‘GST cut will be a great positive for the real estate sector ’
base price will become ₹5,300 per square feet and, of course, I will only add 5% in that, as apposed to 12%, which I do currently.
So, from a customer’s standpoint, maybe eventually, the overall price, including that, will still be lower, but the base price will need to be increased and, therefore, customers will of course ask questions about why the base price has been increased, and there could be dispute.
But more structurally and logically, it is not a good idea because when you have restricted input credit, you are discouraging the value chain to pay taxes.
At a broad level, there are two considerations. First and foremost, this concept of GST, without input tax credit, has never been in existence. It is something which we have been hearing possibly six months after GST got introduced.
I am not aware of any concept, which says there can be GST, but without input tax credit. We heard it first time in case of restaurants, and now we are hearing it in respect of the real estate sector.
So, when we talk of GST, which in its pure form a tax, wherein you get input tax credit, and you pay only on the value addition.
In India we are now trying to do modification of that basic concept, by saying there will be a few things where we will have GST, but we will not be having an input tax credit. To me, it depicts some of the basic purposes of having GST. Having said that, let me just make one mention here from a real estate sale perspective.
Optically, it makes a lot of sense because before GST come into the picture, we used to have service tax, which was 4.5% or so, and the state would levy a value-added tax or VAT of 1-1.50%.
Y.V. Reddy has been one of the doyens of Indian economic policy making for almost two decades since 1991, having handled the 1991 balance of payments crisis as the banking secretary, aided the liberalization of the economy in Manmohan Singh’s finance ministry, shaped the liberalization of the financial and the external sector as deputy governor under Bimal Jalan, and stabilised the banking system to face the challenges of excessive financialiation that led to the Lehman crisis. Reddy was one of those governors who was chosen by the NDA in 2003 and continued to work with the UPA in 2004. His advice, therefore, needs to be taken without the lens of partisanship. If Dr Reddy is inclined to any party it is India’s public interest.
In his R.R. Kale Memorial speech delivered at the Gokhale Institute on Friday, Dr Reddy raised important issues, which all well-meaning citizens and policy makers in all regulatory institutions, in the North Block and in all political parties, need to ponder over.
First, on the issue of RBI reserves, he asked if it was fair for the government to demand the surpluses of the previous two years, which have already been made part of RBI’S reserves, especially when a Bimal Jalan committee is examining how much of those reserves were needed for a strong and independent central bank. Wouldn’t courtesy require that the government of the day at least wait for Jalan committee’s recommendations, he asked.
Reddy calls this coercive monetization of the deficit, not very different from the automatic monetisation of the fisc that prevailed before the 1991 reforms. That’s a measure of how we have regressed in terms of de-institutionalizing the RBI.
While we await the Jalan committee’s recommendations, Reddy’s words of caution are worth keeping in mind: That it may be worth keeping the central bank’s balance sheet strong, especially when the government’s fisc is weak with deficits.
More importantly, denuding the central bank’s reserves, including the unrealized gains, which are kept as revaluation reserves, can be dangerous when there is a run on the rupee.
Second, Dr Reddy warns that transferring the RBIS supposed “excess” capital directly to banks as suggested by the former chief economic