Government cuts corpus for home loan rate subvention by 20%

The government has cut the size of interest rate subvention corpus for affordable housing loans by a fifth as it focuses on austerity over growth to contain the burgeoning fiscal deficit.

It has fixed the corpus at Rs 400 crore for the current fiscal, 20% less than last fiscal's Rs 500 crore.

The government runs a 1% interest subvention scheme for housing loans up to Rs15 lakh to generate additional demand for credit and provide fillip to a sagging real estate sector, but the decision to shrink the corpus has raised questions on whether the government is expecting a lower growth in housing finance.

"There is a debate between austerity and growth and we have made up our mind to contain fiscal deficit," C Rangarajan, the chief economic advisor to Prime Minister Manmohan Singh had said last week in Kolkata.

The government is also contemplating cutting subsidies on diesel and LPG to reduce the fiscal deficit to 5.1% of the GDP this fiscal from 5.7% in 2011-12.

Earlier this week, the Union cabinet had given its consent for extending for one more year, till the end of 2012-13 fiscal, the 1% interest subvention scheme on housing loans up to Rs15 lakh where the cost of the house does not exceed Rs 25 lakh.

Courtesy: Economic Times