression and repeat sales methods) have enabled price statisticians to adequately account for compositional and quality changes. However, these methods are data intensive.

Keeping in view the prominence of housing and real estate as a major area for creation of both physical and financial assets and its contribution in overall national wealth, a need was felt for setting up of a mechanism, which could track the movement of housing prices in India. Accordingly, National Housing Bank (NHB), at the behest of the Union ministry of finance undertook a pilot study to examine the feasibility of preparing such an index at the national level.

THE pilot study covered five cities, viz., Bangalore, Bhopal, Delhi, Kolkata and Mumbai. Besides, a Technical Advisory Group (TAG), with adviser, ministry of finance, as its chairman and comprising expert members was constituted to deal with all the issues relating to methodology, collection of data and also to guide the process of construction of an appropriate index. NHB launched an index for tracking prices of residential properties in India, in July 2007, as the first official housing price index of India. The index has been named NHB RESIDEX. The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale.

NHB Residexis based on actual transactions prices. Initially, it covers residential properties. Year 2001 was taken as the base year for the study and year-to-year price movement during the period 2001-2005 were captured, and subsequently updated up to 2007. NHB Residex has been expanded to cover ten more cities, viz, Ahmedabad, Faridabad, Chennai, Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune and Surat. At the time of last updation and expansion of coverage of NHB Residex to 10 more cities, the base year has been shifted from 2001 to 2007 and has been updated up to December, 2008, with two half yearly updates (Jan-June and July-Dec) during 2008.

In the compilation of NHB Residex, the cities/towns have been divided into tax/administrative zones/municipal wards or any other criteria according to availability of the data for different cities/towns. The lowest level of the stratification has been the colonies/localities. In order to ensure true representative character of the index, the housing units are grouped into three categories based on built-up area — less than 500 sq ft, 500-1,000 sq ft and more than 1,000 sq ft. Data on housing prices is being collected from 20-30 colonies for each city/ town, which are fairly distributed across all the tax/administrative zones. The sample size of price observations consists of 500-600 observations for each city/town. The index has been constructed using the weighted average methodology with Price Relative Method (Modified Laspeyre’s approach). For the present NHB Residex is proposed to be updated on half-yearly basis.

At present, NHB Residexhas covered 15 cities, in the first phase is it proposed to cover 35 cities having million plus population. The proposal is to expand NHB Residex to 63 cities, which are covered under the Jawaharlal Nehru National Urban Renewal Mission, to make it a truly national index, in a phased manner. It is envisaged to develop a residential property price index for select cities/towns and subsequently an all-India composite index by suitably combining these city/town level indices to capture the relative temporal change in the prices of houses at different levels. Index methodology would be examined periodically for further improvement.

(The author is an IES officer presently on deputation as Principal Adviser to the NHB)

Govt to make short work of SEZ nods

Govt to make short work of SEZ nods
The Economic Times, July 29, 2009, Page 11

Zonal Authorities May Get More Activities To Okay

With more zonal sway, plight of SEZ developers who move the Board of Approval for every little permit may end

Amiti Sen NEW DELHI

SETTING up ancillary services such as effluent treatment plants and Wi-Max facilities inside a notified special economic zone (SEZ) may be shifted from under the purview of the central board to regional authorities concerned, according to a government move aimed at faster completion of such projects.

The proposal, mooted by the commerce department, is up for review by the SEZ Board of Approval (BoA), a panel comprising officials from various government ministries that gives permission to such tax-free industrial zones.

A department official pointed out that approaching BoA, which is bogged down with loads of such applications from across the country, is a time-consuming process that slows down the implementation of these projects.

“It increases the BoA’s work load too,” the official said asking not to be named.

Currently, activities inside the notified area for building roads, water supply lines and treatment plants, setting up electricity, gas and PNG distribution networks, boundary walls and telecom and other communication facilities don’t need BoA nod.

The latest proposal seeks to include rail-heads for steel and power, police posts, security offices, fire stations, fire protection systems, play zones, bus bays, effluent treatment plants and pipelines and Wi-Fi, Wi-Max services in that list, said the official.

“The reason it takes several months for SEZ projects to get implemented after being approved is because the developer has to approach the BoA for every step,” the official added.

To cut the work load, the government is also looking at setting up a sub-committee of the BoA to look at approval applications for authorised activities in zones. Both proposals will be taken up at the BoA meeting slated for August 11.

“If a sub-committee is formed to share the workload with the BoA, it will definitely help in expediting all clearances,” the official said.

The BoA includes senior officials from key ministries such as commerce, finance and home, its meetings are spaced out. The frequency of meetings is determined more by the number of new proposals that are to be cleared rather than the authorised activities to be given a go-ahead.

Of course, next month’s meeting will approve fresh SEZ proposals.

The last BOA held on 19 June had approved two fresh proposals, ratified extension of time to 23 developers, including Satyam Computer Services, for implementing tax-free enclaves.

Till date, 576 formal approvals have been granted for setting up of SEZs, of which 319 have been notified, as per commerce ministry records.

QUICK FIX

PRESENT APPROVAL PROCESS

First stage: Gives in-principal clearance to projects that do not possess land
Second stage: Gives formal approval to projects after land is acquired
Third stage: Notifies SEZs after the zones get all required clearances at the state level
Fourth stage: Approves authorised activities in the zones

THE PLAN
List of activities for which developers get approvals from zonal authorities may be expanded
These activities include setting up play zones, bus bays, effluent treatment plants and pipelines and wi-fi, wi-max services
Govt is also looking at setting up a BoA subcommittee to look at approval applications for authorised activities in zones