Nirmala Sitharaman must have been having a bleak Christmas: selling home furnishings at Habitat on Regent Street and this was 1990, London was gripped by a property driven recession and although Nirmala had won a bottle of champagne for best sales that month, almost nobody was buying anything. How she must have longed to come back home to India, wading through the mud and slush of a London winter. And of course, eventually, she did…after a spell with Price Waterhouse the redoubtable Ms Sitharaman finally made it back, and now she’s the first woman to lead India’s Finance Ministry since Indira Gandhi who, let’s face it, gave herself the job so Nirmala Sitharaman’s really the first.
She must have brought some hard lessons back from that bleak month in London: first-hand experience of just how much a faltering property market can negatively impact on the economy and sales as a whole. Back then the UK’s base interest rate was an eye watering 13.9% and suddenly the new jargon phrase wasn’t “yuppie” anymore, it was “negative equity”. High interest rates can and do kill property markets quicker than a rat in a bucket of warfarin.
So Nirmala Sitharaman isn’t about to greenlight a rise in rates…
This month the Monetary Policy Committee of the Reserve Bank of India cut interest rates for the fourth time running, with the repo rate (the rate at which it lends to domestic banks) now falling 35 basis points to 5.4%, an aggregate cut of 1.1% this year which prompted the State Bank of India to cut its own rate by 15 bps overnight (no sluggishness at passing on benefits there). And whilst the Finance Minister has, of course, no direct input into the decisions of the MPC, don’t forget this is the woman who was described in Parliamentary Debate as a “one woman demolition squad”, who conducted a bitter tussle with Rahul Gandhi over allegations the Government was a party of business (it is) and who, perhaps most of all, survived the sharp elbows of Christmas shoppers at Habitat. Who can resist her powers of persuasion?
She more than anyone knows how important Real Estate is for the future of India’s economy and this latest reduction brings rates down to a nine year low which will be a shot in the arm for a sector already riding high on a surge of favourable demographics and fiscal trends (think Affordable Housing in particular).
The Chairman of Apex Association of Real Estate Developers, Prashant Solomon (a man of few words) said it would all be of “great benefit” while Anshuman Magazine, Chairman and CEO of CBRE India and Southeast Asia (a man of slightly more words) positively purred: “We believe this announcement will result in a further reduction in home loan rates and will provide an impetus to the Government’s initiative in affordable housing.”
Quite right…both of you.
And as reported on this site last month, the Reserve Bank of India has also maintained its so-called “accommodative stance” which pretty much takes any prospect of an interest rate hike off the table for the foreseeable future. That has to be good news too for India’s real estate sector, for the subcontinent’s increasingly urbanised population and for the wider economy as well.
Whatever the future holds, it’s a safe bet Nirmala Sitharaman won’t be working at Habitat again…unless she’s running it.
As a young man arriving in the UK from India at about the same time as Nirmala Sitharaman, I remember just how cold those winters could be. They still are!
And it’s hard to believe the lessons India’s Finance Minister learned during her stay in the UK can have been easily forgotten: how important the real estate sector is for the economy, the knock-on effects of a property slump on markets generally and, above all else, the importance of are supportive fiscal structure for sustained growth. Hard to believe too that someone with her grounding in economics and strength of character would have failed to make her views known to the Reserve Bank’s MPC before it reduced repo rates to a nine-year low last month.
It all points to the Indian economy being in safe hands, and the subcontinent’s real estate sector in particular.
With demographic and societal factors all pointing towards resurgent growth for Indian Real Estate, that can only be a good thing.