The Reserve Bank of India is widely expected to increase short-term interest rates at its policy review in April and a slight majority of analysts surveyed also see it further increasing banks’ reserve requirements.

Wholesale price index inflation, which reached 8.56 percent in January, was forecast to rise to 9.9 percent at the end of this quarter before easing to 9 percent at the end of June, 7.5 percent at the end of September and 6 percent at the end of the year, according to median forecasts.

An increase in interest rates by the Reserve Bank would be the first since it began slashing rates in late 2008 to help insulate the country from the global downturn, although it has taken other steps to tighten monetary policy in recent months.

Rising inflation and a rebounding economy, however, will likely compel the Reserve Bank of India (RBI) to tighten policy rates, the poll showed.

“We expect inflation to peak in coming months, as the statistical base effect will become more favourable. However, the risk is on the upside, since sequential inflation itself has been fairly elevated in recent months,” said Sebastien Barbe, head of emerging market research and strategy for Credit Agricole CIB.

“In addition, global food prices and local weather conditions also fuel a risk that inflation may be stronger than expected in H2. This may incite the RBI to be vigilant and tighten significantly in coming quarters,” he added.

The Reuters poll showed that 21 out of 23 economists see the RBI raising its benchmark reverse repo rate, at which it absorbs excess cash from the banking system. Of the 21 expecting an increase, 10 expect a 25 basis point rise in April and 11 see a 50 basis point rise.

Twenty one out of 24 economists polled expect the RBI to raise the repo rate, at which it lends funds to banks. Of those expecting an April increase, 12 expected a 25 basis point rise and nine expect a 50 basis point increase.

Thirteen out of 22 economists polled expected the RBI to raise the cash reserve ratio (CRR), the percentage of deposits banks must keep with the central bank, by up to 50 basis points in April. The RBI raised the CRR by a sharper-than-expected 75 basis points at its last review in late January.

The outlook for the RBI policy tightening is little changed from a Reuters survey conducted shortly after the RBI’s January policy review.

The survey showed the economy is forecast to grow 7.2 percent in the fiscal year that ends on March 31, in line with government estimates, and 8.0 percent in 2010/11.

None of the analysts surveyed expect any changes to the statutory liquidity ratio, the percentage of deposits banks must invest in government bonds, during 2010.

The worst is over for the Indian economy after two hard years and the country will return to a high growth path with renewed confidence and even log double-digit expansion, Finance Minister Pranab Mukherjee said on Friday reports the ET.

“Today, as I stand before you, I can say with some confidence we have weathered this crisis well,” Mukherjee told the Lok Sabha, the lower house of parliament, while presenting the federal budget for the next fiscal.

“That is not to say that the challenges today are any less than they were nine months ago, when the UPA (United Progressive Alliance) was voted back to power under the leadership of Sonia Gandhi and Prime Minister Manmohan Singh.”

These comments are a welcomed by the Indian real estate industry. The Indian real estate market was affected badly with the slowdown, however there is now growing stability, the weaker developers went bust and those that have remained now have a greater advantage going forward. Investors are still cautious and most popualar areas to buy Indian real estate remain the large city metros where demand remains high.

The Indian government plans to charge a service tax on sale of homes Indian real estate under construction. This will have a major impact and will raise costs for buyers.

The levy on Indian real estate under construction may increase costs for home buyers by as much as 5 percent, the Confederation of Real Estate Developers’ Associations of India said on Feb. 26. India plans to levy service tax on several real estate-related activities, among other activities.

This is expected to have an effect on investment in Indian real estate, with investors becoming cautious of investing in Indian commercial real estate assets, especially income generating assets, since purchasing such properties on a fixed return basis will now yield significantly lower returns.

Rentals of Indian commercial properties are expected to rise by 10 per cent after the Budget today proposed to bring all lease agreement of shopping complexes, malls and vacant lands under the ambit of service tax.

Besides, development of real estate complexes will also attract service tax, unless the entire consideration for the property is paid after the completion of construction.

“This step will add to the cost and it will be a huge burden on owners. Rentals of Indian commercial property will go up by 10 per cent and it will lead to inflationary pressure,” apex realty body Credai resident director GP Savlani told PTI.

Global realty consultant Jones Lang LaSalle Meghraj (JLLM ) country head Anuj Puri also said rentals of office and retail space are likely to increase by 10 per cent.

The Finance Minister said all commercial agreements or contracts between lessor and lessee for rent and lease would come under the service tax net with retrospective effect from June 2007. It will also apply to all agreements for undertaking construction of building or structures on any vacant land for commercial use.

The Indian Budget is largely neutral for the Indian real estate sector according to the Economic Times.

While continued measures to boost affordable Indian real estate as well as higher investments for rural housing and urban development (particularly for slum redevelopment) are positives, the higher cost of material (due to excise rollbacks), increase in MAT and the likely inclusion of service tax on construction activity could offset some of this impact.

Continued incentives to boost affordable Indian real estate include extension of the 1% interest subsidy on housing loans up to March 2011. The Budget has proposed extending the tax holiday under Section 80 1B (10) on approved projects, provided these are completed before March 2013, compared to the earlier March 2012.

On the positive side, there will be no extension of STPI benefits beyond March 2011. This augurs well for IT special economic zones in terms of faster leasing. Widening of personal tax slabs is a welcome move for the middle class as it improves affordability. This, in turn, should benefit the housing sector.

Among the negatives, the move to hike MAT to 18% from 15% will hurt companies engaged in airport redevelopment and slum rehabilitation. The likely inclusion of developers’ construction activity in the 10% service tax net is still a grey area.

They do not foresee a strong sector outperformance on the back of the Budget. The interest subsidy will benefit developers with a residential bias in Tier-II and III cities.

Delhi real estate: India’s largest real estate company by revenue, DLF, today stated that it has sold more than 1,200 units of the Panchkula Valley project in less than a week of opening sales.

Is this just an up turn in real estate in Delhi or are we seeing an emerging trend with real estate in India? Navyroof.com would argue, while there are hot spots of improvement especailly in Delhi, the NCR and other metros , the Indian real estate market has a long way to go to post crunch levels of activity, but things are beginning to move especially in the mid to lower end of the market.

“As against the 500 apartments of various sizes with independent floors announced under the first phase of the project, more than 1,200 bookings have already been received from across the region within the a week of the launch”, stated a release from the company. About 650 units were sold on the first day of sale.

India’s economic growth may surpass 8 percent in the coming financial year, Finance Ministry projections showed, allowing scope for a reduction in stimulus measures that would help the nation restrain its debt burden according to a recent report by Business Week.

“The Indian economy has posted a remarkable recovery from the global recession,” according to the annual Economic Survey prepared by officials advising Finance Minister Pranab Mukherjee, released in New Delhi today. “The recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months.”

The challenge for Mukherjee is to unwind 7.5 trillion rupees ($162 billion) of fiscal stimulus and curb consumer-price inflation that’s the highest in the Asia-Pacific region, according to data compiled by Bloomberg. The payoff may be cheaper debt-financing costs and averting investor concerns at the sustainability of faster economic growth such as in China.

“India wants to avoid a China-like overheating problem,” said Shashanka Bhide, chief economist at the National Council, a corporate-funded analysis group. “Mukherjee has a tough balancing act — to support growth and cut the budget deficit to control inflation.”

Prime Minister Manmohan Singh’s administration, which won reelection last year, will also aim to avoid hampering an economic rebound that’s yet to produce earnings gains for DLF Ltd., the lagest Indian real estate developer, and has left out an agriculture industry hammered by a poor monsoon.

With a slowing real estate market in Mumbai, many city-based developers have set sights on the neighbouring state and real estate in Gujarat.

Two factors aiding this are the lower land costs and the virtually non-existent red-tape with Gujarat real estate.

“There is tremendous industrial activity in Gujarat, which has resulted in a growing demand for real estate in Gujarat,” said Anuj Puri, Country Head and Managing Director, Jones Lang LaSalle Meghraj (JLLM), a leading real estate consultancy firm.

Developers said that transparency was a big attraction. “Unlike Mumbai, land titles in Gujarat are usually clear and all details are available online. We do not need to visit government offices to verify such claims,” said Manish Veera, spokesperson, Ravi Group of Companies, which is planning to develop townships in Ahmedabad, Anand and Baroda.

Developers are also lured by the fast pace of granting permissions. “Our delivery mechanism is very fast as we want to speed up the development of the state,” said Narottam Patel, Rural Housing Minister, Gujarat state.

Pravin Doshi, President, Maharashtra Chambers of Housing Industry (MCHI) and chairman of Acme Group said: “The Gujarat government is very proactive. Small projects are cleared within a fortnight while bigger ones in three months.”

However, the Maharashtra government has dismissed allegations of lethargy. “Gujarat cannot be compared to Mumbai. There are lot of open plots there and development is easier,” said Sachin Ahir, Minister of State for Housing.

A change in policy and more importantly the location of an international airport will have big impact on real estate in Noida and also prices for land and real estate in Noida. The Uttar Pradesh government have decided to move its proposal for an international airport from Greater Noida to Meerut istead.

Mohinder Singh, chairman of Greater Noida Industrial Development Authority, could not be contacted, but a senior GNIDA official, not wishing to be named, said, “There obviously cannot be two airports as close to each other as Meerut and Greater Noida. So hopes of an airport in Greater Noida will have to be given up. And there might be a decline in land prices here, just as there was an escalation with hopes of an airport coming.”

Ajit Sisodia, a realtor in Greater Noida, agreed. “There will be a drop in both purchases and rates of property in Greater Noida when people come to know that consultants are being called in to build an airport in Meerut. People may even start taking refunds,” he said.

However, Meerut MP Rajendra Agarwal is not convinced that the state government is serious about building an international airport in Meerut.

“The state government had not even sought the Union government’s approval for an airport in Meerut at least until mid-December last year. I think some people in power merely want to push up land prices in Partapur so that properties owned by certain individuals can be sold at very high rates.”

Inquiries made by TOI revealed that land rates in the area had indeed gone up considerably in the past few weeks, ever since talk of an airport in the area gathered momentum.