News
Thursday, October 17, 2013
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World Bank lowers GDP growth forecast to 4.7%
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Affordable housing still remains a dream home
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Govt may ease FDI norms in real estate to boost sector
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Housing finance sector poised for growth
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UP drafting new integrated industrial township policy
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Railway min wants changes in FDI plan
World Bank lowers GDP growth forecast to 4.7%
Fe Bureau,
October 17, 2013
After IMF, World Bank now cuts India GDP growth forecast to 4.7 per cent
The World Bank has lowered India's GDP growth forecast for the current fiscal to 4.7%
from its April projection of 6.1%. However, according to the latest India Development
Update of the bank, the recent global market turmoil is unlikely to have major adverse
effects on India and, instead, provides an opportunity to regain growth momentum
through further progress on reforms.
On an optimistic note, Martin Rama, chief economist for the South Asia Region at the
World Bank, said: "Although output growth in the first quarter of the current fiscal year
fell to 4.4%, growth is expected to rebound strongly in the second half of FY14 with core
inflation trending down, a bumper crop expected in agriculture (where a 5% increase in
area sown is expected to raise agricultural growth to 3.4% from 1.9% a year ago), and
exports likely to benefit substantially from the rupee's depreciation."
Growth is expected to improve further in the medium term as strengthening exports
support a recovery in industrial activity and new investment projects come on stream,
World Bank said.
Only last week, pointing to poor demand and weak manufacturing and services sector
performance, the IMF slashed its projection of India's growth rate in market prices to
3.75% in 2013-14 from 5.7% estimated earlier. IMF said the growth would pick up to
5.1% next year.
India’s GDP growth slowed to a decade-low of 5% in 2012-13.
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Fully tapping these opportunities, however, will require policy efforts to narrow the
infrastructure gap, buttress the financial sector via capitalisation and broader banking,
roll out financial sector reforms and ease the restrictive regulatory environment which
creates strong incentives for Indian firms to remain small, and strengthen fiscal
balances, the World Bank said.
The report's projections assume an improvement in the macroeconomic environment,
with global growth accelerating to above 3% in 2014 from around 2% in calendar year
2013.
The bank also slashed its forecast for India's GDP growth in FY15 to 6.2% from the
earlier 6.7%. "India's growth potential remains high but its macroeconomic
vulnerabilities and high headline inflation, an elevated current account deficit, and rising
pressure on fiscal balances from the depreciation of the rupee could impact the speed of
economic recovery," said Denis Medvedev, senior country economist, World Bank, India.
While market sentiment improved in the last few weeks, the underlying challenges
remain, underscoring the importance of prudent macroeconomic policies and continued
progress on reforms to set strong foundations for accelerated growth in the future, he
said.
In this risk-averse environment, India's large twin deficits and slowing growth
momentum added to investor fears, it said. Recovering the higher rates of growth in
India is critical to achieving the global goal of ending extreme poverty by 2030, said
Rama. While the reform momentum has accelerated in the last few months, the current
situation offers an opportunity to further strengthen the business environment and
enhance fiscal space, he said.
The World Bank slashed its forecast for wholesale price index (WPI) inflation to 5.3% for
this fiscal against its previous projection of 6.7%. However, it added that fuel prices will
continue to add to the inflationary momentum as international oil prices are likely to
remain elevated.
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Affordable housing still remains a dream home
The Hindu Business Line,
October 17, 2013
Rapid urbanisation and rising movement of people from rural to urban areas are leaving
as many as 19 million homeless in India’s cities. With land at premium in cities, this has
prompted the Government to push affordable housing projects with the RBI opening the
External Commercial Borrowings (ECB) window for developers and housing finance
companies to raise up to $1 billion.
Yet, much of the effort has remained on paper, except in a few pockets in Mumbai, Delhi,
Chennai, Hyderabad and Bangalore where much of the migration has happened over the
last decade.
All the talk about the housing bubble notwithstanding, prices have not crashed.
According to reports, in hot property markets such as Mumbai, over six months of
inventory lies unoccupied. However, prices have remained stubbornly high.
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Builders have also cautiously stayed away from the affordable housing sector. The
benefits of selling a few houses in the high-end category far outweigh the effort of selling
a lot of houses in the low to medium segment.
“The market is catering to the housing needs of the High Income Group and Middle
Income Group categories and is yet to percolate to lower strata of society where
maximum shortage persists,” according to a Ministry of Housing and Urban Poverty
Alleviation report.
This has led to massive shortfall of housing, especially for Economically Weaker Section
(EWS) and the Lower Income Group (LIG) categories. According to a report of the
Technical Group on Urban Housing Shortage (2012-17) constituted by the Ministry of
Housing and Urban Poverty Alleviation, India has a shortage of 18.78 million dwelling
units, 96 per cent of it in the EWS and LIG segments.
While there is no standard definition for affordable housing, projects aim to provide
low/medium income group the chance to live in 200 to 700 square feet apartments at an
average cost of around Rs 5,000 a month. Income level and the size of the housing unit
are the key parameters.
A few schemes that were on the anvil to coax builders into constructing affordable
houses have not seen the light of the day. For instance, a proposal to exempt profits
earned from building and selling affordable houses from the tax net for a period of 10
years is yet to be implemented.
As a result, the scores who migrate to urban India in search of jobs are left homeless and
end up in slums. It is quite clear that the authorities have not been able to keep pace with
the influx of people.
Nearly a third of the Indians (377 million people) have already moved to urban
agglomerations. This figure is likely to rise by 40 per cent by 2030. In other words, in the
next 17 years, about 600 million people would have moved to cities.
MORE CONSTRUCTION
The Centre must focus on affordable housing not only because shelter is the basic
necessity but also because construction makes for good economics. According to
estimates by the Ministry of Housing and Urban Poverty Alleviation, the housing sector
supports 250 ancillary industries and the sector is a good employment multiplier. About
16 per cent of the Indian workforce is engaged in construction and transportation sector.
According to the report, about 24 lakh houses are being built in a year. This will have to
augmented by at least another 11 lakh houses, if the housing target for 2030 is to be
achieved.
HIGH LAND PRICES
Also, high land prices have made housing a costly proposition for all stakeholders. In the
absence of clear guidelines or formula for calculating land prices, there is much
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arbitrariness. This has to be fixed on a priority basis if the dream of affordable housing
has to be realised.
In short, there is a lot to be done in terms of intent and action if the dream of affordable
housing has to be realised.
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Govt may ease FDI norms in real estate to boost sector
The Hindu Business Line,
October 17, 2013
Three police commandos killed in Naxal attack in Gadchiroli
UPA's flagship health programme in poor health in Cong states, hit under BJP govts
Foreign investors looking to invest in the real estate sector in India may be allowed to
bring in only $5 million as minimum capital, down from the current $10 million, if the
Cabinet approves the proposal of relaxing the conditions for FDI in the sector.
As per the extant foreign direct investment policy, though 100 per cent FDI in the
construction development sector is allowed through automatic route, the department of
industrial policy and promotion (DIPP) is looking at relaxing the conditions for
investment to boost the cash-strapped sector.
"We have proposed reduction in the minimum capitalisation for wholly-owned
subsidiaries from $10 million to $5 million. The funds will have to be brought in within
six months of commencement of business of the company. This has been done keeping in
mind low and affordable housing," an official told The Indian Express.
The official added that the Cabinet note will be circulated this week for comments.
Further, the department has also done away with the concept of built-up area. Instead,
carpet area has been introduced in line with the real estate (regulation and development)
bill, 2013. Introduction of the concept of only 'carpet area' will curb unfair trade
practices.
The minimum area to be developed in case of serviced housing plots has also been
"reduced to 5 hectares from 10 hectares while in case of construction-development
projects, a minimum carpet area of 20,000 sq mts has been introduced instead of the
existing 50,000 sq mts built-up area in all class-I cities having population of more than
one lakh."
"However, dealing in land and immovable property will not be allowed," the official said.
From 2000-2013, $22.43 billion has flown in the sector in form of FDI, comprising 11
per cent of the total FDI flow in the country. In April-July 2013-14, $2.09 billion flew in
the construction development sector including townships, housing, built-up
infrastructure.
To encourage investor participation in the country's housing sector, the ministry of
housing and urban poverty alleviation had earlier proposed easing of norms for FDI in
real estate projects.
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New norms:l
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DIPP has also done away with the concept of built-up area and introduced carpet
area in line with the real estate bill, 2013
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Minimum area to be developed in case of serviced housing plots has been
reduced to 5 hectares
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In case of construction-development projects, a minimum carpet area of 20,000
sq mts has been introduced instead of the 50,000 sq mts built-up area
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Housing finance sector poised for growth
The Hindu Business Line,
October 17, 2013
The housing finance sector is set to see higher growth in the next few years, with an
increase in the demand and supply of housing projects.
According to estimates, the total housing credit outstanding in India as of June 30, 2013,
was over Rs 7.99 lakh crore, against Rs 7.59 lakh crore on March 31, 2013. That is an
annualised growth rate of 21 per cent, against 18 per cent in 2012-13.
Although, there was a slight decline in net interest margins and stability on the nonperforming-loan front, overall, declining net interest margins and increasing credit
provisions could lead to a 20-30 basis point reduction in profitability for housing finance
companies. However, profits could still be reasonable.
Housing finance companies are expected to grow 24 per cent, while banks are pegged to
grow 14 per cent. Experts say this trend is expected to continue over the next five years.
Consequently, these finance companies, including LIC Housing Finance and Housing
Development Finance Corporation (HDFC), have been gaining share over banks over the
last few years. According to a leading credit rating agency, disbursals of home loans are
projected to grow by 19 per cent in the next financial year.
Year-on-year, the industry saw home loans grow 20 per cent as of June 30, 2013, over
June last year. Banks recorded 17 per cent growth, while housing finance companies and
non-banking finance companies saw 26 per cent growth, according to ICRA Research.
Recently, HDFC Chairman Deepak Parekh was reported saying he doesn’t see a bubble.
Real estate prices have come down significantly in the commercial, office, SEZ (special
economic zone) and IT space, retail and shopping malls, but not the residential segment.
But residential prices, which have not moved up, are tending to go softer, he added.
Experts believe housing supply is increasing and prices will come down with new
projects coming up in major metros and tier-II cities.
REGULATORY CHANGES
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On regulatory changes, such as reduction in risk weights for home loans higher than Rs
30 lakh, ICRA said borrowers will likely benefit in a marginal way. There will be lower
risk weights, and thus, lower capital allocation could lead to some lenders reducing the
lending rate for borrowers in higher ticket sizes.
From the lenders’ perspective, lower risk weights would translate into higher regulatory
capital adequacy. Thus, with the same capital base, lenders can achieve much larger
portfolio growth.
According to ICRA, there could be some increase in the portfolio yields, if lenders shift
their portfolio in favour of builders of residential projects. With a lower standard
provisioning requirement for commercial real estate–residential housing, there could be
some reduction in the credit costs for players who are active in this segment. Also, the
flow of funds to builders might improve, owing to lower risk weights and lower standard
asset provisioning.
BRIDGING THE SHORTFALL
According to an expert, India’s ratio of housing loans to GDP is seven per cent, among
the lowest in the world. Most purchases of homes are still made out of savings.
The shortfall of dwelling units has been growing and is now estimated at over 25 million
units. Bridging this gap, entails the creation of the quantum of housing that currently
exists in Mumbai, Delhi, Kolkata and Chennai together.
Banks serve customers in their catchment area by offering a variety of financial products,
while housing finance companies (HFCs) focus on offering housing loans and facilitating
the creation of housing through loans for construction. This focus and specialisation
enables HFCs achieve economies of scale and cater to the market more effectively.
Further, on August 14, 2013, the Government of India and the World Bank signed a
$100-million credit agreement aimed at helping low-income households secure loans to
purchase, build or upgrade their dwellings. The project will be implemented by the
National Housing Board to reach a higher proportion of lower-income households, while
maintaining portfolio quality standards.
This adds to the assurance that the housing industry will get a boost, making it easier for
borrowers and lenders to meet their demands for housing and loans, respectively.
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UP drafting new integrated industrial township policy
Business Standard,
October 17, 2013
The new policy is proposed to be an industry-friendly inclusive regulatory framework
enabling establishment of townships
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Uttar Pradesh government is preparing a new 'Integrated Industrial Township Policy' to
facilitate private sector participation in developing industrial townships in the state, an
official said Wednesday.
Under the proposed policy, starting from assembly of land, private enterprise will be
responsible for developing the township equipped with industrial technology and design,
allotment and its maintenance.
The new policy is proposed to be an industry-friendly inclusive regulatory framework
enabling establishment of townships catering to all kinds of industrial units and sectorspecific industries as well.
Surya Pratap Singh, principal secretary, Infrastructure and Industrial Development
Department (IIDD), said the proposed policy will provide option to willing industrialists
and entrepreneurs to set up their units in industrial areas other than those of Uttar
Pradesh State Industrial Development Corporation (UPSIDC) and industrial
development authorities thus "creating a healthy competitive environment for high-class
infrastructure development".
"In view of rising demand of industrial plots and need for accelerated industrial
development around the alignments of Delhi-Mumbai and Amritsar-Delhi-Kolkata
Industrial Corridors, private sector participation is imperative. Priority sectors of the
state government will be especially encouraged and appropriate tax and duty concessions
will be included in the new policy," he told IANS.
Directing the Uttar Pradesh State Industrial Development Authority (UPSIDA) to
prepare and present the draft of new policy within two weeks after taking feedback of
stakeholders, officials said the government should have minimum regulatory function
along with provision for making the development of township non-transferable.
Private enterprise will have to arrange the land.
Manoj Singh, chief executive officer of UPSIDA, said that under the proposed policy,
willing developer would submit the detailed project report (DPR) after arranging the
land.
UPSIDA would then notify the township as industrial area and would prepare masterplan for the same, which would have to be followed by private enterprise in development
of such township.
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Railway min wants changes in FDI plan
The Economic Times,
October 17, 2013
The railway ministry has asked for certain changes in the draft foreign direct investment
proposal for the sector in a bid to remove the barriers to foreign investment under the
current policy. The railways wants the FDI proposal being worked out by the Department
of Industrial Policy and Promotion (DIPP) to allow foreign investment beyond just rail
connectivity projects into rail transport as a whole and in public-private partnership
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(PPP) projects, for the operations side as well, said an official familiar with the matter.
The DIPP is the nodal department for FDI policy. It had circulated a cabinet note last
month proposing 100% FDI in the sector after the railways had approached it in May to
amend the existing policy. Last week, the railways ministry had sought certain
modifications in this note and removal of the anomalies.
The current policy states that foreign investment is prohibited in activities or sectors that
are not open to private-sector investment, which includes railway transport (other than
mass rapid transport systems). The railways, however, has a policy that invites private
investment in rail connectivity projects and even foreign investment with approval from
the Foreign Investment Promotion Board (FIPB).
It also plans to implement projects like dedicated freight lines and high-speed networks
with private investment. It is only in rail operations that private-sector participation is
not allowed, unless it is based on the PPP model, such as the proposed elevated rail
corridor in Mumbai. The ministry has suggested that the clause should explicitly state
that FDI is prohibited in activities /sectors not opened for private-sector investment, i. e.
, atomic energy and railways operations (other than suburban corridors, high-speed train
systems, dedicated freight lines being implemented through PPP).
Also, the DIPPs draft proposal had included the railways policy of participative models in
rail connectivity in this definition, though rail operations in these projects come under
the railway ministrys ambit. In addition, the governments FDI policy excludes railway
lines and sidings from the clause that specifies foreign investment norms for industrial
parks along with the associated infrastructure and common facilities that are used by all
units in the park.
Any industrial or logistics park requires facilities for evacuation of manufactured goods
and bringing in inputs and raw materials. To say that FDI is permitted for industrial
parks but not include railway sidings/lines that are part of the infra for logistics parks is
an anomaly, said an official familiar with the development. If foreign investment in these
railway lines is permitted, project developers would include this cost in their project cost
estimation, which they do not currently. Also, developing a railway siding as a separate
project may not be viable for all individual manufacturing units, the official added.
Indian Railways, which has pending projects of at least Rs. 2 lakh crore, aims to award
projects involving investment of Rs. 1 lakh crore through the PPP model in the 12th Plan.
Officials said eliminating these anomalies and creating a clearer framework could help
the railways get several projects off the ground.
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