Ensuring Awas Yojana success in the big cities

Aug 27, 2024 09:08 PM IST

Our recently released CSEP working paper finds that PMAY-U’s first phase had the most impact in small cities (cities with a population of 1 lakh or less as per Census 2011). But the bigger cities, especially million-plus cities, did not benefit as much. For example, Allahabad, a million-plus city, has about 13,000 PMAY-U houses, while Kushinagar, a small city in eastern Uttar Pradesh, has about 12,000 PMAY-U houses. Across the country, about half of PMAY-U sanctions were in small cities where only about one-third of India’s urban population lives.

PMAY-U comprises four major sub-schemes: Beneficiary-Led Construction (BLC), Credit-Linked Subsidy Scheme (CLSS), Affordable Housing in Partnership (AHP), and In Situ Slum Redevelopment (ISSR). The BLC scheme subsidises construction of houses for economically weaker section (EWS) households (those with an annual income of ₹3 lakh or less) on their own land. It has been key to PMAY-U’s scale and accounts for 62% of PMAY-U’s overall sanctions. Since land ownership by households is the key to availing BLC, it has been highly successful in small cities where land ownership is easier. As per the latest update from the ministry of housing and urban affairs, BLC is slated to continue in PMAY-U 2.0, but it is quite clear that it will primarily continue to benefit small cities.

With land ownership rarer among households in bigger cities, BLC is not a suitable option. The other 3 PMAY-U verticals — CLSS, AHP and ISSR were suitable, but they fell short.

Firstly, the CLSS, which offered home loan subsidies to EWS, low-income group (LIG, annual income between ₹3 lakh and ₹6 lakh), and middle-income group (MIG, annual income between ₹6 lakh and ₹18 lakh) households had limited impact on EWS households. An analysis of the PMAY-U dashboard data reveals that 55% of CLSS beneficiaries were LIG households, followed by 24% MIG households, and only 21% of the beneficiaries were EWS households, both across small cities and million-plus cities. This is not surprising in light of the urban poor’s limited access to institutional home loans. Realising that many affluent households also benefited from CLSS, in PMAY-U 2.0, the Centre has redefined the MIG upper-income limit to ₹9 lakh instead of the earlier ₹18 lakh. It has also renamed CLSS as the Interest Subsidy Scheme (ISS). However, for ISS to have greater success in reaching the EWS households living in million-plus cities compared to what CLSS did, it has to be implemented in tandem with efforts for increasing EWS households’ access to institutional home loans.

Secondly, AHP, which subsidised the construction of flats primarily for EWS households, failed to scale up in most states, as it was not lucrative enough for the private sector. Maharashtra circumvented this challenge by redefining the upper-income limit for EWS from ₹3 lakh to ₹6 lakh. While this change allowed for higher beneficiary contributions, making AHP projects more attractive to the private sector, it diluted the programme’s impact on the original EWS households in the state. Moreover, our research finds that nearly half of the sanctioned AHP flats had to be cancelled at the pan-India level. Poorly maintained land records, slow judicial resolution of disputes, lengthy approval processes for land and construction, and the scarcity of affordable land in desirable locations within major cities have adversely affected AHP-like low-income housing projects for decades. A focus on addressing these complex, long-standing issues was reiterated by the finance minister in the budget for this fiscal. But these are not easy wins. Although AHP is slated to continue under PMAY-U 2.0, we envisage its chances of taking off at scale are slim unless there is significant course correction.

Lastly, PMAY-U’s In-situ Slum Redevelopment (ISSR) provided subsidies supporting the redevelopment of slum houses through land monetisation. With land prices being high in most million-plus cities, slums located in prime locations of these cities should be natural candidates for such redevelopment. Yet, ISSR failed to make much of an in-road across million-plus cities. Its take up was limited to Mumbai and the four million-plus cities of Gujarat — Ahmedabad, Vadodara, Surat and Rajkot, where slum redevelopment through land monetisation was taking place from much before. Moreover, less than one-third of these projects have been completed so far. ISSR’s limited take up and performance is not surprising because, in addition to the usual market risks faced by real estate projects, slum redevelopment projects are highly susceptible to risks emanating from changing political agendas and the lack of support from the affected slum households. In the near future, slum redevelopment projects will continue sporadically in a few million-plus cities. But, it does not hold any promise as a scalable solution to the issue of slum housing and, as a result, is not to continue under PMAY-U 2.0.

To ensure PMAY-U 2.0 is more impactful than PMAY-U, especially in the million-plus cities, it must enhance EWS households’ poor access to home loans under ISS, and tackle AHP’s financial viability and land challenges. Moreover, with ISSR’s discontinuation, attention should be paid to comprehensively covering slum households under ISS and AHP.

Debarpita Roy is fellow and Rashmi Kundu is research analyst at the Centre for Social and Economic Progress (CSEP).The views expressed are personal