A low interest-low tax regime will boost housing sector: Jaitley
05 April 2019
A combination of lower interest rates and reduced tax rates would make home buying an attractive proposition, especially for the salaried and other middle income groups, finance minister Arun Jaitley has said.
The finance minister made the comments after the Reserve Bank of India (RBI) on Thursday announced a 25 basis point reduction in its policy repo rate, for a second time since February this year.
He said the government is looking at a low interest rate regime where paying equated monthly installments (EMIs) for home loans will be cheaper than paying rents.
Banks in India have been slow in passing on any benefits from government’s or Reserve Bank’s policies to the consumer. However, since lenders review their Marginal Cost of funds based Lending Rate (MCLR), the floor at which they extend loans is sure to reflect this, Jaitley said.
A lower interest rate regime will make borrowings cheaper, particularly for homebuyers, and generate consumer demand that will boost economic growth.
Speaking at an industry event on Thursday, Jaitley said the Narendra Modi government has not increased tax rates in the last five years, but has still been able to double the tax base and increase tax collection. He said, if voted to power, the government would pursue policies to enable further reduction in interest rates and also continue with fiscal consolidation.
Jaitley said the BJP-led NDA government will continue with fiscal prudence and lower tax rates if elected back to power.
He further said the Goods and Services Tax (GST) Council has cut tax rates on consumption items to 12 or 18 per cent from the highest slab of 28 per cent and lowering rate on cement is next on agenda.
"I speak in terms of taxation policies... I'm quite clear in my mind that on two issues at least we had a lot of good fiscal prudence and we brought the rates down. These are two areas, if we are in power we will continue the same glide path," Jaitley said while addressing the CII AGM in New Delhi.
The general elections will be held in phases beginning 11 April and counting of votes will take place on 23 May.
It is necessary to resurrect consumer demand and boost economic growth in India before a synchronous downturn in advanced economies heightens market volatility, said Khushru Jijina, managing director of Piramal Capital and Housing Finance.
“Today’s rate cut and moderation in liquidity coverage ratio coupled with recent instances of liquidity injections indicate that RBI is cognizant of these risks. These measures would certainly help ease liquidity and improve access to cheaper credit by India Inc as well as retail consumers,” he said.
Jaitley said India's growth has stabilised between 7-7.5 per cent and irrespective of global trends, domestic consumption is going to increase.
The Reserve Bank of India Thursday cut its GDP growth forecast for the current fiscal by 20 basis points to 7.2 per cent.
The minister said that over the last 5 years the government did not increase tax rates, and in some cases doubled tax base and increased tax collection.
"In the last 20 odd months of the GST except for Cement that is because of affordability, ... every item of consumption has come down to 18 per cent and 12 per cent category from 28 per cent. So, it is only a matter of time that the last one also comes down," Jaitley said.
Asked what steps would be taken if the government comes to power, Jaitley said, "Wait for a couple of days, when our manifesto comes out, you may find some of the views expressed in that".