By Syed Zahid Ahmad
Though the pathetic picture of the economy was revealed in the economic survey presented on 31st January 2020, the annual budget for 2020-21 presented in the parliament on 1st February misses the stimulus package to bring the economy back on sought growth trajectory.
As compared to the promise of NDA Government to provide 2 cores employment every year, the economic survey 2019-20 Volume II states that total 2.62 crores employment were generated during 6 years period as the number of regular wage / salaried employees increased from 8.83 crores in 2011-12 to 11.45 cores in 2017-18.
Number of Workers (principal status plus subsidiary status, all ages) by Sector, Sex and Employment Status in India (in crore)
Source: Estimated from unit level data of NSO 68th Round EUS 2011-12 and NSO PLFS, 2017-18
On the other side, data sourced from Annual Report (PLFS) 2017-18 suggest that rate of unemployment among age group 15 to 29 years has considerably increased during last 6 years.
Unemployment Rate (in %) among the youth (15 to 29 years) during different NSS rounds
|Category of Persons||NSS round (period)|
Source:- Annual Report, Periodic Labour Force Survey, (July 2017- June 18)
Considering generation of 26.54 millions employments in the construction industry during 1st decade of 21st Century, Government should have paid special focus on construction industry with object to get more job opportunities for youths especially uneducated workers.
Sector wise growth in employment during 1st decade of 21st Century
|Major Sector / Industry||Total Employment
|Addition in Employment
|5. Transport, storage and communication||14.61||19.97||5.36||36.70%|
|7. Real estate, Renting and Business Activities||2.67||5.75||3.08||115.40%|
|8. Banking and insurance||2.25||3.82||1.57||69.80%|
|9. Hotels and restaurants||4.62||6.13||1.51||32.70%|
|11. Mining and quarrying||2.17||2.95||0.78||35.90%|
|12. Other Services||11.85||12.24||0.39||3.30%|
|13. Electricity, gas and water supply||1.13||1.25||0.12||10.60%|
|14. Public administration and defence||10.48||9.46||-1.02||-9.70%|
Source: – Open Government Data (OGD) Platform India (https://data.gov.in/)
But the generation of new jobs in the real estate started reducing when housing inflation drastically fell from 13.73% in May 2014 to 6.85% by June 2014. This showed negative impact of Government’s announcement on illicit investment in real estate and announcement of Benami Act. Besides that continuous add on miscalculated risks by several kind of investors and lenders into Indian real estate has resulted in chocking the finance into real estate with imbalanced demand and supply. The supply of housing units in Indian meant for middle and high income group increased multiple times than actual needs against shortage of genuinely affordable housing units. This imbalance in demand and supply of housing units, not only added NPAs for banks, NBFCs and HFCs, but has also reduced scope of employment generation in real estate.
Total exposed amount by all SCBs in real estate sector is as high as Rs. 18,70,039 crores (180% of total gross NAPs of all SCBs by end of March 2019). Around 1/4th exposure is only by the State Bank of India (with Rs. 4,73,495.65) into real estate. As total Outstanding Credit by all SCBs by end of March 2019 was Rs. 1,13,72,439 crores, exposure to Real Estate may by all SCBs may be at least 16% of total outstanding bank Credit by all SCBs.
|Exposure of SCBs into Real Estate (by March 2018)||Total Exposure
(in Rs. Crores)
|1. By all Public Sector Banks||1,115,219.03|
|2. By all Private Sector Banks||647,785.31|
|3. By All Foreign Banks||104,429.06|
|4. By all Small Finance Banks||2,605.40|
|Total Exposure of SCBS into Real Estate||1,870,038.79|
Source:- RBI data (STRBI_Table_No._08___Exposure_to_Sensitive_Sectors_of_Scheduled_Commercial_Banks)
A report by Forbes India suggest that Indian real-estate developers’ debt burden has more than trebled over the past decade to Rs 4 trillion in 2018, from Rs 1.2 trillion in 2009, according to a study by Liases Foras Research & Rating.
|Debts (in INR Trillion)||FY 09||FY 10||FY 11||FY 12||FY 13||FY 14||FY 15||FY 16||FY 17||9M FY18|
Source: Ambit Capital¹
At this point of time, the Government needs to realize that Indian economy would not move positively unless the amount of all investment in the real estate and housing finance (around Rs.5 trillion) starts moving because the crisis in real estate is a factor to increase bank’s NPAs. According to RBI data on bank wise classification of loan assets of SCBs by end of March 2018, Gross NPAs (Rs. 10,36,187 Crores) for SCBs was 11.2% of Gross Advances worth Rs. 92,66,209 crores. This Gross NPA as percentage of Gross Advances by all SCBs has been considerably kept increasing during years 2014 to 2018.
|End of Fiscal Years||Gross Advances by all SCBs (in Rs. Crores)||Gross NPAs for all SCBs (in Rs. Crores)||NPAs as % of Gross Advances|
|2017 – 2018||9,266,209.00||1,036,187.00||11.2%|
|2016 – 2017||8,470,662.00||790,268.00||9.3%|
|2015 – 2016||8,178,429.22||611,609.46||7.5%|
|2014 – 2015||7,561,983.90||322,925.80||4.3%|
|2013 – 2014||6,876,818.01||263,021.24||3.8%|
(Source: RBI data on Bank Group-wise Classification of Loan Assets of Scheduled Commercial Banks)
The Economic Survey volume II tells us that housing prices have remained elevated, even though growth in prices has fallen sharply since Q1 of 2015-16 and remained muted since then. As at end of December 2018, about 9.43 lakh units worth Rs. 7.77 lakh crore with 41 months of inventory are stuck in various stages of the project cycle across top 8 cities (Figure 30).
The economic survey 2019-20 further suggests that following payment defaults by subsidiaries of Infrastructure Leasing and Financing Services (ILFS) and by Dewan Housing Finance Limited, investors in Liquid Debt Mutual Funds (LDMFs) ran collectively to redeem their investments. In fact, the defaults triggered panic across the entire gamut of NBFC-financiers, thereby causing a funding (liquidity) crisis in the NBFC sector. It was found that the Health Score of the HFC sector also exhibited a declining trend post 2013-14, as indicated in Figure 7. The trend of the Health Score showed early warning signs, well before the HFC sector eventually faced constraints on external financing from 2017-18 onwards. Again, this confirms that the Health Score is a leading indicator of stress in the HFC sector.
Though the economic survey suggests that these diagnostic plots on the Health Scores of a stressed NBFC and the HFC sector can serve as an important monitoring mechanism to prevent such problems in future, the presented union budget 2020-21 is not in line to take any lessons from the fact finding report presented in the economic survey. Government needs to take minimum three point program to ejaculate the struck up capital in the real estate so as to allow the economy get sought momentum.
- Considering the demand and supply mismatch for affordable housing, the government should intervene by providing free or low-cost land for development of affordable housing projects in urban areas. It may help to increase the supply of low-cost housing units for EWS- and LIG-category customers in India.
- Ask the builders holding unsold stock of housing units to reduce the prices to make it genuinely affordable for the buyers. The Government may compensate the builder’s losses by allocating FSI equivalent to price forgone to make the housing price affordable.
- To enable the EWS and LIG customers to increase demand for housing units, India needs an alternative method for structuring monthly repayment schedules to promote affordable housing in India. The alternative model can be explored by analyzing the impact of inflation upon wage rates and housing inflations. Joint Asset Lease can be used as alternative housing finance, where monthly installments on housing finance may keep increasing with rises in customers’ income levels and the market prices of housing units. It is an affordable housing finance product for EWS and LIG customers.
To stimulate the manufacturing industry adopt advanced technology and adopt more labour force, the Government should consider structuring financial product like Micro Equity instead of just focusing upon subsidizing the interest on debt financing.
The move by Government to increase the deposit guarantee amount from Rs. 1 lakh to Rs. 5 lakh is welcomed by everyone as it will help restoring depositor’s confidence in Indian banks. Hope the Government will consider adopting innovative financial products and mechanism to meet the challenges emerged in our economy.