Contributing to the $ 5 Trillion Economy

INTRODUCTION

In the Monetary Policy Committee Meeting held on February 04 to 06, 2020, Dr. Janak Raj commented “Overall, demand conditions remain weak. This is reflected in a variety of indicators such as non-oil non-gold imports, capacity utilisation in the manufacturing sector much below the long-term average even when there is hardly any addition of new capacities, and weak pricing power of corporates. Consumer confidence is also low.

The inventory overhang in the real estate sector remains high and it will take time before it comes to normal levels. The real estate sector has huge forward and backward linkages and it is critical for reviving growth.

While current low growth is the outcome of deficient demand, high inflation is an upshot of a supply shock. These conflicting dynamics pose a challenge for monetary policy. Weak demand conditions warrant further monetary policy easing, while elevated inflation and the highly uncertain inflation outlook call for a cautious approach” (Reserve Bank of India, 2020).

It is very much evident from the observations of Dr. Janak Raj that the ‘elephant in the room’ which needs to be addressed stands on two fronts:

1. Low demand levels

2. Surplus inventory in real estate sector

THE PROBLEM

In this current scenario of market uncertainty, investors are looking for alternative investment opportunities wherein the risk is justified. Moreover, the surplus inventory in real estate sector is causing built-up of NPA’s (Non-Performing Assets) for the industry and so the Banks are hesitant of providing further funds for such projects leading to further worsening of a bad condition.

THE POTENTIAL SOLUTION

The Government needs to address this issue with utmost priority. Similar to the Pradhan Mantri Awas Yojana of Government, under a customized Yojana it should strategically target new investment opportunities by providing incentives to investors for investing in the stressed assets of the real estate sector in the Housing & Commercial Real Estate industry which is expected to reach a market size of US $1 trillion by 2030 from US $120 billion in 2017 (India Brand Equity Foundation, 2019).

The potential for real-estate truly catapulting the Indian economy on the road-map for achieving the target of $ 5 Trillion Economy is limitless.

REFERENCES

• India Brand Equity Foundation. (2019). Real Estate. 
• Reserve Bank of India. (2020, February 20). Press Releases. Minutes of the Monetary Policy Committee Meeting February 4 to 6, 2020.