Budget 2011-12 belies hopes of effectively addressing the housing needs of the poor. It fails to provide the much-needed impetus to improve the supply of affordable housing for economically weaker sections (EWS) and low-income groups (LIG), particularly those who live in the urban areas. About 99 per cent of housing shortage pertains to these two socio-economic categories. In absolute terms, by the end of 2012, the deficit will be as staggering as 26 million units. Instead of devising schemes to target this segment, the budget assumes that a broad stimulation of growth in the housing sector will solve the problem. It relies on the upgraded interest subvention scheme, which will now offer one per cent discount on home loans for dwellings priced at Rs.25 lakh and below, and revised home loan limits to improve the supply of affordable housing. But the question is will it? As the Ministry of Housing and Urban Poverty Alleviation points out, any dwelling unit that costs more than Rs.250,000 for the EWS and Rs.500,000 for the LIG will not be affordable. It is clear that the budget schemes that encourage construction of houses priced at Rs.25 lakh and target buyers who can mobilise Rs.10 lakh on their own will neither benefit the poor nor bridge the housing deficit.
The Finance Minister has proposed to set up a Mortgage Risk Guarantee Fund and to offer investment-linked tax deduction for affordable housing schemes. Setting up a risk fund to guarantee housing loans extended to the poor is not a new idea. The draft National Housing Policy proposed it in 2005, recommending a corpus of Rs.500 crore for the purpose. Unfortunately, this proposal was not implemented. It has now been resurrected and integrated with the existing Rajiv Awas Yojana (RAY). However, the ground reality is that RAY, announced in 2009 to improve the housing conditions of the poor, is itself in the preparatory phase, with the parameters yet to be finalised. Providing income tax benefits to encourage private developers to build houses for the poor is one of the approaches successfully adopted by several countries. Indian policymakers who are trying this method for the first time have an important lesson to learn: fiscal incentives by themselves will not produce desired results. Unless it is integrated with a well-worked out delivery mechanism and a regulatory framework, the scheme will not benefit the needy. It is true that State governments also have a responsibility to address the housing needs of the poor. But the Finance Ministry could have done its part better by showing more commitment to meeting basic needs.