Short-term pain for long-term gain

Apart from driving out corruption through the ban on legacy notes, the implementation of the GST and Real Estate Regulatory Act (RERA) will also put the realty sector on the growth track. 

Speakers at the session opined that corruption was not a one-way street and that a lot needs to be done to get things going. Commenting on how ridding the nation of black money would help in this process, Raghuttama Rao, MD, ICRA Management Consulting Service Ltd said, “The first thing to do is to bring down the cash transactions, which is really the intent behind the demonetisation. Once you have a digital trail in place, you have more accountability. The nature of a certain transaction and the source of funds can always be questioned. And that is an automatic deterrent.”

He further added, “The second driver of growth will be the GST movement. The idea behind this is to get the entire chain of manufacturing and services under the official realm. Unless you have the ability to pass credit on or set credit off at the receiving end, you are not going to be part of the chain. Once the digital payment channels move in, you will see more activity coming into the formal sector. Today our economy is 80 per cent informal and 20 per cent formal. That equation needs to change to move things forward.” 

Insiders say that a clean-up of non-serious players in the realty market will take place after this ‘surgical strike’ on the parallel economy. The impact of RERA will further discipline the industry, which will be good for growth in the long term. According to Sanjay Chugh – Founder, Skylines Property Consultants, the demonetisation can be seen as a short term pain for a long term gain in the sector. He said,“To begin with, it will eradicate the cash component in transactions. This is not too prevalent in Chennai and South India. If you are buying an apartment in the primary market, which is a first sale, it will mostly be done by salaried people, who take bank loans to buy property. So, there aren’t any avenues for evasion. Differences in guidelines values and market values are often reported in sale of property and secondary sale, conducted on the outskirts of the city. It usually happens when people want to evade the capital gains from the sale of a property.” 

Srinath Raghavan, Senior Fellow at the Centre for Policy Research said, “The real issue that we address is election financing. It’s easy to say we are negotiating with the Swiss Bank and that we are embarking on a slash and burn attack on currency notes. But until we sort out this financing issue, we cannot go ahead. This is borne out of the experience of many other countries. Rajaji said used to see back in the day, Election financing is the only thing that should be nationalised and that happens to be the only thing that we have privatised in the country.”