Prime Minister Narendra Modi's ambitious project HousingFor All has the potential to push up the country's economy by 3.5 per centby 2022 with sectors supplying crucial inputs to the construction industrybeing the biggest beneficiaries, says India Ratings.
According to the report, sectors like cement, iron and steel, which supplycrucial inputs to the construction industry, are expected to be the biggest beneficiariesof the Housing for All (HFA) programme.
The agency estimates the cost of constructing 20 million houses duringFY16-FY22 will be around Rs 2,14,286 crore per annum.
"This indicates an increase in the construction sector's gross valueadded (GVA) by Rs 2,14,286 crore which will increase the size of the Indianeconomy by 3.5 per cent in FY16. The direct impact is estimated to be 1.52 percent and indirect impact 1.98 per cent," India Ratings's Chief Economistand Head Public Finance Devendra Pant said.
The central government will provide a grant for slum households to thestates, central assistance directly to households and interest subvention.Therefore, the overall fiscal impact is estimated to be 0.16 per cent of GDP inFY16, the report added.
"The construction sector has the highest employment multiplier, and HFAhas the potential to increase employment by 1.6 lakh man years annually. Theimpact will be felt across all states. However, Uttar Pradesh, Maharashtra andWest Bengal are likely to be the major beneficiaries," he said.
While the cement and steel sectors will get a boost from the project, thesesectors may also act as a constraint in realising HFA by 2022 if we assume thatthere are no other impediments.
Additional annual steel demand, mainly bars and rods, for HFA is estimatedto be 24.6 per cent of FY14 production levels.
Similarly, additional cement demand is estimated to be 13.2 per cent of FY15cement production. Clearly, the incremental steel and cement demand is huge.
Pant, however, noted that there are other execution challenges. "Whilethe programme has been announced, not much has happened on the ground. Weexpect time overruns in HFA programme to lead to cost overruns," he said.
Besides, the project would also increase the demand for municipal servicessuch as sewage, drinking water, sanitation, solid waste and city transport,among others.
"As such, urban civic infrastructure services are under stress. Theburden added by HFA will accentuate the stress as municipal authorities aremostly cash strapped. The way out is to allow municipal authorities to tap thebond market as support from upper tier government in the form of grants willnot be enough to bridge their revenue expenditure gap," Pant added.
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