Budget 2020 Ideas For Growth: HDFC’s Keki Mistry Advise To Finance Minister Sitharaman

India has the world’s biggest workforce but not enough jobs to offer. And that, according to HDFC Ltd.’s Keki Mistry, is what Finance Minister Nirmala Sitharaman should address in Union Budget 2020.

“Job creation is the single-most important focus that the budget should have,” the chairman and chief executive officer at the non-bank lender said during BloombergQuint’s budget special series Ideas For Growth. “It’s very critical” and will improve sentiment, he said.

Providing more jobs, Mistry said, was the key to spur economic growth. Job creation will result in more income in the hands of people, enabling consumption and pushing manufacturers to pump up capacities and produce more, he said.

This comes at a time the nation’s unemployment rate is the highest in 45 years and it’s battling the weakest economic growth in more than a decade. India’s efforts have so far failed to revive the economy, prompting calls for greater government intervention. Analysts and investors are pitching for fiscal support. Sitharaman is set to present the Union budget on Feb.1.

Mistry highlighted one area where the government can improve job creation: housing sector.

“Housing is a very important sector as far as job creation is concerned because there are so many jobs both direct and indirect,” he said.

The sector, however, is facing a twin challenge. First, the issue of “stuck projects” and second, unsold inventory, he said, adding projects in big cities such as Delhi, Mumbai, Chennai and Bengaluru are 75-80 percent complete but aren’t receiving the last-mile funding. “What happens is that a stuck project gets money from nowhere. No one buys the apartment and no lender comes and provides funds. So, if it’s stuck, it really gets stuck.”

But Mistry suggested certain steps the government can do to boost the real estate sector.

1. The government needs to permit a one-time restructuring of all real estate loans so that new lenders can come in and provide funds for the project.
2. To revive demand in the real estate sector, the government should increase the tax benefit on housing loans. The interest that is payable on a housing loan is currently tax deductible to the extent of Rs 2 lakh. “With inflation over the years, this limit needs to get enhanced to either Rs 4-5 lakh and then should be linked to inflation.”
3. Long-term capital gains on real estate should be abolished, provided the property has been utilised by that person for a minimum period of, say five years. “Long-term capital gains on property will not be providing much revenue to the government because there are so many exemptions around it, you can use that money to buy a fresh property.” It only creates “a lot of unnecessary paperwork and unnecessary hardship on the part of a small homebuyer or homeseller”.
4. The government also needs to encourage the rental property market. The income that is taxable on a rental property is the rent which is received. The expense against that rent is the interest that is paid for buying the property. “But the interest is today deductible to the extent of Rs 2 lakh, therefore nobody buys the property with the idea of renting it out. So, 100 percent of the interest needs to be deductible.”