Rural housing: restructuring of flagship scheme must

The shortage of housing in urban and rural areas is endemic. This shortage of housing is in itself not surprising, considering factors such as rising population and disposable incomes. The continuous surge in prices of houses over the years has only added to the allure of owning a house. Due to various reasons, rural housing has not received much attention. In contrast, the shortage of housing in urban areas has received widespread attention due to the rapid growth in the number of urban households because of rising population, migration and rapid urbanisation.

The attempt to encourage rural housing is not new. It goes back to 1983, when the Rural Landless Employment Guarantee Programme for Below Poverty Line beneficiaries was launched. Rural housing programme has had a number of makeovers: it was re-launched as Indira Awaas Yojana in 1985, and subsequently as Rajiv Awas Yojana in 2005, and in 2015 as Pradhan Mantri Gramin Awaas Yojana. Over the years, financial assistance increased from Rs 70,000 to about Rs 1.20 lakh (present), with a provision for a loan for upto Rs 70,000 from the banks.

Demand and progress

The demand for housing is increasing faster than the growth in the number of households. Census data indicates that while the rural households have increased by about 22% in 2011 compared to that of 2001, the number of residential occupied households has increased by about 29% in the same period. Government statistics claim that a total of 97.28 lakh beneficiaries have registered.

The Ministry of Rural Development, Government of India’s target is about 95.41 lakh houses, while the target fixed by the states is about 94.69 lakh houses, of which, 78.61 lakh houses have been sanctioned and 36.34 lakh houses completed. The total outlay for the programme is Rs 1.30 lakh crore for one crore houses to be completed by March 31, 2019. The cost will be shared at the rate of 60:40 between the Centre and the states.

The scheme is based on direct benefits transfer (DBT) of subsidy to the bank account of the beneficiary. Government subsidy can be disbursed through a minimum of three installments and upto seven stages. Funds would be released after predetermined stages of completion. The first instalment has to be released within seven days of the issue of the sanction order. The house construction has to be completed within 12 months from the date of sanction.

Issues and problems

Any investment by the government in rural housing in particular is welcome. However, the progress of the rural housing programme has been tardy. The causes for the slow progress are mostly structural — the manner in which the programme is structured. In the three years since it was launched by the central government, only about 42% of the beneficiaries became eligible for the fourth instalment. The deposit of money directly into the bank in the era of cash shortages means that timely availability of funds is an added obstacle.

The manner in which the present rural housing programme is structured, creates a peculiar complexity: it is leading to an increase in indebtedness of the rural households despite the subsidies and the promise of lower cost and availability of sector credits.

Usually, the government subsidy offered is not sufficient and most households tend to build larger houses with what is offered by the government. There are a variety of reasons for this, that include, the necessity to accommodate a larger family and even joint families in one house.

Although the cost of construction has been rising constantly, the subsidy provided by the government is fixed. This means that households have to make good the difference.

In most cases, the beneficiaries tend to borrow from lenders or banks to meet the costs of building a house larger than the government-supported one. Government support comes in a trickle and in phases, long after the completion of a milestone, meanwhile, informal pay-offs add to the costs.

The cost of construction is front-loaded while government subsidy and possible bank loans are given after the construction work is completed. This means that at every stage, the beneficiaries end up borrowing money. In most cases, these borrowings are from the informal lenders and at a higher cost than the banks or the formal sectors.

As a result, the sad reality of rural housing is that, it is essentially a leveraged investment: a typical case of borrowing short-term to create a long-term asset. Thus, the manner in which rural housing programmes are structured, only add to the existing debts of the household owner rather than ameliorating the conditions of the beneficiaries.

Need for changed structure

Therefore, if the government wants to make rural housing programme truly beneficial to the house owners, it needs to urgently restructure the programme.

A good starting point of will be to rework the number of instalments for the release of government subsidy, to make it more meaningful and limit the number of phases for its release — to not more than three phases.

Larger amounts of funds released can quicken the work and will reduce the need for people to borrow. Furthermore, there is a need to increase the amount payable at the time of the sanction of the loan. Unless these changes are introduced, indebtedness will keep increasing and that in turn will slow down the pace of construction.