The recent Government of India decision to make its credit-linked subsidy scheme for urban housing more attractive for the middle income groups by offering them a higher carpet area than what hitherto was the case has come under sharp criticism of the country's top urban experts, who say, it would dilute the "core pro-poor character" of Prime Minister Narendra Modi's much publicised urban housing thrust.
Called Pradhan Mantri Awas Yojana – Urban (PMAY-U), launched in June 2015 and revised periodically, it was designed to provide interest subsidy for houses offered to different income groups. The scheme was first launched for what are called Economically Weaker Sections (EWS) and Low Income Groups (LIG), but was extended to Middle Income Groups (MIG) on December 31, 2016, post-demonetization.
Finding that things were srill not becoming viable for the private players, who were contracted under public-private partnership mode, MIG housing was further categorized into two -- MIG-I and MIG-II -- for households with annual income between Rs. 6-12 lakh and Rs. 12-18 lakh, respectively. The upper limit of the subsidized loan amount under MIG-I was fixed at Rs 9 lakh with 4% interest subvention, the corresponding figures for MIG-II being Rs. 12 lakh and 3%.
As for the EWS households, with an annual income up to Rs 3 lakh, and LIG households with an annual income between Rs 3 and 6 lakh), they would be getting interest subsidy of 6.5% for loan amounts up to Rs 6 lakh for the maximum period of 20 years, and loans above the stipulated amount would not be subsidized.
To make the scheme further "attractive", again for MIG, last month, in a surprise move, the Cabinet announced increase in the carpet area for the MIG-I category from 90 square metres (sq m) to up to 120 sq m and for the MIG-II category from 110 sq m to 150 sq m.
Attached with the Institute for Human Development, New Delhi, Amitabh Kundu and Arjun Kumar have said, in an effort to woo MIG, Modi government appears to have forgotten what the Technical Group on Urban Housing Shortage, 2012–17 (TG-12) had noted -- that the households from EWS and LIG account for 56.18 per cent and 39.44 per cent, respectively, of the total estimated urban housing shortage of 18.8 million.
"Households with monthly income up to Rs. 5,000 are placed in EWS while those with income between Rs 5,000 and Rs 10,000 constitute the LIG", the scholars said, adding, "EMI amount more than around Rs 1,500 at current prices is not affordable for poor, if the expenditure pattern as given in the National Sample Survey is taken into consideration."
"A loan amount of Rs 3-6 lakh at the subsidized interest rate sanctioned for a period of 15 years would mean an EMI between Rs. 3,000 - 5,000 per month. Thus, repayment of the loan amount with interest, amounting to more than 50% of their earnings, would be a major issue for the poor", they add. experts said.
With MIG apparently becoming a major target of the Modi government, the experts say, "The chances of the targeted intended beneficiaries being missed (both exclusions of intended beneficiaries and inclusion of non-intended beneficiaries) have thus gone up enormously."
This year, said the experts, the budget esallocation for interest subsidy under PMAY-U, at Rs 5,075 crore in 2016-17, has been increased to Rs 6,043 crore in 2017-18, but of this Rs 1,000 crore is proposed for MIG, adding, recent changes seeking to open of a window for middle income housing have "come up due to the lukewarm response of the poor and LIG and low off-take of loans."
While new measures "will spur the house construction activities, attracting private and foreign investments", may have a "multiplier effect on GDP and labour market and benefit the real estate and builder’s lobby and the middle class", the experts complain, "There is a serious risk that the middle-class will corner much of the subsidies offered, with the poor being pushed out, primarily due to the latter’s lack of repayment capacity and failing to meet the documentation and other formal requirements."