Mumbai: Prime Minister Narendra Modi's ambitious project Housing For All has the potential to push up the country's economy by 3.5 percent by 2022 with sectors supplying crucial inputs to the construction industry being the biggest beneficiaries, says India Ratings.


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According to the report, sectors like cement, iron and steel, which supply crucial inputs to the construction industry, are expected to be the biggest beneficiaries of the Housing for All (HFA) programme.


The agency estimates the cost of constructing 20 million houses during FY16-FY22 will be around Rs 2,14,286 crore per annum.


"This indicates an increase in the construction sector's gross value added (GVA) by Rs 2,14,286 crore which will increase the size of the Indian economy by 3.5 percent in FY16. The direct impact is estimated to be 1.52 percent and indirect impact 1.98 percent,"  India Ratings's Chief Economist and Head Public Finance Devendra Pant said.


The central government will provide a grant for slum households to the states, central assistance directly to households and interest subvention. Therefore, the overall fiscal impact is estimated to be 0.16 percent of GDP in FY16, the reprt added.


"The construction sector has the highest employment multiplier, and HFA has the potential to increase employment by 1.6 lakh 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," he said.


While the cement and steel sectors will get a boost from the project, 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 percent of FY14 production levels.


Similarly, additional cement demand is estimated to be 13.2 percent of FY15 cement production. Clearly, the incremental steel and cement demand is huge.


Pant, however, noted that there are other execution challenges. "While the programme has been announced, not much has happened on the ground. We expect time overruns in HFA programme to lead to cost overruns," he said.


Besides, the project would also increase the demand for municipal services such as sewage, drinking water, sanitation, solid waste and city transport, among others.


"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," Pant added.