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    CUSHMAN & WAKEFIELD INDIA ON UNION BUDGET

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    Sanjay Verma, executive managing director, South Asia, Cushman & Wakefield India

    The budget presented by the Union finance minister on February 28, 2007, comes across as a mixed bag for both developers and investors.

    Infrastructure industry was accorded important space in the budget through extension of Bharat Nirman Scheme, where approximately 15 lakh additional housing units are planned for 2007-08. Emphasis on Bharat Nirman Yojna and the 31-per-cent increase in fund allocation to this scheme is expected to generate employment in semi-urban and rural areas, which can increase income levels of working people in these areas and increase the potential demand for housing finance.

    Traditional metropolitan cities like Mumbai and Delhi are poised to witness quality infrastructure development due to the forthcoming Commonwealth Games in Delhi and the promotion of Mumbai as “the world-class financial centre”. Tax holidays for five years in hotels and convention centres will boost supply of rooms in NCR, which in turn may lead to reduction in room rentals in near future. However, it needs to be clearly established if these tax holidays can be availed at any point in a block (of say, 10 years). Since most hotel operations break even over a period of approximately five years, a tax holiday in the initial five years may not necessarily be beneficial.

    Approval of Real Estate Mutual Fund (REMF) is a move towards making the real estate industry more organized and transparent. On the other hand, introduction of service tax for commercial rent is likely to increase pressure on developers and, thereby, the tenants – as for new leases this will, in all likelihood, become a pass-through cost (by way of increased rentals). This can result in further increase in property prices since the end-user demand remains strong.

    ANNOUNCEMENTS/CHANGES INTRODUCED IN THE UNION BUDGET 2007-08
    C&W IMPACT REACTION
    Work on the golden quadrilateral is nearly complete and there is considerable progress in the North-South, East-West corridor project, which is expected to be completed by 2009. NHDP-III, NHDP-V and NHDP-VI are in advanced stages of planning or implementation. Increase in the provision for National Highway Development Programme (NHDP), from Rs 9,945 crore in 2006-07 to Rs 10,667 crore next year, has been proposed. The completion of these projects will improve connectivity and boost cargo movement by roads. Moreover, this will lead to improved access to major consumption centres and create opportunities for development of newer growth corridors. The following will also be a likely impact of timely completion of these projects:   • Expanding the existing  manufacturing bases   • Creation of warehousing and  logistics centres
    The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has evoked a positive response from state governments. Till date, 538 projects with a total cost of Rs 23,950 crore have been sanctioned in sectors such as water supply, sanitation, transport, road and housing in many cities spread over several states. The budget proposes to enhance the allocation from Rs 4,595 crore in 2006-07 to Rs 4,987 crore in 2007-08 JNNURM is perhaps one of the most ambitious urban infrastructure programmes announced in the recent past, having the potential to act as a growth catalyst for India`s most important cities. Enhanced allocation and proper implementation of eligible projects will revitalize the urban infrastructure in Indian cities.
    In order to facilitate the creation of urban infrastructure, the budget proposes to allow issue of tax-free bonds through State Pooled Finance Entities formed for raising funds for a group of urban local bodies. A positive move: India`s resource-starved urban local bodies will get access to finance for city development.
    The budget proposes to adopt a more aggressive approach for preparing bankable projects in infrastructure through the public private partnership (PPP) model. The budget proposes to set up a revolving fund with a corpus of Rs 100 crore to facilitate project preparation. The fund will contribute up to 75 per cent of the preparatory expenditure in the form of interest-free loan that will eventually be recovered from the successful bidder. The budget also announced the launch of the US$5 billion infrastructure financing initiative by Citigroup, Blackstone, IDFC and IIFCL. The budget also proposes to promote the flow of investment to the infrastructure sector by permitting mutual funds to launch and operate dedicated infrastructure funds. India requires approximately US$320 billion for infrastructure during the eleventh Five Year Plan. Such initiatives will create the necessary finance pool for speedy implementation of critical infrastructure projects in the country. Infrastructure projects require long-term funds and policy support in the form of tax and other concessions. Completion of infrastructure projects will have a positive impact on the real estate sector in the country.
    About 26 textile parks have been approved so far out of 30 sanctioned under the Scheme for Integrated Textiles Parks (SITP). The budget proposes to increase the provision for these parks from Rs 189 crore in 2006-07 to Rs 425 crore in 2007-08.