NITI Aayog calls for fiscal incentives to push development of affordable houses in India

India, a nation characterized by rapid urbanization and a burgeoning population, has long grappled with a significant housing deficit, particularly in the affordable segment. This challenge is not merely about providing shelter but is intrinsically linked to broader socio-economic development goals, including poverty reduction, health, education, and inclusive growth. Against this backdrop, NITI Aayog, India's premier public policy think tank, in collaboration with the Ministry of Housing and Urban Affairs (MoHUA), released a crucial report titled ‘A Comprehensive Framework to Promote Affordable Housing’. This report underscores the government's continued commitment to addressing the housing crisis, especially after the 'Housing for All by 2022' vision, spearheaded by schemes like the Pradhan Mantri Awas Yojana (PMAY).

The report's core proposals are designed to reinvigorate the affordable housing sector by offering significant fiscal incentives to both developers and homebuyers. The first key recommendation is the reintroduction of 100% tax exemption for developers involved in approved affordable housing projects. This specific incentive previously existed under Section 80-IBA of the Income Tax Act, 1961, which offered a 100% deduction of profits for affordable housing projects for units approved by March 31, 2022, subject to certain conditions regarding project size and unit carpet area. The NITI Aayog's call to reintroduce this provision signals a recognition of its effectiveness in encouraging private sector participation by improving project viability and profitability. The second major proposal is the doubling of the loan limit under the Credit Risk Guarantee Fund Scheme for Low Income Housing (CRGFLIH) to Rs 40 lakh. The CRGFLIH, managed by the National Housing Bank (NHB), aims to provide guarantee cover to lending institutions against defaults on housing loans up to Rs 10 lakh (before this proposed increase) extended to eligible beneficiaries in the economically weaker section (EWS) and low-income group (LIG) categories. Doubling this limit to Rs 40 lakh would significantly enhance the access to institutional finance for a larger segment of low and middle-income homebuyers, reducing their financial burden and increasing their purchasing power.

Key stakeholders involved in this initiative are manifold. NITI Aayog and MoHUA are the primary architects of the policy framework, responsible for research, formulation, and advocacy. Real estate developers are critical implementers, whose willingness to undertake affordable housing projects directly correlates with the incentives offered. Financial institutions, including banks and Housing Finance Companies (HFCs), play an indispensable role in providing credit to homebuyers and developers, benefiting from the enhanced guarantee limits under CRGFLIH. Homebuyers, particularly those in the EWS and LIG categories, are the ultimate beneficiaries, gaining access to more affordable homes and easier financing. State governments also have a crucial role, as land is a state subject, and they are responsible for land allocation, urban planning, and facilitating project approvals.

This initiative matters profoundly for India across economic, social, and governance dimensions. Economically, the real estate sector is a significant contributor to India's GDP and a major employment generator. Stimulating affordable housing development creates a robust multiplier effect, boosting demand for allied industries like cement, steel, and construction materials, and creating millions of jobs, both skilled and unskilled. Socially, addressing the housing deficit improves living conditions, reduces the proliferation of slums, enhances public health, and provides a sense of security and dignity to millions. It is a cornerstone of inclusive growth, ensuring that the benefits of economic development reach all sections of society. From a governance perspective, fulfilling the promise of affordable housing aligns with the Directive Principles of State Policy (DPSP) enshrined in the Indian Constitution, particularly Article 38, which mandates the state to secure a social order for the promotion of welfare of the people, and Article 47, which calls for raising the standard of living. This policy demonstrates the government's commitment to social justice and welfare, crucial for maintaining public trust and stability.

Historically, India's housing policies have evolved from state-led provision to promoting private sector participation. The PMAY, launched in 2015, marked a significant shift towards a demand-driven approach, offering interest subvention, credit-linked subsidies, and direct financial assistance. The proposed incentives by NITI Aayog build upon these existing frameworks, aiming to remove bottlenecks that have hindered faster execution. The reintroduction of tax benefits, for instance, recalls earlier successful fiscal measures to boost specific sectors. The future implications are promising but also present challenges. If implemented effectively, these recommendations could lead to a substantial increase in the supply of affordable housing units, making homeownership a reality for a wider population. However, challenges such as land availability, high land costs, regulatory hurdles, and ensuring the quality of construction will persist. Continuous policy support, streamlined approval processes, and technological innovation in construction methods will be vital for sustained success. This framework is a step towards ensuring that urban development in India is equitable and sustainable, fostering an environment where every citizen has access to a safe and dignified home.