On August 9, the Insolvency and Bankruptcy Court (IBC) got its first candidate from the housing sector – Jaypee Infratech Limited. Up until then, few amongst the ‘great Indian middle class’ would have probably heard of this newly set-up IBC. Fewer still would have also been troubled by the steady accumulation of bad bank loans in India – also widely referred to as the NPA (non-performing assets) crisis.
We have thus far rarely seen links established between the Indian banks that gave such poorly secured loans, the government that runs these banks and the companies that have been defaulting systematically. Is such ignorance of convenience now coming to haunt the middle class?
Nearly one million residential units remain “unsold” – either not sold or yet to be handed over to their buyers – in the country’s eight metropolitan cities, according to industry estimates. A large chunk of housing companies that are associated with these units are in fact as troubled as Jaypee Infratech, if not more. Thousands who have invested in these now-stalled projects face potentially huge financial losses and uncertain futures.
The insolvency court’s ruling on Jaypee will set a precedent. That is why homebuyers around the country are keenly watching how, and what, unfolds at Jaypee’s Wish-Town – a grand housing project located on the sprawling flood plains of the Yamuna river. The Wish-Town project was even slug-lined as being “another place, another world”: that is, to each a wish according to one’s EMI.
After almost a decade of the project, however, the EMIs are beginning to bleed home buyers and protests imploring the government to intervene have become louder and desperate. Being a homebuyer in Jaypee myself, I, too, share at a personal level the anger, anxiety and the fear.
But, critically as well, I ask: If the Jaypee insolvency fails to meet the demands of thousands of home buyers, will it also be a fatal body blow to the idea of the “great Indian middle class”? The leading economic force, as some argue, whose ravenous consumer demand has actually shaped much of the post-1991 India growth story.
The middle class quest for a new home should also be understood as being an important demand trigger in the economy: sparking the need for new furniture, air conditioners, refrigerators and a range of other household goods. A vibrant real estate sector in the neo-liberal economy is thus as much a critical demand booster as a catalyst for creating new jobs and services.
Once real estate is turned into a dead asset, it is but inevitable that there will be a general fall in demand and an economic contraction of sorts. On the other hand, the middle class will have to analyse beyond its immediate worries as well.
Most of the stalled projects, as it is now amply clear, are a result of weak regulations, lack of transparency and, above all else, an unquestioning appetite for financial speculation in the economy. Both sides seem to have been trapped in such a logic. The builders wanted to earn supernormal profits. And many buyers showed irrational exuberance about their likely returns on housing investments. That is, both sides embraced the idea of the neo-liberal market even though only one half is being mostly burned.
While a critique of the Nehruvian model of mixed economy has become common sense, the triumph of the neo-liberal market in India is also now revealing dangers and vulnerabilities. It is time for the Indian middle class to seriously reflect and reconsider. The real estate boom-to-bust story has lessons for everyone.
Clearly, as we ask the government to intervene and fix problems caused by a reckless, marauding real estate market, there are also questions about the centrality of profit-making when managing a range of social and basic goods. It may be worth exploring again if health, education and housing amenities might be better served as predominantly public goods than speculative market services.
Like the current real estate crisis, this is a big question without always offering straight answers. Will the Indian middle class reconsider its economic journey and growth pathways? Or will it be imagination as usual?