Housing for All - A Demand Booster, But Supply & Funding Challenges Likely: Ind-Ra

The Housing for All (HFA) project will give the Indian economy a much needed boost. However, its success will depend on the ramping up of the existing urban infrastructure, fast tracking of approval processes and also targeting the actual beneficiary, says India Ratings and Research (Ind-Ra).

The direct benefit of HFA to the economy is estimated to be INR 15 trillion in a seven-year timeframe (FY16-FY22). Funding of the investment of INR 15 trillion through public-private partnerships and ramping up the supply of raw materials for construction namely steel and cement are big challenges for the execution of the HFA scheme. Municipal services such as supplying piped water, sewerage, sanitation and municipal solid waste management are also far from being equipped to take on a project of this magnitude in the next seven years.

Apart from providing impetus to the construction sector, the scheme will increase employment opportunities and help grow the services sector. Sectors supplying crucial inputs to the construction sector, such as cement, iron and steel, will also grow. The growth of other sectors will depend on the strength of the forward and backward linkages of the construction sector with the rest of the economy. As the output of sectors supplying inputs to the construction sector increases, it will increase the demand for goods and services in the economy due to higher income generation. The economic impact of the scheme will also be felt at the state level. The biggest beneficiary of this will be Uttar Pradesh, followed by Maharashtra and West Bengal. These are the top three states in terms of housing shortages and increased construction activities will help these states’ economies to grow.

The scheme to provide 20 million houses in three phases over FY16-FY22 has a central grant component (INR100,000 per slum household) going to the state government, and central assistance (INR150,000 other households) is likely to go directly to households. Also, the central government will provide interest subvention to households at 6.5% for loans up to a 15-year tenor through two nodal agencies – Housing and Urban Development Corporation Limited (‘IND AAA’/Stable) and National Housing Bank (‘IND AAA’/Stable). The government will have to find more resources to finance this, so as to adhere to its fiscal deficit target.

Ind-Ra expects the demand for cement for the scheme alone to be closer to FY15 production levels and steel demand to be higher than the production levels of bars and rods. Local bodies will face challenges in supplying piped water, sewerage, sanitation and municipal solid waste management. Also, the present quality of municipal services is far from satisfactory. This will lead to a wide gap between demand and supply, when we compare the current levels of supply with the current demand plus the additional demand from this scheme. An increase in capacity may lead to redundancy post this project and the reliance on imported materials will push up their cost to that extent.