India’s Incredulous Real Estate Trust
Indian shares continued their Asia-beating 25 percent gains as foreign institutional inflows split with short-term government debt hit $25 billion, with an additional $10-15 billion to be listed through real estate investment trusts approved after years of haggling to resuscitate the beleaguered sector. Cash-strapped developers and state bank creditors have both been eager to promote the outlet, which offers tax incentives for large projects with extended payouts. Property remains unaffordable for the vast urban middle-class majority and Prime Minister Modi has vowed to unlock access and resume building to attain his campaign’s income and infrastructure support goals. Banks have a bad debt overhang estimated at $50 billion and need another $125 billion to meet global capital standards and fund future growth. The new administration has signaled backing for central bank head Rajan’s earlier private competition proposals but will not cede majority control in strategic lenders or change the basic design of asset disposal units with weak enforcement and recovery rates. On divestment earlier ambitions were scaled back in the initial budget with small stakes starting with steel and utility companies to be sold under a total $10 billion target. A late monsoon has calmed consumer and wholesale inflation with the benchmark rate on hold but governor Rajan has reserved the hiking option for other purposes as he warned of “financial bubbles” with the leadership transition optimism. However P/E ratios at 15 are above the big emerging market average and dominant family-run conglomerates like Ambani have yet to detail post-Modi restructurings previewed over the long election period. Officials have reached out to South Asian neighbors in commercial and diplomatic offensives but internationally they have come under criticism for torpedoing the WTO’s trade facilitation agreement hailed in a December 2013 compromise to perpetuate the decade-old Uruguay Round. Economists put developing country gains at half a trillion dollars with intended customs and administrative procedure easing, but Indian representatives after a preliminary phase-in allowed to last several years insisted such steps would violate food security mandates where stiff subsidies and protections absorb 1 percent of GDP. Combined rice and wheat stocks were 60 million tons in July to provide cheap staples and support farmer wages.
The upset angered WTO’s Brazilian chief and undercut BRICS solidarity shown with launch of a joint development bank with Indians slated for the first top posts. The unwillingness to accept the simple breakthrough also called into question the Modi team’s high profile push to lift its World Bank Doing Business ranking from 140 out of 190 countries. A bilateral effort to cut corruption and red tape was backed with Pakistan as Prime Minister Sharif made history by attending the New Delhi inauguration but past bad practice has resurfaced there too as former opposition candidate Khan and clerics demand the government resign for alleged vote fraud and illicit deals. The IMF praised fiscal and growth progress during an August visit which coincided with Taliban counterattacks in border reclamation operations.
