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Sops for realty likely

business Updated: Feb 12, 2009 11:36 IST

Buffeted by an extraordinary global economic slump, the interim budget to be announced next Monday is likely to unveil several sops for the realty and associated sectors including tax breaks for cement and steel.

As a precursor to the interim budget preparations, a committee of secretaries headed by cabinet secretary K.M. Chandrashekhar has prepared the broad contours of a fresh set of fiscal measures.

Officials did not rule out a cut in excise duty on cement and steel from its current levels of 10 per cent.

Housing sector has been singled out for special attention as it can raise demand through greater income and additional employment generation.

“Construction activities need to be stimulated as this sector has considerable employment potential,” a senior official requesting anonymity said. “The interim budget would contain measures for the housing sector.”

Unfavourable real estate and stock market conditions have coincided with a sharp increase in the scale and size of projects executed and planned over the past two years. As a result, many builders — mainly small and medium-sized ones — are operationally stretched, besides being financially leveraged.

“In an environment where job security is diminishing, business confidence is low and net worth hit by falling stock markets and house prices, better affordability due to property price correction or lower mortgage rates alone cannot act as the catalyst for sales reversal in the real estate sector,” said Siddharth Bothra, an analyst with of Motilal Oswal.

The slowdown in the construction activity can be gauged from the sharp fall in capacity utilisation of cement in India.

The total installed capacity of cement at the beginning of 2008-09 stood at close 200 million tones and another 40 million tonnes were planned to be added during the year.

“While capacity addition has taken place, demand for cement has declined,” the official said.

Capacity utilisation in the cement industry has declined from 95 per cent in 2006-07 to about 85 per cent in the current year mirroring the slowing down of the construction sector.

Finance Minister Pranab Mukherjee has indicated that measures are on the anvil to boost growth in labour intensive sectors.