<p>The urban housing shortfall in India has been well-researched, documented and debated. The Pradhan Mantri Awas Yojana (PMAY), the largest social housing scheme in the world, has successfully delivered 8.5 million homes out of a sanctioned 11.8 million, according to the Press Information Bureau.</p>.<p>The last decade has seen an ecosystem of financial services, risk assessment, and delivery mechanisms built around it. PMAY-Gramin (PMAY-G) is even more ambitious. The original target of 2.95 crore houses by 2023-2024 was increased by another two crore in August 2024.</p>.<p>The expected impact cannot be overstated as the rural population currently stands at 833 million with a per capita GDP of Rs 40,925 – less than half of urban India at Rs 98,435. The majority of rural homes remain well below an acceptable standard of living.</p>.<p>This has a number of implications on health, resilience, and economic outcomes. Most lack basic sanitation and are vulnerable to calamities. This affects nearly two-thirds of the Indian population and explains the thrust given by the government to prioritising PMAY-G. In spite of the need and will, a robust ecosystem for logistics, delivery and finance has failed to evolve.</p>.<p>The subsidy amount of Rs 120,000 in the plains, Rs 130,000 in hills plus Rs 12,000 for toilets is insufficient for a basic house of even 300 sq ft. The beneficiaries end up building one room at a time, many times substandard and disjointed. Delivery of the subsidy is also an issue and intermediation charges are often as high as 15 per cent of the disbursed amount. This largely negates the aim of the programme. According to a recent study by Habitat For Humanity, rural and peri-urban India has an estimated 17 million unfinished homes that are not habitable.</p>.<p>The biggest catalyst for PMAY-Urban was the access to finance for beneficiaries in the informal sector. The Indian mortgage market over the past few years has demonstrated that the risk for mortgages in the informal sector were drastically mispriced. Indian lenders have been path-breaking in providing access to credit at reasonable rates for customers who, till then, were considered non-bankable. But this is largely confined to dense urban regions; access to credit is still challenging to borrowers in the country’s peri-urban and rural areas.</p>.Rural Development department eyes biz establishments in gram panchayats for revenue.<p><strong>Disparities in microfinance</strong></p>.<p>Rural India has very low mortgage penetration and in spite of the government’s path-breaking Jan Dhan Yojana, access to credit has remained abysmally low. Microfinance for most remains the only means of credit. Housing microfinance, a fast-emerging sub-segment, fails to deliver as the short tenure and the high interest rates make it unviable for anything but some rudimentary home improvements.</p>.<p>A typical rural housing microfinance loan would have a tenure of five years and an interest rate of 20 per cent whereas in urban areas in the informal sector, the loan would have a tenure of 15 years at an interest rate of 12 per cent or less. This means that for a Rs-5 lakh loan, the EMI in urban areas would be Rs 6,000 compared to Rs 13,246 in rural areas. For a demographic with a monthly GDP of Rs 4,000, finance and a liveable house remain a distant dream.</p>.<p>The impact of PMAY-G is much diminished, a problem that the government recognises. The key factor here is the lack of financial data, small ticket size and lack of a robust delivery mechanism that greatly amplifies the cost of service.</p>.<p>India remains at the forefront of digital payments in the world. UPI has managed to penetrate even the remotest of rural locations and it is now possible to go virtually cashless in the country. UPI and digital wallet data record both inward and outward transactions including frequency and purpose. This gives a deeply granular understanding of a person’s financial profile. UPI and digital wallet data could well be the game-changer for repricing the risk in India’s peri-urban and rural areas. It could also be a key delivery mechanism for subsidies and other government incentives that fail to reach the intended beneficiaries.</p>.<p>Rural financial inclusion could bring the next wave of growth for the Indian economy – all it requires is a bit of intent and some flexibility from the government, the regulator, and the financial ecosystem. The impact of financial inclusion could potentially act as the next big driver for GDP growth and a means to bridge the rural-urban divide.</p>.<p><em>(Dhaval is an associate professor and Sharadbala is a senior researcher and visiting faculty at Anant National University)</em></p>
<p>The urban housing shortfall in India has been well-researched, documented and debated. The Pradhan Mantri Awas Yojana (PMAY), the largest social housing scheme in the world, has successfully delivered 8.5 million homes out of a sanctioned 11.8 million, according to the Press Information Bureau.</p>.<p>The last decade has seen an ecosystem of financial services, risk assessment, and delivery mechanisms built around it. PMAY-Gramin (PMAY-G) is even more ambitious. The original target of 2.95 crore houses by 2023-2024 was increased by another two crore in August 2024.</p>.<p>The expected impact cannot be overstated as the rural population currently stands at 833 million with a per capita GDP of Rs 40,925 – less than half of urban India at Rs 98,435. The majority of rural homes remain well below an acceptable standard of living.</p>.<p>This has a number of implications on health, resilience, and economic outcomes. Most lack basic sanitation and are vulnerable to calamities. This affects nearly two-thirds of the Indian population and explains the thrust given by the government to prioritising PMAY-G. In spite of the need and will, a robust ecosystem for logistics, delivery and finance has failed to evolve.</p>.<p>The subsidy amount of Rs 120,000 in the plains, Rs 130,000 in hills plus Rs 12,000 for toilets is insufficient for a basic house of even 300 sq ft. The beneficiaries end up building one room at a time, many times substandard and disjointed. Delivery of the subsidy is also an issue and intermediation charges are often as high as 15 per cent of the disbursed amount. This largely negates the aim of the programme. According to a recent study by Habitat For Humanity, rural and peri-urban India has an estimated 17 million unfinished homes that are not habitable.</p>.<p>The biggest catalyst for PMAY-Urban was the access to finance for beneficiaries in the informal sector. The Indian mortgage market over the past few years has demonstrated that the risk for mortgages in the informal sector were drastically mispriced. Indian lenders have been path-breaking in providing access to credit at reasonable rates for customers who, till then, were considered non-bankable. But this is largely confined to dense urban regions; access to credit is still challenging to borrowers in the country’s peri-urban and rural areas.</p>.Rural Development department eyes biz establishments in gram panchayats for revenue.<p><strong>Disparities in microfinance</strong></p>.<p>Rural India has very low mortgage penetration and in spite of the government’s path-breaking Jan Dhan Yojana, access to credit has remained abysmally low. Microfinance for most remains the only means of credit. Housing microfinance, a fast-emerging sub-segment, fails to deliver as the short tenure and the high interest rates make it unviable for anything but some rudimentary home improvements.</p>.<p>A typical rural housing microfinance loan would have a tenure of five years and an interest rate of 20 per cent whereas in urban areas in the informal sector, the loan would have a tenure of 15 years at an interest rate of 12 per cent or less. This means that for a Rs-5 lakh loan, the EMI in urban areas would be Rs 6,000 compared to Rs 13,246 in rural areas. For a demographic with a monthly GDP of Rs 4,000, finance and a liveable house remain a distant dream.</p>.<p>The impact of PMAY-G is much diminished, a problem that the government recognises. The key factor here is the lack of financial data, small ticket size and lack of a robust delivery mechanism that greatly amplifies the cost of service.</p>.<p>India remains at the forefront of digital payments in the world. UPI has managed to penetrate even the remotest of rural locations and it is now possible to go virtually cashless in the country. UPI and digital wallet data record both inward and outward transactions including frequency and purpose. This gives a deeply granular understanding of a person’s financial profile. UPI and digital wallet data could well be the game-changer for repricing the risk in India’s peri-urban and rural areas. It could also be a key delivery mechanism for subsidies and other government incentives that fail to reach the intended beneficiaries.</p>.<p>Rural financial inclusion could bring the next wave of growth for the Indian economy – all it requires is a bit of intent and some flexibility from the government, the regulator, and the financial ecosystem. The impact of financial inclusion could potentially act as the next big driver for GDP growth and a means to bridge the rural-urban divide.</p>.<p><em>(Dhaval is an associate professor and Sharadbala is a senior researcher and visiting faculty at Anant National University)</em></p>
