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Real estate in India to benefit from tax breaks as outlook for economy brightens

The government will also extend tax breaks for industrial park schemes and road projects to stimulate the economy and lift growth to 8 to 9% by the end of 2010, the finance department confirmed.

Another plan to provide a 1% interest subsidy on home property loans up to a million rupees for one year is expected to boost the real estate sector even further.

The news comes on the back of predictions from the Central Bank that the Indian economy will grow at a faster pace than forecast earlier this year. It had been thought it would grow 5.7% but now it is expected to be nearer 6.5% and Pranab Mukherjee, finance minister, said that it should reach 8 to 9% by 2010.

'In India, the economic recovery has begun and I am confident that we will be able to reach the high growth rate of 8 to 9% by the end of 2010,' he said.

Because of this it was necessary to help the real estate and construction sectors as they play a key part in the economy, he added.

The confidence is echoed in the banking world. 'The macroeconomic outlook of the Indian economy, based on various business expectation surveys indicates that the earlier decline in overall business sentiment has reversed,' the central bank said in a report.

The bank, which has slashed interest rates six times since last October, is expected to keep them low to help the recovering economy.

'The RBI's key interest rates look set to remain unchanged for some time. The expansionary budget and prospect of a pickup in wholesale prices in the months ahead makes a near term rate cut unlikely,' explained Robert Prior-Wandesforde, a senior economist at HSBC Holdings in Singapore.