Last-mile financing for stalled affordable and middle income housing projects cleared by the government on Wednesday will give the much-needed support to the real estate and construction sector which is a large job-creator and boost demand for key manufacturing industries like cement and steel, experts said.
The move is also likely to help the banking sector as developers which are facing bankruptcy proceedings are eligible for funding from the ₹25,000 crore corpus announced by the government, unless they are chosen for liquidation. The corpus is being set up by the government with contribution from Life Insurance Corporation of India, State Bank of India and others such as pension and sovereign wealth funds.
Experts said that a stimulus for the housing sector will have a big impact on the economy. “Any policy measure that can impact the real estate industry can have a huge positive impact on the macroeconomy. I think speedy disbursal of funds to stalled projects will be crucial," said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP).
The real estate industry has been grappling with stalled projects and a high level of inventory leading to a slowdown in demand for construction material. Official data released earlier this month had shown that cement production had contracted 2.1% in September, indicating the continued weakness in construction activity, while steel output fell by 0.3% in September from a growth of 5.1% in the previous month.
Experts said the announcement made by finance minister Nirmala Sitharaman was a crucial step in boosting employment creation. “There will be an immediate positive impact, in terms of generating employment mainly in the construction sector. It will also provide relief to homebuyers," said D.K. Srivastava, Chief Policy Advisor at E&Y.
According to Niranjan Hiranandani, managing director of Hiranandani Group and president (National) of National Real Estate Development Council, an industry body, last-mile funding for stalled housing projects will have a positive impact on the revival of demand for cement, iron and steel industries and relieve stress in other major sectors of the economy. Srivastava of EY, however, was cautious about the move delivering an immediate impact on the overall economy. “This is an important micro step. However, the impact will be spread over 1-1.5 years," said Srivastava.