Housing Sector's GDP Contribution Projected to Rise, But Budget Support Lacking
The latest Economic Survey indicates that the housing sector's contribution to India's overall GDP is expected to increase by one percentage point, reaching 6%, driven by heightened investment. The housing sector currently represents about 5% of India's GDP. With institutional credit for housing investments projected to expand at a compounded annual growth rate of approximately 18-20% over the next three to five years, the sector's GDP share is poised for this notable increase.
For every rupee invested in housing and construction, Rs 0.78 contributes to the GDP. Investment in these activities serves as an indicator of the overall economic health. However, the 2012-13 Budget appears to have overlooked this critical aspect.
While the finance minister's speech concluded by emphasizing the necessity of fostering an "enabling atmosphere" and highlighting India's potential for "resurgence", the budget's provisions fall short of facilitating such growth.
Prior to presenting the Budget, the finance minister addressed the slowdown in India's GDP growth. Unfortunately, his five-point objective does not adequately address the housing and real estate sectors. While efforts to limit central subsidies to under 2% of GDP aim to enhance public spending quality, the budget fails to implement measures that would invigorate these crucial industries.
Affordable Housing Initiatives and Loan Subvention
The finance minister has allowed external commercial borrowings (ECBs) for low-cost affordable housing initiatives. The efficacy of this measure remains uncertain, as industry players are not accustomed to utilizing ECBs for these types of projects.
The extension of the 1% interest subvention scheme on housing loans up to Rs 15 lakh (for houses costing up to Rs 25 lakh) for an additional year will likely prove ineffective unless the Rs 25 lakh cap is raised.
"India’s GDP has not been growing as it was sometime earlier was the topic of the finance minister before presenting the Budget. His five-point objective does not really lay any emphasis on the housing and real estate industry. While he has tried to restrict central subsidies to fewer than 2 per cent of GDP to improve the quality of public spending, he has failed to provide for measures which will give impetus to the industry at large, housing and real estate in particular."
"The finance minister has permitted external commercial borrowings (ECBs) for low cost affordable housing projects. One wonders if this would do any good, since players in this industry are not used to taking the ECB route for affordable housing projects. This provision therefore does not make sense."
"Extending the scheme of interest subvention of 1 per cent on housing loans up to Rs 15 lakh (on houses costing up to Rs 25 lakh) for another year also does not make sense, unless and until the limit of Rs 25 lakh is increased."