The central government will provide a grant for slum households (to the state), central assistance (given directly to households) and interest subvention. The overall fiscal impact is estimated to be 0.16% of GDP in FY16. The construction sector has the highest employment multiplier, and HFA has the potential to increase employment by 0.16 million man years annually. The impact will be felt across all states; however, Uttar Pradesh, Maharashtra and West Bengal are likely to be the major beneficiaries.
While the cement and steel sectors will get a boost from HFA; these sectors may also act as a constraint in realising HFA by 2022 if we assume that there are no other impediments. Additional annual steel demand (mainly bars and rods) for HFA is estimated to be 24.6% of FY14 production levels. Similarly, additional cement demand is estimated to be 13.2% of FY15 cement production. Clearly, the incremental steel and cement demand is huge. There are other execution challenges. While the programme has been announced, not much has happened on the ground. Ind-Ra expects time overruns in HFA programme to lead to cost overruns.
HFA would also increase the demand for municipal services such as sewage, drinking water, sanitation, solid waste, city transport etc. As such, urban civic/infrastructure services are under stress. The burden added by HFA will accentuate the stress as municipal authorities are mostly cash strapped. The way out is to allow municipal authorities to tap the bond market as support from upper tier government in the form of grants will not be enough to bridge their revenue expenditure gap.
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