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Mumbai: The severe housing problem in India can be easily resolved in a minimum gestation period with less adverse impact on the fiscal position of the country by providing effective boost to the sector. A small initiative in housing will propel multiplier effects in the economy through the generation of demand in recession-hit core sectors.

The initial push to the housing sector is currently getting implemented with Prime Minister A B Vajpayee announcing the first decade of the 21^st century as the decade of housing revolution. Still, there is a long path to traverse.

Today, the housing and construction sector is not fully integrated in line with the macro-economic governance of the nation. The overall productivity in this sector is well below its actual potential. According to one McKinsey report, housing is growing slowly at just 4 per cent per year and contributes a mere 1 per cent per year to Indias GDP.

Its current productivity level in India is 15 per cent of the GDP, whereas the sector has the potential to achieve the 90-per cent level. Labour productivity in the sector is less than one-fifth of its actual potential. The share of the housing and construction sector to employment is hardly 1 per cent. If all these hurdles in this sector are removed, then the sector has the ability to generate 3.2 million jobs by the year 2010.

Housing shortage
The total housing requirement as per Ninth Plan (1997-2002) projections will be 33.1 million (urban: 16.7 million; rural: 16.2 million). In the event of continuance of the 2-million housing programme as per the existing framework, the total urban housing requirement (shortage and new housing) during the Tenth Plan period (2002-2007) would be 22.33 million, which is estimated to 16.7 million in the Ninth Plan period.

This represents a 33.7-per cent growth in shortage from the Ninth Plan to the Tenth Plan. Assuming the trend would continue over the two Plan periods, the total housing requirement in the urban and rural areas would be 44.7 million units as against 33.4 million during the Ninth Plan period.

Notwithstanding the importance of the housing sector, the share of investment in this sector to the total investment in the economy has declined from 34.2 per cent in the First Five Year Plan to a paltry 9.7 per cent in the Eighth Five Year Plan. Depending on the estimates of housing shortage, the funds required to bridge this gap vary from Rs 1,510 billion to Rs 2,000 billion.

• For rural families with an annual income below Rs 32,000 per annum, assistance has been provided for constructing 1 lakh houses under the Credit-cum-Subsidy Scheme; Rs 92 crore has been provided for this scheme.
• Budget 1999-2000 announced the Golden Jubilee Rural Housing Finance Scheme of National Housing Bank, in order to target 1.25 lakh units in 1999-2000.
• Under Indira Awas Yojana in 2000-01, the government proposed to provide more than 12 lakh houses for people below the poverty line. For this purpose, an amount of Rs 1,501 crore was earmarked in the budget.
• The government opened foreign direct investment in real estate and township development. This is welcome. But the minimum investment of 100 acres as directed by the government may prove to be a huge entry barrier. It is probably overly optimistic to expect foreign investors, who do not have the first-hand knowledge of operations here, to make such large-scale investments at the entry stage.
• The Urban Land (Ceiling and Regulation) Act was repealed by many states (Delhi, Punjab, Haryana, Rajasthan, Gujarat, Karnataka, Tamil Nadu and partially in Maharashtra), but other states have also to follow suit.
• Prime Ministers Gramodaya Yojana 2000-01, based on the pattern of Indira Awaas Yojana, allocates Rs 280 crore for constructing 1.4 lakh houses in 2001-02.
• On 24 October 2001, the union cabinet approved a housing scheme for urban and poor people under Valmiki Ambedkar Awas Yojana with a total allocation of Rs 2,000 crore per year. The scheme seeks to provide 4 lakh houses per year to slum-dwellers and the urban poor across 5,161 towns and cities in India. Of Rs 2,000 crore, Rs 1,000 crore will be provided as subsidies from budgetary resources, and the balance will be in the form of loan from HUDCO. The government expects around Rs 500 crore of the Rs 2,000 crore this year. The average cost of housing units will be around Rs 40,000 to Rs 60,000 depending on the city population.
• The central government, as part of its plan to provide shelter for all, is expected to construct 36 lakh houses for the next 10 years.
• Twenty per cent tax rebate under section 88 of the Income Tax Act. This would now be available on for repayment of housing loans up to Rs 20,000 per year as against Rs 10,000 earlier.
• The government is likely to extend the benefit of 10-year tax holiday to housing projects in the forthcoming budget in line with the rationalisation of such facility given to core sector projects last year.
• In a bid to boost housing and urban development finance, the government will double its equity base in HUDCO to Rs 2,500 crore. This will require fresh equity infusion of Rs 1,250 crore.

The housing sector in India has the potential to bring back growth in the economy. The sector is recognised as a major vehicle to produce and create wealth, generate employment and earn foreign exchange. But, sadly, the sector is still in the nascent stage of development. India has vast opportunities in housing, but little has been done to harness the potential.

Nanda is the chief economist with Gujarat Ambuja Cements Ltd. She can be contacted at: knanda@ambujamail.com