India plans to hike rural housing subsidies to over US$6.5 billion after election setback

INDIA plans to increase state subsidies on rural housing in the upcoming federal Budget by as much as 50 per cent from the previous year to more than US$6.5 billion, after setbacks for the prime minister’s party in elections, two government sources said.

The planned hike in housing subsidies is part of a broader government initiative to boost spending on rural infrastructure, including village roads and a jobs programme to help millions of young people stuck in the agriculture sector amid limited manufacturing jobs.

If approved, it would mark the largest annual increase in federal spending on the rural housing programme since its inception in 2016.

“The government is worried over widespread rural economic distress, driven by higher food inflation and sluggish growth in farmers’ incomes,” said one of the government sources with knowledge of Budget discussions.

For the first time in a decade, Prime Minister Narendra Modi’s Bharatiya Janata Party relies on allies to run the government. This comes after the opposition performed much better than expected in the national election last month.

Under the rural housing scheme, the government aims to facilitate the construction of an additional 20 million houses over the next few years. This comes after it provided aid to more than 26 million poor households over the past eight years.

Finance Minister Nirmala Sitharaman is expected to announce details of the plan during the Budget presentation later this month.

“We expect a substantial increase in allocations for several rural schemes this year, including housing, roads and (the) jobs programme,” said the second government source.

The source also noted that federal subsidies for rural housing could exceed 550 billion rupees (S$8.9 billion), up from 320 billion rupees in the previous fiscal year.

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He also reported that state spending on the rural jobs programme was expected to increase substantially from an earlier estimate of 860 billion rupees. However, the government may seek parliament approval for this additional spending later – not as part of the Budget.

A separate proposal for increasing spending on village roads was also under consideration, from earlier estimates of 120 billion rupees in the current fiscal year, the second source noted.

Both spoke on the condition of anonymity as they were not authorised to discuss Budget proposals with the media.

During pre-Budget consultations, economists and industry leaders urged the government to ramp up rural spending to stimulate consumer demand, noting that private consumption was growing at half the pace of nearly 8 per cent annual economic growth.

The sources said that the federal and state governments are expected to allocate up to 4 trillion rupees over the next few years to build 20 million houses for the poor in the rural areas, with the federal government contributing around 2.6 trillion rupees.

A finance ministry spokeswomen did not comment when asked about spending plans.

Last month, shortly after assuming office, Modi’s Cabinet announced plans to assist in the construction of 30 million houses in rural and urban areas, without disclosing financial details.

The Ministry of Rural Development has proposed increasing state subsidies to about 200,000 rupees per housing unit, up from 120,000 rupees previously, citing rising costs of raw materials, the second official said. REUTERS