The Indian government is planning to increase subsidies for rural housing by as much as 50% in the upcoming Union Budget. This initiative, which could see subsidies exceed $6.5 billion, aims to alleviate rural economic distress and bolster infrastructure development.
The planned subsidy increase is part of a broader strategy to enhance rural infrastructure, including village roads and a jobs programme designed to assist young people in the agricultural sector, where job opportunities in manufacturing remain limited. If approved, this would mark the largest annual increase in central spending on the rural housing programme since its inception in 2016. “The government is worried over widespread rural economic distress, driven by higher food inflation and sluggish growth in farmers’ incomes,” revealed a government source privy to the budget discussions. Following the announcement, shares of Housing and Urban Development Corporation surged by 9%, while Aadhar Housing Finance and GIC Housing Finance saw increases of around 4.5%.
The ruling Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is now relying on allies to maintain governance, following a stronger-than-expected performance by the opposition in the recent national elections. In response, the government aims to facilitate the construction of an additional 20 million houses under the PM Awas Yojna (Rural) housing scheme, having already aided the construction of over 26 million homes for poor households over the past eight years.
Finance Minister Nirmala Sitharaman is expected to unveil detailed plans during the budget presentation later this month. “We expect a substantial increase in allocations for several rural schemes this year, including housing, roads, and jobs programme,” noted another government source. Central subsidies for rural housing are projected to exceed Rs550 billion, up from Rs320 billion in the previous fiscal year. State spending on the rural jobs programme is also anticipated to rise significantly from an earlier estimate of Rs860 billion, although additional funding requests may be submitted separately from the budget. An increase in spending on village roads is similarly under consideration, potentially rising from the current fiscal year’s estimate of Rs120 billion. Both sources provided information on the condition of anonymity, as they were not authorised to publicly discuss budget proposals.
During pre-budget consultations, economists and industry leaders advocated for increased rural spending to stimulate consumer demand, highlighting that private consumption is growing at half the rate of the nearly 8% annual economic growth. To meet the target of building 20 million houses for the rural poor, the central and state governments are expected to allocate up to Rs4 trillion over the next few years, with the central government contributing approximately Rs2.63 trillion.
A finance ministry spokesperson declined to comment on the spending plans. However, it was noted that Mr. Modi’s cabinet recently announced plans to support the construction of 30 million houses in rural and urban areas, without disclosing financial details. The Ministry of Rural Development has proposed increasing state subsidies to about Rs2,00,000 per housing unit, up from Rs1,20,000 previously, due to rising costs of raw materials.
