Government may increase allocation to Pradhan Mantri Awas Yojna in Interim Budget

In the interim budget, the central government may opt for increasing allocation to Pradhan Mantri Awas Yojna (PMAY) or affordable housing scheme. Increasing allocation to this scheme is justified on the ground that higher interest rates have increased the cost of home loans for Indians. In the past two years, demand for middle income category housing has gone down because of higher interest rates. On the other hand, demand for higher income or luxury homes went up. This shows that demand for housing from middle income and lower income customers is much more elastic with respect to interest rates than demand for housing from higher income or luxury customers.

PMAY provides interest rate subsidies

PMAY provides interest rate subsidies to lower income, middle-income, and customers from economically weaker sections on the home loans that they take. The objective of this scheme is to increase home ownership among Indians. The scheme has been in operation since 2015.

Interest rate cuts in the second half likely to give a boost to affordable housing demand

RBI is expected to start cutting down interest rates from the second half of 2024. This will lower the cost of housing for lower income and middle income customers. Banks are expected to pass on the interest rate cuts to customers in the form of lower interest rates on the home loans that they give. This is expected to give a boost to affordable housing demand. Higher allocation to PMAY will help in serving this increase in demand well.

Increased allocation will give a boost to rural economy

A special thrust of this scheme is increasing home ownership in rural areas. The rural economy has still not fully recovered from the devastation caused by Covid-19 lockdowns. Increasing allocation to this scheme in Interim Budget will also give a much needed boost to the rural economy. According to data from Ministry of Rural Development, 2.22 crore houses covered under this scheme were completed in rural areas by 31st March, 2023.