More realistic on real estate but…

More realistic on real estate but…

Conditions for accessing bailout fund flawed.

The finance minister has announced yet another measure to reverse the ongoing economic slowdown. It is probably the measure with the most meaningful immediate impact, even if slashing the corporate tax rate has more lasting impact. The measure is a tweak of the scheme announced mid-September, to create a fund that would fund stalled real estate projects. The earlier announcement had restricted access to the fund to projects that had not defaulted on loans and had completed at least 60% of the project. We had pointed out that these conditions were ill-designed: a project that had not turned into a non-performing asset and had completed well over half the project would get funds in the normal course and did not need any special government dispensation. The government has now dropped two conditions, but this does not go far enough.

The Alternate Investment Fund (AIF) that would invest in stalled housing projects would get an initial injection of ₹10,000 crore from the government. Banks and other institutions would add to the fund’s corpus. The government hopes for a size of ₹25,000 crore. This is not ambitious enough. But that is not the chief drawback of the government’s scheme. The finance minister says only projects that have a positive net worth would be eligible. That condition disqualifies a large number of projects. If the government wants to complete the stalled projects, such a condition should not be attached to accessing funds from the new corpus. Rather, the aim should be to utilise the AIF to buy out projects that are stalled, and complete them, independent of their promoters. The condition of a positive net worth would make sense only if the funds are meant to be accessed by the promoters of the failed firms.

The point is not to worry about promoters, but to focus on getting the projects completed, to release the resources trapped in the giant concrete skeletons that scar the landscape in several cities of the country and create demand for cement, steel, transport and labour. The AIF should buy out the projects and complete them.