On the state of demand in the economy and what the government needs to do to keep growth buoyant beyond FY21.

One of the main objectives that the government wishes to achieve through the Aatmanirbhar Bharat initiative is to create an ecosystem that promotes local industry and creates job opportunities. This initiative would help in reviving domestic consumption and boost demand for goods and services. There is a need to incentivize those companies which help in reviving domestic demand and create jobs.  The recent announcement to extend the Emergency Credit Line Guarantee Scheme (ECLGS) to 27 sectors is a step in that direction.  The scheme was announced by the government earlier this month as part of the Rs 2.65 lakh crore Atmanirbhar Bharat 3.0 package.

Under the scheme, companies with outstanding credit above Rs 50 crore and not exceeding Rs 500 crore as of February 29, 2020, which were less than or equal to 30 days past due as of February 29, 2020, are eligible.  Sectors like healthcare and real estate would have access to additional funding facilities to the tune of almost 20 percent of their outstanding credit which would help in reviving demand. The Ministry of housing and urban affairs had asked the respective state government to reduce the stamp duty to revive demand in the housing sector. Several states have taken up the suggestion. States like Maharashtra and Karnataka have reduced their stamp duty which has revived demand for houses in these states. If the schemes are continued, then we expect the demand to continue and developers would be able to sell their unsold inventory. Real estate is the second-largest employer in the country and contributes almost 8 percent to the GDP.  Reviving the real estate sector would have a cascading effect on almost 125 industries directly and indirectly dependent on it.

The government should take steps to ensure that the GST with input tax credit should be reintroduced. Also, the cap of Rs 45 lakhs should be removed for the affordable housing category. If the tax exemption under Section 80(C) is increased from the current Rs 1.5 Lakhs to Rs 10 lakhs, then the real estate sector would get a further boost.

The second thing that the government needs to do is increase its infrastructure spending. Under the National Infrastructure pipeline, the government has already identified almost 7000 projects costing more than Rs 100 crore for each of them. To attract investments, the government is already in talks with several global fund houses. The government has already increased the outlay by Rs 18,000 crores to the Pradhan Mantri Awas Yojana will give an extra push for the ‘Housing for All’ mission. This is over and above the Rs. 8,000 crore announced by the government in the budget.

There is also a need to create a dedicated Infrastructure Bank to take care of the financing of all such large infrastructure projects in the country. All the earlier banks have gone into commercial lending.