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Why is real estate lobby so special and powerful?

india Updated: May 13, 2012 21:22 IST
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It’s now taken as almost axiomatic that no matter what kind of economic reform is proposed, someone or the other will loudly oppose it. Whether it’s insurance, or retail or pensions or airlines or petroleum pricing, the battle lines are clearly drawn, stoutly defended and often not attacked with much determination anyhow.


However, there’s one aspect of the economy where the action is mostly underground. No one stands up and opposes fixing this sector and yet, nothing happens. I’m talking about real estate. While the real estate regulatory bill is now the most thoroughly forgotten of the reforms bill, the finance minister’s quiet and unasked-for rollback of a crucial tax reform in the budget tells you how powerful the forces of status quo in the real estate are.

In the Union Budget proposals, there was one of mandating the deduction of TDS in real estate deals worth more than Rs 20 lakh. The idea was that unless this TDS was deducted, no real estate transaction would be valid. As revenue officials explained at the time, the idea behind this tax was not so much the revenue as the collection of data. Once this happened, the cleaning up of black money and the enhancement of tax collection from real estate gains would get an enormous boost.

Unlike so much else in the budget, there were hardly any objections to this measure. But when the final finance bill was passed, this measure had been quietly rolled back. A finance ministry that has defended every piece of enhanced taxation with great ferocity has meekly given in to the forces that would like to keep real estate awash in black money and tax evasion.

It’s a great puzzle. If 1% was too much, the goal of data collection could even have been met with 0.1% or a 0.01% TDS. Does anyone have any idea about why real estate is so special?