The Government plans to provide interest subsidy of 6.5 percent to the Economically Weaker Sections to enable them to buy homes. The concern is welcome. But usefulness of such subsidy is doubtful because EWS households simply do not have the incomes to buy a house. The problem is brought out by just one statistic. A report by Real Estate Consultancy firm Jones Lang Lasalle says housing shortage in India in 2007 for MIG and HIG was only 0.2 percent; for LIG 10.5 percent and for EWS a whopping 99.9 percent! This means that all the problems supposedly besetting the housing sector have not prevented the real estate firms from supplying nearly 17 million houses to the MIG and HIG households. These households have money to spend. The builders have found ways to overcome the problems. EWS households do not have purchasing power hence the builders are not interested in building houses for them. Main problem in providing housing for the poor is that they do not have the income to buy the houses.
Question is whether interest subsidy will enable EWS households to cross the threshold and enable them to buy houses? Let us look at the experience of other countries who have implemented similar schemes. The National Shelter Program provide housing for the poor in Philippines. It was found that the beneficiaries abandon or transfer the homes they are awarded. The EWS houses are necessarily made some distance away from the city center because land is prohibitively expensive near the city center. The EWS households do not have opportunities to earn livelihood where the houses are provided. Also, essential services like those of bus are deficient so they cannot reach their work places. EWS households prefer to live in smaller houses that are near to their work places. A report on the Baan Mankong participatory slum upgrading program in Thailand says that while the beneficiaries appreciate their new houses, they are wary of the resulting burden. They do not have the income to pay the installments on the new houses. A study done by the Inter American Development Bank says the problem in Latin America is that there are insufficient resources to solve the problem; and there is high dependence on subsidies. The EWS households do not have income hence the Government has to subsidize the house hugely to make them affordable. The governments do not have the resources to provide these amounts of subsidies. Similar findings are available from other countries. I have not found a single such project that is successful. Everywhere the problem is that EWS households do not have the money to afford even the subsidized houses.
Strategy of the Modi Government is to reduce the price of the houses. Interest subsidy is one step in that direction. Other measures that are suggested are increase in Floor Area Ratio, exemption from Rent Control Act, reducing the time taken in obtaining clearances for construction, easier funding from banks, and dilution of construction norms. Indeed these will help if implemented. My assessment, however, is that the cumulative impact of all these measures would bring the price of housing down by, say, 25 percent. That would still be much inadequate. The guard who does 12 hours duty in the Society where I live in Ghaziabad is paid Rs 8,000 per month. He pays rent of Rs 1,500, spends Rs 3,000 towards food and living expenses, Rs 1,000 for contingencies, and Rs 2,500 sent to the village for maintenance of his family. That leaves him with no surplus. He could, at best save Rs 2,500 if he did not have to support his family in the village. A back of the envelope calculation indicates he could possibly take a loan of Rs two lacs and be able to service the same at an interest rate of six percent which he will have to pay after availing of a subsidy of 6.5 percent as proposed by Modi. But what will he get in Rs two lacs? Not even a one room tenement. Inquiries reveal that minimum Rs seven lacs will be required to buy 25 square meters land with one built up room.
Then there is problem of availing the loan. The Pradhan of a village in Uttarakhand told me of the sad plight of the loanees. A gang of touts works hand in hand with the bank officials. The tout will get papers of loan of, say, Rs 50,000 signed by the beneficiary but actually pay him only Rs 20,000. Later, when the Bank issues a Recovery Certificate they will take Rs 2,000 from the loanee and tell the Patwari and the Bank Manager not to pursue the recovery for, say, six months. So the interest keeps on building till the poor fellow has to sell his land. The Pradhan gave strict instructions to the Bank not to extend any loan in his village so that the poor people of his village were spared of such a fiasco. Similarly, rickshaw puller in Varanasi told me he was paying a rent of Rs 1,500 per month or Rs 18,000 per year to the rickshaw owner. The rickshaw cost only Rs 12,000 to buy. When asked why did he not take a loan and buy a rickshaw himself, he said, “I would be running from one office to the other, provide this document and that, pay commissions, and at the end of the day the Bank would give a loan of Rs 8,000 that would be insufficient to buy a rickshaw.” There is such a huge gap in the capacity of the people and the real price of housing that enhancement of subsidy from 4 percent to 6.5 percent will be like a drop in the ocean.
Modi should beware that the Congress has created a system in the last 60 years that perpetuates poverty and provide opportunities to the welfare mafia of government servants to make monies. The EWS households only get dreams. Modi should not perpetuate that disgusting system. Cosmetic policies like increase in interest subsidies will only provide more attraction for the welfare mafia to trap the simple minded households. He will be well advised not to aim for the sky. He should realize that solving the problem of incomes or housing of the EWS households is beyond his capacity. He should instead focus on improving the civic services in the slum areas. Let the per capita expenditure on water, sewage, roads and lighting in the slums be made, if not equal, then, say, 10 percent of the per capita expenditure in Lutyens Delhi. That is doable and will actually provide relief to the 44 million EWS households that will be inevitably be living in cramped quarters ten years down the lane.
