Given the employment benefits from housing construction, apart from the fact that several million houses will get constructed, the scheme is a welcome one, and not just from the point of view of the votes this will help attract.
Given the government’s thrust on facilities for the poor, it is almost certain there will be a big increase in most programmes for the poor, from low-cost housing to schemes like MNGREGA. From Rs 1,700 crore in FY16, for instance, urban housing schemes—Pradhan Mantri Awas Yojana (Urban) and credit-linked subsidy scheme—saw their outlay increase to Rs 5,400 crore in FY17 and a target of Rs 7,400 crore in FY18. Kotak Institutional Equities expects this to rise further to Rs 11,200 crore in FY19. In the case of rural India, it expects a 30% jump in the FY19 allocation for various programmes. For the Pradhan Mantri Awas Yojana (Rural), allocations rose from Rs 10,100 crore in FY16 to Rs 16,000 crore in FY17 and a budgeted Rs 23,000 crore in FY18—Kotak estimates this will rise to Rs 34,500 crore in FY19. Given the employment benefits from housing construction, apart from the fact that several million houses will get constructed, the scheme is a welcome one, and not just from the point of view of the votes this will help attract. According to a McKinsey report, in urban India alone, the demand for affordable housing will increase to 38 million housing units in 2030 from 19 million in 2012.
What needs to be kept in mind, however, is the NPAs that get generated from these subsidised loans. According to data in the latest RBI Bulletin, NPAs in the overall housing loan sector were around 1.1% in FY17—that is, even while property prices fell, home-buyers did not default. This could possibly be a function of the cash component in most home-buying—if, say, 30% of the house is paid for in cash, no one will default since, if the bank repossesses the house, they will lose this component completely. But for loans less than Rs 2 lakh, the NPA levels are a whopping 10.4% in FY17—up from 9.8% in FY16—making it clear that this group of home-owners lack the wherewithal to fund their loans, despite the loan being subsidised. While the government then needs to decide on whether such loans are even viable, if it does decide to continue, it is only fair that it compensate banks for the NPAs and adds it to the costs it is budgeting for. While public sector banks are already burdened with high NPAs, and from priority sector lending that is thrust upon them, it is quite unfair to add to the burden.
Another similar problematic area is that of education loans, a thrust area for the government given its desire to ensure as many Indians get educated as possible. Education loans have risen rapidly from Rs 28,579 crore in FY09 to Rs 67,678 crore in FY17 and, according to the Indian Banks Association, NPAs rose to 7.7% in FY17 from 5.7% two years ago. In which case, the government needs to think about whether it should be pressuring banks to give such loans—and those up to Rs 4 lakh are given without collateral. Even if ensuring no poor student gets left behind due to the lack of funds, the government could try to come up with some innovative solutions. Making it compulsory to link loans with Aadhaar numbers and making this information available public would, for instance, deter future employers from hiring these students and therefore force them to pay back on time. And as far as loans taken for local education are concerned, coming up with a way to tag degrees with data on whether the loan has been repaid or not is another possible solution.