Rough work by NBFC leads to cash reduction- says Dr. Indira Rajaraman ( economist and former member of RBI).
Goods and Services Tax
The high bill of goods and services tax( GST) on ongoing construction properties added to the cash crunch in the
housing sector and also among non-banking finance companies(NBFC). Though GST on under construction properties reduced now a days. In early days ( before GST forms application), the housing companies got their working capital by selling apartments before the construction even began. In this way, they earned the consumer commitment too.
Dr Rajaraman was indicating to the housing sector being one of the examples of deformed content under the Goods and Services Tax. She stated that for under-construction property, the GST was 18% & with one-third reduction of value of land. So, the taxation of pre-construction purchase at 18% with simultaneous relief of completed apartment indicated the intent to tear that financing style. The main reason for that was to shorten the use of untaxed cash (black money) in the real state business.
The construction sector employed post-GST for funding to NBFCs. Now the NBFCs had already received investible money after demonetisation flooded banks with cash in November 2016. Later this was financed from mutual funds.
The impact of this way of funding alteration in addition with rough work by NBFCs & credit rating failure were among many factors. And the factors lead to the serial defaults by Infrastructure Leasing & Finance Company
(IL& FS) in sep- 2018 & the effect impact on NBFCs thereafter.
Now we know that the construction sector is very important in terms of job creation and fulfilling the housing needs.
But it seems the GST council does not think about shortening the finance system of the housing sector.
Dr. Rajaraman added that she presented this issue to RBI governor Shaktikanta Das during a meeting in Delhi.
Now 5% reduction in under construction properties is employed without credit and 1% for affordables- she told.
And she thinks this move has two possible benefits.
1.This should help in gradual pick up in housing demand and
2.This improve the condition of construction sector and NBFCs.
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(information courtesy: https://www.thehindu.com/business/high-gst-rate-hit-housing-sector/article26412330.ece)