Mint ST : 2019-02-11

LONG STORY : 14 : 10

LONG STORY

10 EXCLUSIVE FROM MONDAY, 11 FEBRUARY 2019 NEW DELHI Latha Venkatesh 300,000 plus jobs getting created a month then is there that kind of slowdown, is somebody mispricing something? K CNBC-TV18 enneth Rogoff, professor of economics and public policy at Harvard University says the likelihood of a normal recession now appears higher than that of a systemic crisis. Rogoff, who authored says the US may not be sufficiently prepared for a sharp slowdown. Edited excerpts: INTERVIEW The Curse of Cash, According to Edward Altman, if a recession comes now, and if it is slightly deeper than people are prepared for, then there can be very huge defaults. Is that a likely risk? Is there a risk that there isn’t such a deep global financial risk at all? The global financial crisis of 2008—a similar measure of crisis is perhaps the Great Depression of 1929. May be we are too much the children of 2008 crisis that we probably are looking for crisis every time. How much ammunition does the US Federal Reserve have if a slowdown genuinely hit; is there that much space for quantitative easing? Is it prepared for a slowdown? No, certainly as I said at the introductory talk, our book says they happened decades apart, they don’t happen one on top of another and I gave that reassuring message for a long time. I have sort of watched the world unfold in front of me with Donald Trump and Brexit and the trade war and a part of the crisis are technical things in the system but part of it is the handling. Also, we have done massive deregulation. Usually, everybody is scared, regulation is very heavy, repressive one might say and it takes decades before it unwinds. Now, it has happened almost in the blink of an eye. So, I don’t want to overstate it. It is much more likely, we just have a normal recession than we have another deep systemic crisis but I no longer dismiss the possibility I don’t feel as safe as I did even a couple of years ago. Kenneth Rogoff, professor, economics and public policy, Harvard University. a certain day, I guess it went even past 3.2 and we were all wondering if 3.25 would be some kind of a technical trade that would result in some kind of a crisis. But we have, since, moved a long way. Today the rate is 2.67. So what is your sense? very narrowly on your question about the Fed, I don’t think anybody has any idea. Nobody knows what is normal anymore and so there is a view that it is just drifting down and down and down. There was a paper that made the rounds maybe a year ago saying it is really demographics and it is inequality and demographics and inequality both start to keep getting worse and worse. However, I think we are not sure. I think anyone who expresses any confidence about what it is going to be in 20 years, are kidding themselves. Is it more likely that the risks to the global financial system and the global economy could stem more from China and China slowing down much more rapidly than what we are accounting for? ‘No one knows if some of these loans which is called the shadow banking sector going to the corporate debt—will that boomerang into banks’ balance sheets’ ‘US is doing really well, productivity I think will pick up but if you look at the world China seems to be slowing down more than what the official number shows’ First of all, there has been an increasing gap between what you got for investing in stocks and what you got for investing in bonds and stock returns have been high and that is another matter of what investors expect growth to be but certainly, In September of 2018, the 10-year yield in the US was almost heading to 3.2 and on If we are looking at a Latha Venkatesh P CNBC-TV18 rashant Thakur, head research, Anarock Property Consultants; M.R. Jaishankar, chairman and managing director, Brigade Enterprises Ltd; Pratik Jain, leader, indirect tax, PWC India; and M.S. Mani, partnergst, Deloitte India, are of the view that a cut in goods and services tax (GST) rate, without the benefits of input tax credit for the builders, will not have the desired impact on the real estate sector. Edited excerpts: EXPERT VIEW LATHA VENKATESH Respond to this column at [email protected] If the GST Council passes this cut in its next meeting, will the real estate sector be impacted? Thakur: Would you agree with Pratik Jain? Without input tax credit, a 5% GST is not a great way to go ahead? Mani: If this cuts come through, I think it is going to be a great positive move for the sector, which has kind of seen stagnating sales. We have been discussing about this cut for quite a long time. The buyers, who were on the verge of making the purchase, had pushed their decision, hoping that this cut would come through. Therefore, as a result, you are seeing a slowdown in transaction right now. If this happens, I think those trendsetters will start to make the transaction and, looking at the huge amount of under-construction projects that we have right now, I think this would be a great move, and we will see good amount of tractions happening. (From left) Prashant Thakur, head research, Anarock Property Consultants; M.R. Jaishankar, CMD, Brigade Enterprises; Pratik Jain, leader-indirect tax, PWC India. circulation, even without giving you input tax credit, and lowering GST, if that is replaced by 5%, you don’t see any advantage at all for you? Jaishankar: oper, I don’t think there will be any benefit that I will have, that I can pass it on to the buyers in terms of a lower price. if input tax credit is not given, 5% will have a cost push effect to the next of 2% or so. In the case of affordable housing, if it is 3% for flat, what you call as composite tax of 3% without input tax credit, it may be cost neutral. So, based on our calculations by eliminating input tax credit there will be a cost push effect of at least 2%. When developers say my cost of construction is ₹3,000 we do not take the GST that we pay to the contractors, sub-contractors as our cost. Even otherwise, do you think the NBFC issue, has it receded at all? Are you seeing any relief at all for the real estate space in terms of lower funds and completion of projects? Thakur: Actually, we don’t see any advantage. We feel that it will have a cost push effect at least to the extent of 2%. If it is 3% affordable housing it maybe cost-neutral. The basic thing is all developers do not take the GST that we pay to our suppliers and contractors as cost of construction, because it is recoverable by way of input tax credit, when we charge the customers. Transferring the RBIS “excess” capital directly to banks is constitutionally improper If we look at the interim budget, then yesterday’s monetary policy committee meeting and this possible reduction of GST, these are definitely a good move towards easing the ongoing pressure on the real estate sector. I will not say that this NBFC pressure is going to ease out in the near future, but definitely, this is a positive move. Having said that, I expect this liquidity crisis to continue for another 6-7 months. If developer can’t pass on the input tax credit, there won’t be any impact on the price. But from the buyer’s side, they have to pay lower GST, says Thakur So, you are not all that happy, your stocks are all losing out? What exactly then was the request of the real estate industry? Did you want input tax credit and lower GST? Jaishankar: Your thoughts? Is it going to make a big difference to real estate companies? Mr Jaishankar believes he would be better off if input tax credit is given, and the tax is reduced to 12%? Jain: Do you see the developers drop their prices, as they don’t have to pay this heavy tax? Thakur: There are two possibilities that were being discussed. One was GST reduction to 5% without input tax credit. I am assuming that is what has come through. If the developer is not able to pass on the input tax credit, I don’t think there will be any impact on the price. But from the buyer’s side, they have to pay lower GST. It is never a good idea to restrict input credit for any sector and, more so, for real estate, because you want to really formalise the real estate sector to the extent you can. So, if you restrict the input credit then what happens is the base price will have to be increased. So, let us say, if I am selling something at ₹5,000 per square feet and ₹300 per square feet is input credit, then Exactly. We wanted input tax credit and GST to be reduced at least to 12% in the case of a regular thing. In the case of affordable housing, it can be 8%. That is what we sought at least to begin with. What are your thoughts, will it make a seminal difference to the buyers? Do you see them coming back in droves? Jaishankar: I as a homebuyer will not have to pay GST? Thakur: Won’t this reduces the rigmarole of getting the input tax, working capital From whatever we developers have calculated, I will have to pay lower GST of 5%, but as a develmy

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