Himanshu Jindal, CFO, Orientbell Tiles (https://www.orientbell.com/executive-managers) believes that Real Estate and construction activities in general have remained subdued for a prolonged period. Liquidity crunch and slowdown in demand have plagued the sector in the recent past adversely impacting associated sectors including building products like tiles.
Covid-19 and the unprecedented lockdown further complicated the situation especially for the ceramic industry. Q1FY21 was a literal washout and most of the players struggled to stay afloat running considerable losses.
While the Finance Minister did offer a timely reprieve by rolling out incentives to support the overall economy, considering that most of the industry participants are not still out of the woods.
The following are the budget expectations that may help the ceramic industry:
1. Input credit for the Real Estate Sector – Despite the welcome step of reduction in GST for the real estate sector in FY20, the absence of input credit mechanism for taxes paid against raw material supplies makes the entire system inefficient and may result in leakages for the exchequer.
2. Stricter Laws around payment delays/defaults – Payment delays/defaults even from some of the larger construction houses/real estate developers has become a norm impacting working capital cycles. While IBC is a great reform to take legal recourse against defaulting customers, enforcement is still lengthy, complicated and costly.
3. Increased incentives for home buyers – Incentivizing the ultimate buyer by offering enhanced tax incentives or lowering the tax rates could also add the required fuel for energizing the sector. In the past, there was no cap on interest deduction on borrowed capital for purchase of house property. The present Goods and Services Tax (GST) rate on under-construction properties is 5 percent minus the ITC benefit for premium homes (>Rs 45 lakh) and 1 percent for affordable homes (<Rs 45 lakh). It will help in boosting the demand for the under – construction homes, given that this waiver is reduced even for a short while.
4. Reliefs sought for the ceramics industry
Tiles today virtually resonate with the “Swachh Bharat” campaign initiated by the Hon’ble Prime Minister a few years back. However, despite the “essential” use of the product in sanitation and housing which has now become more relevant post Covid-19, the current GST rate of 18% is way more than the desired 12% – a request which the government can consider. The government should also consider including Natural Gas under the tax regime, which at this point, is not considered for inclusion. Natural gas is approximately 18 – 20 % of the total cost and is one of the cleanest sources of fuels.