LEASING AS A FACTOR OF ECONOMIC GROWTH!
Leasing is presently considered as one of the most significant factors of economic development. The main aim of the research is to identify various probable opportunities of utilizing leasing as part of the wealth-creation process and its subsequent effect on economic growth, so as to identify and highlight the proper utilization of such activity as a strategy to stimulate economic growth in a country.
Leasing is often considered a major part of the investment portfolio. It can also be considered a key ingredient for capitalizing on a business. The present-day lending market is highly dependent on financing sources, which depend upon the availability of various types of capital stocks or funds. These capital stocks are usually offered by banks and other financial institutions with long-term borrowing facilities. Leasing is one type of financial leasing where tenants use their home or any other real estate-owned property as collateral to borrow funds from the leasing companies to perform various leasing activities. These activities include renting out the leased property to the end-user, improving or repairing it, or doing anything else that may be related to business, office, or other similar needs. As such, the property becomes the common property of the leasing company.
The importance of the property tax is understood only when one sees that leasing deals carry a major cost, like other kinds of commercial activities. A property tax is charged on every property which is leased out and hence leases payers have to pay taxes on the basis of usage. It is thus very important to evaluate the tax benefits of every lease deal. The present-day rental rates are generally below the prevailing market rates, which is an added incentive for the tenant.
Leasing companies are aware of the risks involved and so provide leasing deals with extreme flexibility in terms of rent and appreciation. They also offer tax benefits to lease payers. When we talk of property tax, the major thing to understand is the intensity or direct impact of leasing activity on the gross state product. We can speak about two types of intensity namely direct and Indirect Intensity. In the case of direct intensity, the leasing activity has a very direct impact on the production or capacity of a particular physical plant or other physical assets. On the other hand, in the case of Indirect Intensity, the production or capacity of the economic infrastructure or of the firm’s productive assets undergo a considerable change due to the indirect impact of leasing activity.
The direct effect of leasing activity has the characteristics of increasing the economic growth of a State. This happens because the number of industrial production units expanded substantially, as the lease payers bring more power to the table. At the same time, the state increases its capacity to produce various essential physical assets. For instance, when there are more manufacturing units in a State, the infrastructure requires a larger number of technicians, engineers, foremen, and so on. Thus, there is upward pressure on the employment level as well as on the demand for technicians, especially for those involved in leasing activities. This upward pressure of the industrial production process leads to the rise in real estate values, which can be used as the basic economic base of the State.
Another important economic factor associated with leasing is technological upgrading. The State’s overall economic growth is mainly dependent on the technological upgrading of various State facilities and systems. Thus, leasing activities can have a positive impact in terms of industrial production capacity. For instance, a State that is experiencing a shortage of certain technological assets may be able to attract the leading firms to invest in upgrading the system and facilities through leasing contracts. Thus, the State will be able to realize its own technological upgrading goals by utilizing the leasing resources effectively. The above-mentioned economic factors further describe how leasing schemes can affect the total economic growth of a State.
The other important economic feature that is characterized by such leasing schemes is the excessiveness of fixed equipment used during State operations. Fixed equipment used in State operations has a high fixed cost and variable cost involved in its operation. Thus, the excessiveness of fixed equipment can lead to significant savings for the State. A State which uses such excess equipment can have a greater ability to utilize those savings through different means such as investing in other ventures. Finally, the above-mentioned features on the effect of leasing on the economic growth of a State are all explained through the theory of perfect competition. In a competitive environment, the firm that has the most effective leasing policy will be able to attract more customers to avail of its services. As such, leasing plays a critical role in the growth of a State.
Hence, it is important to understand the role of leasing from various perspectives such as its role in economic development, technological up-gradation, and the use of excess equipment for productive up-gradation.