Stimulus 3.0 homes in

On Diwali eve, with the economy still deep in the red (second quarter degrowth estimated at 8.6 per cent, according to a ‘nowcast’ by the Reserve Bank), the Centre has rightly decided to back the housing sector as the engine of revival. In its third stimulus package since May, the Centre has decided to give an income tax break to home buyers and sellers and increase the allocation by ₹18,000 crore under the urban component of the Pradhan Mantri Awaas Yojana. A boost to urban housing will work as a jobs programme for the workforce that was forced to flee the cities in the wake of the pandemic. Along with the PM Garib Kalyan Rozgar Yojana and the MGNREGS, the creation of rural infrastructure and urban housing can proceed apace, while lifting demand at the bottom of the pyramid. To ensure that the demand for housing improves, the current stimulus has waived tax for a difference of up to 20 per cent between the circle rates and market rates. A buyer will not be taxed for ‘other income’, and the seller will be taxed at the sale price if it is within this band. When seen along with the attractive home loan rates and the interest subsidy on loans under the PMAY, an increase in housing stock can boost demand. It can spur core sector revival. As for apprehensions over sentiment, housing loans were up 8.5 per cent in September this year over the last year, pointing to transmission of repo rate cuts as well as possibly a belief among buyers that the prices are attractive enough to be funded by future incomes.

However, the stimulus packages are likely to be much less than 15 per cent of the GDP. With the borrowing limit likely to remain in the region of ₹12-lakh crore, given the tight revenue situation, it can be surmised that the increase in allocations in some areas will be balanced by a pruning of other expenditures. While this is prudent, the Centre should give a clearer account of its budgetary plans. Even as the Emergency Linked Credit Guarantee Scheme has been extended to cover larger players eligible for restructuring under the Kamath panel, it is unclear why tiny units relying on informal sources of credit continue to be left out — this is despite reports of a freeze and collapse of confidence in the informal lending space.

Notwithstanding the ₹900-crore outlay on vaccine research, higher outlays on health infrastructure should be considered for its potential, like housing, to revive the economy. Any economic uptick would depend on how soon the pandemic can be controlled. It is important that investment picks up in sectors that are ‘inelastic’ to its spread. With Covid still largely an urban phenomenon, both rural and urban sectors deserve economic emphasis.

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