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INDUSTRIAL ECONOMIST
Inklings

If the stock markets fall as a consequence and leveraged players go bust, let them. It’s not the job of a Central bank to bail-out market players who did not understand the risks they were taking by socialising the losses. We have too much of socialism as it is!
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Editor's notes

The past ten years witnessed impressive growth of the infra-structure sector. Most notable of these relates to telecom and roads. After the dismal additions to power capacity during the last three five year plans, the Manmohan Singh government took several new initiatives to attempt a quantum jump in additions to power capacity through the current plan.
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Macro Economics

The marked upturn in house prices in India in recent years can largely be attributed to rapid economic growth, rising incomes, lower interest rates and increased risk appetite. All these funda-mental factors supporting housing demand may be under strain now.
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 l  macroeconomcisIII

Interview

The integrated farming system induces the farmers to scale up farming activity without offending the sensitive issue of farm ownership and holds the promise of bringing about high productivity and better quality.
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Banking

Andhra Pradesh is one of the few states where the banking sector has made rapid progress during the last decade. It has the third largest branch network among all states. The state has acquired the fifth position among the top ten states in terms of the volume of credit oustanding.
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Critique

Housing loans lent by banks have increased from Rs.9631 crore in 1998 to Rs.128,923 crore by March 2007. The share of housing loans in total lending has increased sharply 2.92 per cent to 11.76 per cent during this period.
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Report

If only other small towns could emulate Baramati, India can vie with the US for its prosperous agriculture and agriculture-based economic growth.
more l Report2-Nithya kalyanam at AL l  Report3-National Capital Region  l Report4-Automobile l Report5-Capital Notes

World Economics

The way to achieve prosperity should be obvious - greater savings, investments and produc-tion. But US has had neither savings (negative savings rate for the last two decades), nor adequate production (increasing trade deficits for the last three decades).
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Analysis

Statecraft is all about engaging other countries at one's own terms, pace, time and cost. This is what the US did to the USSR in the 1980s and succeeded in dynamiting that country. And that is what China could do to a vulnerable US.
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International Diary

If globalisation caused the current economic crisis, can it also help it bounce back?
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Cover story

Santa (claus) city

cover 1The task has been daunting and appeared insurmountable for decades. The frenetic pace of urbanization, with influx of hordes of people pouring into the metros in search of jobs and livelihood, has contributed to the proliferation of slums. Dharavi in Mumbai is the largest of these in Asia. These have defied several attempts to find solutions.

Slum clearance leading to slum proliferation

The problem of juggies and jhompdis in our mega cities like Delhi are not less daunting. In the early 1970s the first DMK government in Tamil Nadu set up the Slum Clearance Board to provide four storey tenements for slum dwellers. Handsome allocations were made. Hut dwellers were temporarily shifted, some times to new huts along the roads. Four-storied concrete buildings were constructed; but several vital issues like provision for cattle were not attended to. After several months when the new tenements were ready, new problems arose. As is common with most government projects, while capital investments were taken care of, there was little provision for maintenance. The quality of construction was poor. Pretty soon the new tenements, created with great enthusiasm, deteriorated into new sets of slums. There was the additional issue of the hutments built for temporarily inhabiting the allottees becoming permanent. At the end, one witnessed more slums than with which the city began! In these close to forty years of slum clearance, the city has not attended to the basic issues of making a dent on the issue of proliferation of slums and improving the living conditions of slum dwellers. Chief minister M.Karunanidhi, in his characteristic socialistic bent, asked with rhetoric flourish: ‘should the sea front be the preserve of the haves?’ and ordered construction of tenements for slum dwellers along the Foreshore Estate. Today several thousands crowd along the sea front to a stretch over 2 km; here the city has one of the most squalid slums with little concern for ecology and environment. This sprawling slum within a couple of hundred metres of the sea front, also suffered a heavy toll when tsunami struck in December 2005.
The problems of Mumbai slums are of a much larger scale. An estimated 1.5 million live in the largest slum in Dharavi. There is intense economic activity alongside these squalid conditions: Dharavi produces more than $1.5 billion (over Rs.7000 crore) worth leather goods. From Dharavi Lijjat Papads sources millions of pappads, organising women in their hundreds .
Dharavi has also become famous for the innovative tourism around the vast slum like eco-tourism and health-tourism!

A bold, innovative initiative...
I had an occasion to look at a bold and innovative initiative. Renowned consultants, McKinsey & Company, has been involved in finding a solution to slum clearance. In an innovative concept of public private participation (PPP), brilliant administrators, both political and civil, of the Maharashtra government, have joined hands with property developers to convert sprawling slums into livable habitats with modern amenities. The most interesting feature of this is its innovative, self-supporting funding.
The strength of this renowned consultant is its conceptual brilliance and ability to break up massive problems into simple, manageable tasks. Young executives involved in this massive social engineering breathe change and change for the better.
The size and complexity of the problem are indeed humungous. Mumbai has a population of around 15.5 million. At least 8 million of these are estimated to live in slums. Many slum dwellers have reasonably good incomes but they cannot afford the high rental accommodation outside the slums nor acquire property of their own. Mumbai is the second most expensive city in the world: the value of property is more than Rs.25,000 per sq ft.
Mumbai’s land area of around 400 sq km is just a third of Delhi’s. The habitats are in the northern part of this linear city with commercial activity concentrated in the southern tip abetting the sea. Sizeable parts of the city like Nariman Point have been reclaimed from the sea. Around 4 million commute to work every day from north to south with 3.5 million of these using the suburban railway system, known for its vast network, quick frequency and also for packing passengers like sardines. Mumbai accounts for roughly half the passengers moved by the railways every day.
There have been two interesting developments: the influx of large sums of money into the hands of property developers - an estimated 100 million sq ft of property is under construction with two large property developers accounting for over two thirds of these. The sheer increase in the size of the business is also triggering innovative ideas to reconstruct the slums. Apart from the attractiveness of the massive size of construction and development of property, there is also a rich social content.

An innovative concept...
cover 2In this imaginative scheme, a large slum spread over a couple of hundreds of acres is to be divided into three components: a third of the area is to be used for constructing hi-rise buildings with modern amenities. The entire slum population of the area chosen will be rehabilitated in these; another third of the area is to be dedicated to parks, schools and other public purposes. The developer can utilize the remaining third for commercial purposes to meet his costs and profits.
The sprawling slum at Golibagh near Santa Cruz, rechristened as Santa City, is undergoing a spectacular transformation. This slum has around 150,000 inhabitants. These are evacuated in stages and housed temporarily in nearby buildings. The space vacated is levelled and cleaned up and new 8-storyed buildings with modern amenities are constructed. Good ceramic tiled flooring, well- equipped bathroom/toilet and kitchen, good quality electrical and plumbing work with power, water and sewage connections ensure the occupants a quality of life that would compare well with that of the haves in terms of basic amenities. The buildings are provided with lifts from Otis, the largest manufacturer of elevators. Single room flats of 220 sq ft area initially conceived has been expanded to provide two room flats of 269 sq ft. Space has also been provided in the ground floor for shops. Cost of construction is estimated around Rs.1400 per sq ft. The floor space index (FSI) allowed is three. The project is expected to be completed in the next 5-7 years.

Late starter in building condominiums...
Property developers have been attracted to take up such projects. With land prices soaring and property prices sky-rocketing, this imaginative scheme with a strong social welfare content, promises to give a big face lift to Mumbai. Unlike Kuala Lampur and Singapore, India has been slow in opting for huge condominiums to tackle the massive housing problem. This new experiment promises India to catch up with rapidly evolving countries in south east Asia in meeting one of the basic human needs.
cover 3Involving international experts with global experience like McKinsey is providing a strong conceptual base and for facile funding. The intricate work of getting the consent of the slum dwellers, persuading them to vacate and move to temporary habitats, involve a good deal of dedication and commitment. I noticed this in a rich measure in the young MCK executives.
In this massive social engineering one is delighted to witness a paradigm shift in matters relating to hygiene, cleanliness and aesthetics and the promise of significant improvements in living conditions. There is also the prospect of giving a huge face lift to Mumbai evolving as a world class city. Unlike similar slums in other countries, both developing and developed, slums in Mumbai are much safer with a much lower rate of crime.
Encouraged by the response, the government and the promoters have expanded the scheme to construct 14 storyed tenements that would perhaps help tackle the needs of additional population as well.
The professional management content is rich. I noticed imaginative and intricate planning and execution of the project to clinical perfection, to tight time and cost schedules. Religious susceptibilities are also taken care of, providing for places of worship for the different communities.
This Mumbai experiment appears by far the most interesting instance of social engineering.

The global economic crisis can impact adversely...
However, there is concern over property developers getting caught in the present economic crisis: private equity and other funding have vanished; banks and financial institutions have withdrawn their old liberal norms for lending; share values have tumbled and there is a severe resource crunch that makes developers struggle to complete even ongoing projects. Can they invest thousands of crores upfront in transforming slums and wait for 5 - 7 years to see profits? This dramatic turn of events in the economic scene can impact severely on this innovative and welcome attempt in social engineering.

 
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