India to boost rural housing spending by 50%

The Indian government is set to boost its investment in rural housing by 50 per cent, surpassing $6.5 billion in subsidies. This increase follows electoral challenges for the ruling party.

The planned hike in housing subsidies is just one facet of a larger government initiative. This initiative aims to bolster spending on various aspects of rural infrastructure.

These include village roads and a job creation programme designed to assist millions of young people currently struggling in the agriculture sector due to limited opportunities in manufacturing.

If approved, this plan would represent the biggest annual increase in federal spending for the rural housing programme since its launch in 2016.

The government is concerned about the widespread economic distress in rural areas, explained a government source familiar with budget discussions. This distress is fuelled by rising food inflation and stagnant growth in farmers’ incomes.

The stock market reacted positively to the news of a possible increase in spending. Shares of Housing and Urban Development Corporation (HUDC) rose by nine per cent, while Aadhar Housing Finance and GIC Housing Finance saw gains of around 4.5 per cent.

The government plans to build 20 million more houses in rural areas under the PM Awas Yojna (Rural) scheme, following the support provided for 26 million homes for low-income families in the last eight years.

Finance Minister Nirmala Sitharaman is anticipated to reveal details of this plan during the upcoming budget presentation later this month.

A government source shared potential budget figures. Federal subsidies for rural housing may surpass 550 billion rupees ($6.58 billion), up from the previous 320 billion rupees.

State spending on the rural jobs programme could also increase significantly, possibly exceeding the earlier estimate of 860 billion rupees. Approval for this extra spending may be sought outside the formal budget process.

The source further noted that a proposal for increased spending on village roads, potentially exceeding the current fiscal year’s estimate of 120 billion rupees, is also under consideration.

Both government sources requested anonymity due to restrictions on discussing budget proposals with the media.

Economists and industry leaders stressed the importance of boosting rural spending during pre-budget consultations to drive consumer demand. Private consumption is lagging behind the overall economic growth rate of nearly eight per cent annually.

The sources added to build 20 million homes for rural low-income families, the federal and state governments plan to allocate up to four trillion rupees ($47.89 billion) over the next few years. The federal government is expected to contribute around 2.63 trillion rupees to this initiative.

Last month, upon assuming office, Modi’s cabinet announced plans to support the construction of 30 million houses in both rural and urban areas. However, no specific financial details were disclosed at that time.

Citing rising raw material costs, the Ministry of Rural Development has proposed raising state subsidies to about 200,000 rupees ($2,395) per housing unit. This represents an increase from the previously allocated 120,000 rupees.

Attribution: Reuters