Local bodies can't be ignored in schemes for urban housing, infrastructure

Most hurdles in the way of sufficient supply of housing for the poor have been created by the states and the urban local bodies

Prime Minister Narendra Modi unveiled three different urban-focused schemes on Thursday - the Smart Cities Mission, the Atal Mission for Rejuvenation and Urban Transformation (Amrut) and the "Housing For All" scheme. Barring the Smart Cities Mission, little is really new here: Amrut repackages the Jawaharlal Nehru National Urban Renewal Mission of the previous United Progressive Alliance government and the "Housing for All by 2022" mission seeks to repackage its Rajiv Awas Yojana. Both the affordable housing missions begin from the official estimate of an 18.8-million housing shortage in urban India in 2012 with the aim to address this substantially by 2022. The National Democratic Alliance (NDA) mission seeks to create 20 million houses by then. This is important, as McKinsey has estimated that unless the issue is addressed, the housing shortage will climb to a colossal 38 million by 2030.

The housing-for-all mission, under the rubric of "cooperative federalism", leaves project formulation and approval according to mission guidelines to the states. On the other hand, the guidelines issued in 2013 for the Affordable Housing in Partnership (AHP) part of the Rajiv Awas Yojana provided for central sanctioning of detailed project reports. The element of central subsidy also appears to have gone up from Rs 75,000 earlier to Rs 1-3 lakh, depending on the specific scheme. The housing-for-all mission rests on four legs - slum rehabilitation with private developers using land as a resource, affordable housing for the poor with credit-linked subsidy, housing projects in partnership with public or private sector entities and subsidy for individual house construction. Particularly important is a central interest subsidy of 6.5 per cent that over 15 years can go up to Rs 3 lakh.

Economically, this subsidy should be set off against what the government currently takes, under various forms of taxes, in the building of even the humblest houses for the poor - through various methods, including excise duty on building materials and service tax. The Bengaluru-based non-governmental organisation Janaagraha has estimated that the government takes away up to Rs 1.7 lakh from a house costing Rs 7 lakh. KPMG has calculated that fees and government taxes can account for up to 35 per cent of what the buyer eventually pays. What is most disheartening is that real estate is being sought to be kept out of the coming goods and services tax, thus denying housing for the poor the benefit of setting off taxes paid down the supply chain. If a proper set-off was allowed, then a meaningful discussion could be held on how much of actual subsidy can be given to housing for the poor.

The NDA government's desire to allow a greater play to the states is understandable, as most of the hurdles standing in the way of sufficient supply of housing for the poor have been created by the states and the urban local bodies coming after them. However, the focus on the states misses an opportunity: these missions should have further incentivised the states to hand over decision-making to the lowest, local-body level. Meanwhile, a proper market for urban land has to be created by removing impeding laws in letter and spirit; zoning rules and master plans have to be devised keeping in mind the need for mixed-income development; and excessively detailed building by-laws for things like floor area ratio, parking, ground coverage have to be made more flexible.