Financial Daily from THE HINDU group of publications
Friday, Jul 09, 2004
Industry & Economy
Focus on rural housing; tax rebates to stay
New Delhi , July 8
IN line with the UPA Government's Common Minimum Programme that lays a greater stress on rural economy, the Budget 2004-05 has announced an increased allocation and easier finance for the rural housing sector.
The Government aims to step up the annual target of number of dwellings constructed from two lakh to 2.5 lakh annually.
The Budget has not tampered with the tax rebates for self-occupied houses and signalled interest rate stability, which means that urban housing will continue on a high growth path.
The Finance Minister, Mr P. Chidambaram, announced in his Budget that National Housing Bank (NHB) has agreed to reduce the refinance rate for rural homes by 25 basis points (0.25 per cent), and the Reserve Bank of India has agreed to revise re-payment norms for rural housing loans so that instalments coincide with crop cycles.
With the reduction, NHB will now offer refinance at 5.5 per cent to best-rated housing finance companies like HDFC, LIC Housing Finance Ltd and several private companies.
"We were already offering a 25 basis points discount on funds meant for rural housing. Now, that would be increased by another 25 basis points. Under the new structure, the best-rated finance companies would get rural housing finance at 5.5 per cent, while their refinance rate for urban projects would continue at 6 per cent," NHB Chairman, Mr V. Sridar told Business Line.
With the cost of borrowing for NHB at 5.2 per cent, the refinance company will operate on a wafer-thin spread for rural housing.
"The demand for rural housing is four times that of urban. We feel that greater emphasis has to be given to the sector. With the Budget announcing several employment generation schemes for the rural sector, we feel that would give an impetus to rural housing," he said.
NHB had disbursed Rs 1,700 crore to different housing finance companies for rural housing in 2003-04 and expects the figure to go up to Rs 2,100 crore - Rs 2,200 crore in the current year.
Mr Chidambaram informed the house that as many as 10.26 lakh dwelling units have already been financed under the Golden Jubilee Rural Housing Finance Scheme since its launch in August 1997.
The Government has also increased the allocation under the Indira Awas Yojana by 31 per cent from Rs 1,710 crore last year to Rs 2,247 in the current financial year.
Mr Chidambaram said that a law enacted by the West Bengal Government to simplify the creation of security needs to be emulated by other States. That, the Finance Minister said, would address the problem of absence of proper title to land in rural India, which acts as a major impediment to credit.
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