On 4 October 2023, the newspapers headlined the approval by the Expenditure Finance Committee (EFC) of a new affordable housing scheme to provide an interest subsidy of Rs 60,000 crore on home loans for the urban poor.
Only the bare minimum details were reported – the scheme would operate for five years and offer interest subvention of around 3-6% per annum on home loans of up to Rs 50 lakhs.
A Credit-Linked Scheme (CLS) was in operation between 2015-2022 which provided interest subsidies to over 25 lakh houses ranging from 6.5% for Economically Weaker Sections (EWS) to 3% for Middle-Income Group II (MIG-II) beneficiaries.
Why is the government bringing the scheme in a hurry to offer such liberal interest subsidies when the Lok Sabha elections are round the corner?
Will this gambit work?
CLS Principal Instrument of PM Awas Yojana (Urban)
Modi government’s ambitious housing for agenda was eloquently captured in the address of the President of India to the Joint Session of Parliament on 9 June, 2014: “By the time the Nation completes 75 years of its Independence, every family will have a pucca house with water connection, toilet facilities, 24x7 electricity supply, and access.”
The government launched Pradhan Mantri Awas Yojana (Urban) – Housing for All Mission in June 2015 to address the affordable housing segment. Promotion of affordable housing through Credit-Linked Subsidy (CLS) was one of the four programme verticals, which included slum rehabilitation of slum dwellers, affordable housing in partnership with public and private sectors, and subsidy for beneficiary-led individual house construction/ enhancement.
The CLS scheme is a central sector scheme, with the Government of India bearing all expenditures.
As per the latest progress report available on the PMAY-U dashboard, the government had sanctioned a total of 118.90 lakh houses under the scheme, of which 113.34 lakh have been grounded and 77.16 lakh completed. Of these houses, 25.04 lakh houses were sanctioned under the CLS scheme which provided interest subsidy.
The report also states that the GoI has spent Rs 1,43,909 crore on PMAY-U schemes (out of the total commitment of Rs 2 lakh crore). Of this, Rs 58,868 crore was spent on the CLS scheme towards the present value of the interest subsidy due, paid fully upfront.
As there is no budget provision for the CLS scheme for 2023-24, it is reasonable to assume that all of the interest subsidy liability for 25.04 lakh houses has been fully disbursed.
The payment of Rs 58,868 crore for 25.04 lakh houses works out to Rs 2.35 lakh per beneficiary.
New Affordable Housing Scheme Will Cost More, Benefit Less
Rs 60,000 crores approved by EFC for the new affordable housing scheme is tantalisingly close to Rs 58,868 crores spent under the CLS scheme. The scheme had ceilings on carpet area, household income, and housing loans eligible for interest subsidy.
In terms of carpet area, EWS, LIG, MIG-I, and MIG-II had a ceiling of 30, 60, 160, and 200 square meters respectively. The government will probably not tinker with these limits.
In terms of household income ceilings, it was Rs 3 lakh for EWS, Rs 3-6 lakh for LIG, Rs 6-12 lakh for HIG I and Rs 12-18 lakh for HIG II. These income limits might undergo some change.
It is the housing loan limits, which seem to be in for a big relaxation. In the CLS, the housing loans eligible for interest subsidy were capped at Rs 6 lakhs for EWS & LIG, Rs 9 lakhs for MIG-I, and Rs 12 lakhs for MIG-II, though the beneficiaries were free to take higher loans from the banks and financial institutions.
There was no upper limit for availing of the housing loan under CLS. The limit of Rs 6/9/12 lakh was only for interest subsidy. Therefore, if the EFC has raised the per-beneficiary housing loan limit to Rs 50 lakh, it must be for the MIG-II class making such big loans eligible for interest subsidy.
This liberalisation would be too radical a departure. Rs 18 lakh loan eligible for interest subsidy raised to Rs 50 lakh! Clearly, in such a situation, per beneficiary interest subsidy paid by the government would shoot up from Rs 2.35 lakh under CLS to Rs 7-10 lakh under the new scheme. It will be a huge giveaway.
On the converse, the beneficiaries would reduce to about 1/3rd of the CLS ie, about 7-8 lakhs in place of 25 lakhs.
No Good Time To Initiate the Scheme
Why is the government doing it?
Housing purchase data indicate that the demand for affordable housing (which incidentally is defined as that costing Rs 50 lakh or less) is losing stream in the metro towns, which might not be the trend in non-metro towns though. The bank and non-bank loan data indicate that the strong demand for housing loans is cooling a bit. The government might be keen to keep the demand for steel, cement, and construction in the economy propped up.
The middle-class constituency is quite important. The CLS, along with a large income tax rebate on housing loans, served that constituency. The government might be keen to reach out to this constituency before the Lok Sabha election.
The government might not be able to roll the scheme out before the elections, though.
The scheme cleared by the EFC would be a new scheme as the erstwhile CLS scheme closed on 31 March 2022. There is no budget provision for the new scheme in the current year 2023-24 either. Therefore, the scheme can only be operationalised, at the earliest, in March 2024 after the interim budget is approved.
Can the Government Follow the PM Kisan Model of 2019?
The PM Kisan scheme, announced and budgeted in the Interim Budget 2019-20 envisaged only cash payment in installments, which could be paid at the click of a button in the bank accounts of its beneficiaries. The affordable housing interest subsidy scheme will have a long drawn-out process, on the contrary.
From locating a land plot or a house/ apartment to construct or buy, going to the bank for a loan, to sanctioning by the bank, working out the present value of the stream of interest payable over 20 years to go to the government and approval thereof takes months. There is no likelihood of these actions getting initiated for any notable number of beneficiaries before the Lok Sabha elections.
Therefore, unless the government intends only to send down a feel good message, there is no point in approving and initiating this scheme before the Lok Sabha elections. Let the new government take a call.
(The author is former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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