India on course for recovery: IMF report

Pegs GDP growth at 7.5% for FY17; expects private investmentto pick up

New Delhi, March 2:  

In a thumbs-up to Finance Minister Arun Jaitley’s financial management, the International Monetary Fund has said that the Indian economy is on the path to recovery, helped by low crude oil prices, improving current account and fiscal deficits, as well as a sharp fall in inflation.

However, in its India: 2016 Article IV Consultation report, the IMF has pegged the country’s growth rate at 7.3 per cent this fiscal and 7.5 per cent for the next. This is marginally lower than Jaitley’s official estimate of 7.6 per cent GDP growth in 2015-16 and 7-7.75 per cent in 2016-17.

“The Indian economy is on a recovery path, helped by a large terms of trade gain (about 2.5 per cent of GDP), positive policy actions, and reduced external vulnerabilities,” said the report, which is based on the IMF’s consultations with officials from the Finance Ministry and the Reserve Bank of India.

With some uptick in industrial activity, the Washington-based international lender also expects a pick-up in private investment to help broaden the economic recovery.

The report has, however, warned that a number of economic risks remain. On the external front, it has highlighted a possible disruption from increased volatility in global markets, unexpected developments in US monetary policy and China’s slowdown.

On the domestic front, the IMF has listed the weakness in corporate financial positions and bad loans of banks, as well as the delay in reforms as risks that could weigh on growth, accelerate inflation and undermine sentiment.

“On the upside, further structural reforms could lead to stronger growth, as would a sustained period of low global energy prices,” it said.

The report also stressed the need for continued vigilance, growth-friendly fiscal consolidation, and sustained reforms to enhance the resilience of the economy and bolster potential growth.

Essential reforms

It said reform priorities include removing supply-side bottlenecks, especially in the agricultural and power sectors, and facilitating land acquisition. “Further reforms are also essential to boost employment in the formal sector, encourage female labour force participation, and enhance labour market flexibility more broadly,” said the IMF.

The report welcomed the adoption of flexible inflation targeting and the progress in enhancing monetary policy transmission, and said the RBI should be ready to tighten the monetary stance, if required, to control inflation.

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DLF pushes ahead with REIT listing plans

Suncapital: Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs6,000 crore in two tranches over the next two years

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio

Mumbai: Pushing a step closer to launching India’s first Real Estate Investment Trust (REIT), real estate firm DLF Ltd expects to complete forming a special purpose vehicle (SPV) within the next six months, said a top company executive of the Delhi-based company.

“We would be ready with the SPV in the next six months. As we announced earlier, we have signed non-disclosure agreements with 25 global investors. We should be the first one to crack it (REITs),” Rajeev Talwar, chief executive officer (CEO), DLF Ltd, told Mint over the phone.

Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs.6,000 crore in two tranches over the next two years.

REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them on stock exchanges as trust. Investors earn return on investment either through value appreciation or rental income generated from commercial assets.

REITs will also give overseas investors a chance to invest in lease rental generating assets, an asset class otherwise prohibited for foreigners.

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio. As part of the process, promoters of DLF have decided to sell around 40% of its stake in DLF Cyber City Developers Ltd (DCCDL), a rental arm of the company to institutional investors. DCCDL earns around Rs.2,200 crore a year from rentals.

“Basically what is going on right now is divestment (of commercial portfolios) and to get foreign investors into the REIT portfolio. They have to come in the fair market valuation. In the first two quarters of the year, we would have brought all the funds and complete with our first stage which is to form an SPV,” Talwar said.

The listing of REITs, which many believe would bring stability and attract funds to the sector, has not been able to take off mainly due to tax hurdles.

Finance minister Arun Jaitley in the Union budget on Monday proposed to exempt REITs from the purview of dividend distribution tax (DDT), removing a significant hurdle to floating it in India.

“Exemption of DDT on REIT along with the FDI (foreign direct investment) policy changes in December last year will help get huge inflows from foreign institutional investors. For foreign institutional investors, the taxation was making it a lower return product for them. Now this (exemption) increases return and thereby attract more inflow of funds,” he said.

Anuj Puri, chairman and country head of JLL India, said with the proposal to remove DDT, REITs would become a realty soon with few listings likely to happen this year either by financial institutions or developers.

“Currently, around 229 million sq. ft of office space can be seen as REIT-compliant. If we assume that even 50% of these get listed, we are looking at a total REITs listing worth $18.5 billion,” Puri said.

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