Government’s existing fiscal package to catalyse home ownership in urban India may soon undergo recalibration, with the aim of enhancing the scope of the scheme and tweaking those guidelines that fail to take into account the rapid expansion of urban areas. Such recalibration of the package – collectively bundled under the rubric of Pradhan Mantri Awas Yojana (Urban) – is welcome, as India’s urban housing shortage is acute. One effective way to tackle this challenge is to tailor fiscal policy to allow potential owners to buy houses built by private developers.
A couple of years ago, government estimated that India needed an investment of about Rs 3 trillion to combat housing shortage in urban areas. Resources on this scale are unavailable with the government. So the best possible policy is to design a fiscal package which is in sync with both the aspirations and financial constraints of potential buyers. An added benefit is that buoyancy in construction has a significant effect on many other areas of the economy. It also generates considerable employment. Yet, the pace of construction since PMAY for urban areas was introduced in 2015 has not been up to the mark, which makes the need to tweak its design all the more urgent.
PMAY is not restricted to just low cost housing. It extends to the middle class where an interest subsidy on home loans aims to help potential buyers. The package is implemented through states, which makes it imperative to get all levels of governments on board. Another pre-condition for the success of PMAY is reforms in the housing sector and also in land acquisition laws to make home ownership more affordable. Using feedback to make changes in the existing PMAY package is important by itself. But if we are to see the full potential of this reform it is essential to simultaneously work on other elements contributing to India’s urban housing shortage, such as shortage of land.
States have extensive powers over all aspects of real estate development. NDA has tried to work along with them to alleviate housing shortages. To illustrate, a recent policy announcement on PPP options to boost housing stock was announced after consultation with states. Still, given the complexity of India’s real estate sector, Centre must constantly recaliberate its fiscal package to help with home building.