More on India's urbanization challenges

Frank Muraca has a nice post on possible reasons for India's slower pace of urbanization. He points to a recently released report on American cities by the McKinsey Global Institute (MGI), which has a couple of interesting graphics relating to India's urbanization trends.

The graphic below shows that urbanization is in its initial stages in India, especially when compared to China. It has 234 cities with population above 200,000 (as on 2010), which are estimated to contribute 49% to GDP growth in the 2010-25 period. Only 20% of population currently live in these 234 cities. In contrast, China's 710 such cities are estimated to contribute 90% to GDP growth in the same period. The report describes the scale of China's urbanization as unprecedented.

In fact, unlike the other major emerging economies, India has not experienced an urbanization boom of comparable proportion. The decadal growth in urban population has not shown any appreciable increases.

The report attributes India's slower pace of urbanization to two factors. One, state borders limiting mobility and resulting in "urban economic concentration in state hubs rather than city clusters across the nation". Two, policies that have traditionally "favored small-scale production and discouraged larger-scale operations in cities".

Another graphic points to the population and GDP of large cities, small cities and rural areas, in India and elsewhere. The contrast is obvious. As on 2010, 81% of its population and 61% of GDP came from the smaller cities (population below 200,000 and rural areas). 

Further, in comparison to other countries,the contribution to GDP of cities outside its top two metropolises is small. In fact, the share of its Tier III cities is smaller than even that of its Tier II (28 cities). This is a reflection of the low priority that urban development holds in India's development paradigm. As Frank posts, quoting an MGI report on India,

India spends only $17 per capita annually on urban capital investment, compared with $116 per capita in China and $391 in the United Kingdom. In addition, India's current urban spending varies dramatically according to the size of city. Tier 1 cities spend an average of $130 per capita each year, with 45 percent of this total on capital spending. However, owing to high general and administrative costs, most Tier 3 and 4 cities support per capita capital spending of only $1 currently.

One of the biggest takeaways for India from these cross-country comparisons on urbanization and economic growth trends is to dramatically increase the focus on urbanization, in particular, the growth of its Tier III and smaller cities. While many of the top 30 cities may or will, in near future, have access to several sources of capital to trigger the civic infrastructure investments required to support their growth (both by attracting populations and investments), the same cannot be said about the Tier III and the smaller cities. Nearly 40% of the urban population is located in 4728 smaller cities with population less than 100,000. These cities will require massive public investments from the state and central governments before they can start thinking about sustainable growth.

India's urbanization trends

Excellent graphics from the recently released IIHS report (pdf here) on Urban India 2011. If we take into account larger villages, half of India's population is already living in urban areas or in areas with similar conditions.

Contrary to conventional wisdom, natural urban gorwth and not migration from rural areas is the major cause of urban population growth.

Despite the increasing importance of cities, urban development remains someway off from the mainstream development radar. The graphic below accurately captures the development priorities of governments in India. The Eleventh Plan (2007-12) allocation to various sectors reveals the low priority for urban development.

Cars and two-wheelers constitute 86% of all vehicles on the road, while accounting for just 29% of all trips. Walks and public transport together form 54% of all trips made. The case for massive investments in public transport is most compelling.

The High Powered Expert Committee (HPEC) appointed by the Planning Commission to estimate the financial requirements of cities has estimated that transportation requirements would form the major share of funds requirement for our cities in the 2012-31 period. However, the major focus of JNNURM has been on water supply and urban housing. In some sense, this is encouraging since it means that the funds requirement for providing the basic non-transport urban infrastructure - sewerage and water supply, solid waste management, and storm water drains - is a small share of the total estimated requirement.

Excellent snapshot (click to enlarge) of the cornucopia of urban social safety programs.

 

Despite the increased pace of urbanization over the past two decades, the share of informal employment as a share of total urban employment has remained stable in the 80% range. Jobs in trade and surprisingly, manufacturing, have been largely confined to the informal sector. 

Spatial clustering is defined as the ratio of the share of employment of a sector in an area divided by the national share of employment of that sector. Values greater than one signifies a relative clustering of that particular sector's employment in the particular region. The graphic below reveals a spatial clustering in the metros and million-plus cities for ICT services, high-tech industries, and fast-growing export sectors.

Why urbanization is environment friendly?

Two graphics from the recent Credit Suisse report on global urbanization trends shows how urbanization dramatically lowers carbon emissions from transportation. The first graphic shows trends from across the emerging world...

... while the second shows similar trend among US metropolitan areas.

Urbanization and economic growth

FT Beyondbrics points to the findings of a Credit Suisse report (pdf here) on global urbanization trends. The report has a very rich array of graphs and statistical correlations. It finds that on average, for every 5 percentage point increase in a country’s urban population there is an associated gain in per capita economic activity of 10%.

One of its most interesting findings is that countries hit a peak per capita GDP growth level between the 30-50% mark. Credit Suisse’s model suggests that as a country moves through a 40% urbanisation level it achieves peak real per capita GDP growth of close to 8% and that between 30 and 50%, an average 6% real GDP growth rate is achieved.

India, with slightly over 30% urbanization, is moving towards its sweet-spot growth rate range. China has been outlier, a positive one, in so far as its growth rate has been disporportionately higher at every level of urbanization. India's pace of urbanization, despite recent increases, will remain far lower than the rest of emerging world. In fact, the report estimates that among the major emerging economies, India will be the last to see urban population exceed rural population, not achieving it till 2044.

More on public policy implementation dilemmas

I have blogged earlier (also this) about the complex dynamics of field-level decision making on public issues in India. Consider two examples typical with the water supply market in most Indian cities.

1. Given inadequate supply by the local water supply utility, private operators abound. They take water, either from the municipal network lines (most often by pilfering from even pumping mains) or from privately drilled bores, and supply them by tankers to buyers. The buyers include both slum dwellers and the affluent. These private bores are generally drilled without permission and their use leads to depletion of ground water levels. This often causes neighbours, who fear their home bores would run dry, to complain against these bore operators. When complaints become relentless, officials occasionally seize a borewell  or two (it is also true that officials take bribes from the bore operator and keep quiet!).

For every bore seized, the supply demand being satisfied by that operator is now unmet. Denied their regular assured supply and without access to adequate supply from the public utility, they mount pressure on their local corporator. He in turn challenges the public utility to make good the borewater supply deprived areas (which the supply capacity constrained utility cannot), failing which demand that officials release the seized bore. Since such supplies are a not insignificant share of the total supply, their disruption will immediately resonate everywhere. When faced with a choice of tightening enforcement and thereby depriving people off their drinking water supply or letting things as they are, the officials prefer the latter.

2. Water supply in most Indian cities do not meet the required flow-pressure requirements. It is therefore commonplace for consumers, especially in multi-storied buildings like apartment complexes, to connect motors to their delivery outlets and suck water in from the network at a higher pressure. This in turn means that the already low flow rate is reduced further for those not using such motors and also affects supply at the tail-end areas of the network. Invariably, slum-dwellers are the worst affected.

Utility officials often get complaints from slum-dwellers and are often forced into seizing motors in the vicinity. They soon realize that almost every large household has a motor. Further, it is not possible to confine their seizures to certain households. Apart from the administrative challenge of seizing huge number of motors, widespread seizures immediately raises a chorus of public criticism since those affected are also the opinion makers. For all its negative effects, the fallback option of motor pumps had had the effect of softening criticism against the utility.

In both cases - the clandestine bore operators and motor pumps - officials end up with a difficult dilemma. If they enforce rules strictly, they run the risk of upsetting the delicate balance of water supply dynamics at the field level. They'll face uncomfortable questions about the operational efficiency of the utility and their inability to supply adequate water will be exposed. In the circumstances, the natural preference for utility officials is to maintain the status quo and let things be.

This is symptomatic of problems elsewhere. Many apparently simple enforcement challenges in public issues have deeper underlying challenges. Efforts to enforce the regulations, without addressing the underlying problems, is not only not likely to increase welfare outcomes and efficiency but also exacerbate problems. In the circumstances, officials take the easy way out.   

The Mexico City BRT model

The Streetsblog has an interesting account of the history of public transport facilities in Mexico City. In the past quarter century, the City has seen its public transit system move from a predominantly publicly-run metro and high-capacity bus based system to one which came to be dominated by private micro-buses. Since 2006, a Bus Rapid Transit (BRT) system, the Metrobus, was started.

The Metro-buses have played an important role in transforming the Mexico City into a more lievable, sustainable, and healthy city. It has been spearheaded by Mayor Marcelo Ebrard whose six year term, about to end this year, has coincided with the start of the Metro-bus project. 



Historically, Mexico City has had a large high-capacity bus based public transport system. However, a wave of privatization policies in the eighties and nineties saw these buses give way to private micro-buses. In fact, whereas in 1986, 42% of trips in Mexico City took place on a high-capacity bus, it plummeted to just 10% by 1994.



The experience with private micro-bus was not satisfactory. The largely unregulated fleet of micro-buses reduced average traffic speeds, lowered road safety (buses competed to get customers and reach their destinations fastest), and increased pollution levels (due to old buses being used and lower average speeds). It also spawned a web of corruption, as these buses were run by political leaders and local syndicates. But things have been looking up since the introduction of the metro-buses through a public private partnership (PPP). Travel times have fallen considerably in the BRT routes and average traffic speeds have risen.



The implementation of Mexico City's BRT system has certain unique features which makes it an interesting case study. The BRT system replaced 1077 micro-buses, which were essentially family-run operations, in certain routes with about 300 metro-buses. The low-floor Metro-buses have their own dedicated lanes, and people pay fares on platforms while waiting so that the buses can move very rapidly. The city government oversees the Metro-bus program and financed the road and station infrastructure.

The government organized the micro-bus drivers, about 800 of them, into collectives and arranged loans for them to purchase these metro-buses. They operate the buses, use the revenues to maintain operations, and make decent profits. This Metro-bús business model of displacing existing micro-bus drivers and then hiring them as BRT rolling stock operating companies, with the government providing the fixed infrastructure, is an excellent example of PPP.

As part of its BRT project under the JNNURM, the Government of India had made it mandatory for cities to form Special Purpose Vehicles (SPVs), preferably involving private operators, to run the BRT fleet. However, the challenge with this arrangement is that most of these cities had state-run Road Transport Corporations (RTCs) operating highly profitable services on the proposed BRTS routes. Naturally, the RTCs were reluctant to cede rights over these routes. State governments saw a way out of the impasse by co-opting RTC as a partner, often the majority partner, in the SPV. This left the door open for RTC to exercise backdoor control of the new BRT system, thereby considerably diluting the rigour and effectiveness of its implementation.

It is no surprise that the biggest success with BRTS has come from those cities where RTC services were either absent or where public transport services were with the urban local body. In these places, the local body has been able to bring in external professional expertise and structure Special Purpose Vehicles (SPVs) that can effectively manage the BRT services.

The parking problem in malls

How fair is it to charge shoppers a fee to merely enter the shop? If there is a premium experience attached to shopping there and a demand for that experience, it is appropriate to impose an entry fee. In its absence, it may not be economically viable for the shop to charge an entry fee as a commercial revenue stream. So how is it that large shopping malls in many Indian cities collect parking charges from their customers vehicles?

I can think of two possible reasons.

1. From the demand-side, the consumers/shoppers may value the mere experience of shopping in these malls and therefore may be willing to put up with having to pay the parking charge as an entry fee. The mall operators ride on this demand and capture it in the form of parking charges.

2. From the supply-side, the parking charges, which are often exorbitantantly high in cities like Hyderabad, have become a significant revenue stream for the Mall operators. In fact, the returns (by way of sales and profits thereon) from the premium outlets may be comparable to the parking charges collected from the visitors to the same outlets.

Does this "free-market determined pricing model" lead to economic efficiency all round? As could have been expected, the free-market price determination process inevitable results in the fragmentation of the different activities into separate revenue streams with their respective distortionary effects.

1. The shop-owners/franchises get away by socializing a major negative externality. They do not pay the price for the negative externality created by their customer's vehicle parking. Since this is not internalized into their costs, the shop-owner pays a smaller rent than would have been the case if all externalities were internalized. It distorts their incentives. They offer numerous promotional and other offers to attract more customers without having to bother about its social costs.

In fact, the shops make free money here. Since all these mall shops are outlets peddling branded products, their sale prices are fixed, irrespective of whether the parking charges are internalized or not. In the circumstances, by having palmed off the responsibility of arranging parking facility to the mall operator, the franchisee would see a mall space as being more profitable that having his own exclusive separate shop, where he would have to himself arrange for separate parking.

2. Instead of viewing parking as an accompaniment service to be bundled with shops, the mall operator sees the parking charges as another full-fledged commercial service from which they seek to make more money. Given the large volume of shoppers, they view it as a revenue stream with considerable commercial potential. In fact, many mall operators outsource this to another service vendor, with a contract aimed at maximizing their returns. This parking operator would naturally be left with no option but to increase the parking fees and maximize his revenues.

3. As both the aforementioned points convey, in the absence of its internalization, the price of the negative externality is now completely borne by the customer. Admittedly, the shopper has to pay the cost of the convenience of using a car for his shopping. But it is only fair that he shares it with the shop from where he makes the purchases.

This again raises the issue of whether free-markets always lead to the most efficient outcomes. A more efficient system would be one where it is regulated that parking in all malls should be free and the mall operator should collect the cost of maintaining the parking facility from the individual shops. There are several ways to apportion the parking costs on the shops. Even if some reasonable charge is collected, it could be reimbursed to the customer on production of the shopping bill. Interestingly, some shops do this, but not others. This will also help the operator gather data on which shop is the largest source of parking externality.

For sure, such regulations may create their own distortions. But I am inclined to believe that its distortions are likely to be far less inefficient than that created by the current free-market price determination model.

Bicycle usage in Indian cities

The Muncipal Corporations of Vijayawada and Visakhapatnam are promoting bicycle use in an effort to reduce vehicular pollution and traffic congestion. Visakhapatnam has apparently introduced 'no motor vehicle' zones across 20 km of roads and plans to earmark cycling tracks on 100-feet roads to a width of about 8 feet in the central parts of the city. While these are laudable social and communitarian initiatives, its economic, and even environmental, benefits are questionable.

Here are a few observations

1. Bicycle use can reduce pollution and traffic congestion only if they displace other modes of transport in significant numbers. It is inconceivable, given Indian conditions, that car users will switch to bicycles, except maybe in small enclaves. Given the large commute distances involved, motorbike users are also likely to stay on with their vehicles. The sheer volume of road users in the larger Indian cities means that the impact on public transport due to bicycle users may be minimal.

2. While bicycles will certainly take that many people away from public transport (and to that extent reduce the demand for public transport), I am not sure whether it necessarily reduces traffic congestion nor is economically more efficient. For sure bicycles do not suffer from carbon emissions. But they take up more road space than public transport. If you have any doubt see this. Further, since bicycle commuters spend more time on roads than those using public transport over the same distance, the effective road space usage by bicycle users is much larger.

3. It is on grounds of economic efficiency that bicycles fail most glaringly, especially for Indian conditions. Most of the larger Indian cities are pretty expansive compared to the mid-sized European cities where bicycles are popular. Average commute distances are large enough to make bicycling unattractive. Weather is pretty harsh for most part of the year. In the circumstances, commuting to work, as opposed to taking public transport, increases the unproductive time spent on the road and takes its toll on productivity.

4. Earmarked bicycle lanes involve a trade-off on road space. That much road space becomes unavailable for all the other modes of transport. Any such earmarking can be effective only if we are able to displace enough motor vehicles (by making them switch over to bicycles) to make up for the loss in road space to bicycle lanes. However, as the aforementioned arguements suggest, this may not happen. In any case, given that most roads are narrow in our cities, it may not be practical to do such ear-marking in any meaningful scale.

In fact, if all the aforementioned assumptions hold true, then earmarked bicycle lanes would end up worsening traffic congestion. The effective road space usage per commuter will be higher with bicycle users. Average speeds will be reduced and fuel consumption will increase. Contrary to conventional wisdom, vehicular pollution will increase.

5. Bicycle lanes and promotional activities cannot succeed in a piecemeal manner over small road stretches. If the commuter has to travel the major length of his daily commute to work on mixed traffic, the marginal utility of any limited earmarking is likely to be minimal. However, it is possible that there are small stretches or surroundings which enclose both people's homes and their workplaces.

6. There is also the issue of traffic discipline and enforceability of bicycle lanes. In a country where regular motor vehicle lane driving and traffic discipline is the exception than norm, it may be a nightmare to enforce bicycle lanes. Unless there are physical barriers, it may not be possible to even keep motor vehicles out of these lanes. Similar lack of discipline among bicycle users could end up increasing accidents and lowering traffic speeds.

7. Finally, bicycle promotional policies should not be confused with pedestrianization programs. There is a compelling case for making certain areas, especially commercial and shopping centers, in many cities "motor vehicle free zones" for certain time periods daily, atleast during the night. Similar restrictions can be imposed on river and seaside roads so as to improve the quality of leisure environments. Bicycle usage promotion could go hand in hand with such pedestrianization programs. However, such programs are most likely to be predominantly pedestrianization programs where bicycle usage happens to be an incidental benefit.

I strongly believe that urban policy makers should instead spend their scarce energies and resources on improving transport infrastructure and public transport facilities.

The future of urban management - smart cities

The Times has a nice article that chronicles IBM's experiment in Rio di Janeiro to reshape the future of urban management,

City employees in white jumpsuits work quietly in front of a giant wall of screens — a sort of virtual Rio, rendered in real time. Video streams in from subway stations and major intersections. A sophisticated weather program predicts rainfall across the city. A map glows with the locations of car accidents, power failures and other problems.

As the Times article writes, it is increasingly possible to use powerful data analytics software to forecast trends and thereby provide decision-support on various issues of urban management. This is expected to help decision makers anticipate, instead of react, problems and plan accordingly to either avoid them or to atleast minimize the damage (or derive more benefit) from them.

Many metropolitan areas already use data-collection systems like sensors, video cameras and GPS devices. But advances in computing power and data analysis now make it possible for companies like IBM to collate all this data and, using computer algorithms, to identify patterns and trends.

IBM is the master integrator who co-ordinates the functions of all other partners,

Local companies handled construction and telecommunications. Cisco provided network infrastructure and the videoconferencing system that links the operations center to the mayor’s house. The digital screens are from Samsung. IBM coordinated everything... IBM incorporated its hardware, software, analytics and research. It created manuals so that the center’s employees could classify problems into four categories: events, incidents, emergencies and crises. A loud party, for instance, is an event. People beating up each other at a party is an incident. A party that becomes a riot is an emergency. If someone dies in the riot, it’s a crisis. The manuals also lay out step-by-step procedures for how departments should handle pressing situations like floods and rockslides...

IBM also installed a virtual operations platform that acts as a Web-based clearinghouse, integrating information that comes in via phone, radio, e-mail and text message. When city employees log on, they can enter information from, say, an accident scene, or see how many ambulances have been dispatched. They can also analyze historical information to determine, for instance, where car accidents tend to occur. In addition, IBM developed a custom flood forecast system for the city... The project cost Rio about $14 million. If it all works according to plan, it could make Rio a model of data-driven city management.

I have a few cursory observations. Apart from the prohibitive cost, many of these technologies, especially the integration of different systems and the development of data analytics that can serve as effective decision-support, are at the initial stages of its evolution. It is therefore to be expected that it will be sometime before the IBM's Intelligent Operations Center catches on and gets scaled up elsewhere.

However, there are several low-hanging fruits in this eco-system. They are low-hanging not only because they can be implemented with limited investments but also would significantly enhance the effectiveness of urban administration and/or improve the quality of life for citizens.

For example, intelligent traffic management systems, which integrate the feeds from all existing hardware - cameras, signal lights, GPS devices in various vehicles, wireless and other police communication systems etc - can be a powerful force multiplier in traffic management. Mobile phone communication signals can be used to map real-time traffic intensity on various city roads (including short-term traffic trends) and the same can be rendered on mobile phone apps to enable commuters to plan their travel more smartly. Similar applications can crowdsource information about utilities related complaints; achieve energy efficiency in all types of lighting and water and sewerage utility motor pumps; cognitively striking data visualization can enhance decision-support systems available for municipal officials, and so on.

Like any new technology, the breakthroughs will come once citizens and urban administrators realize the effectiveness of these systems and the large impact they make on their lives and activities. Given the high cost and nascent technology options, a few quick-wins are necessary to break open this market.

See this and this from IBM and Cisco respectively.

Job creation in China - the role of cities and services sector

Felix Salmon has a superb post which highlights the critical role played by urban areas in sustaining economic growth and job creation in China. He points to two less-discussed facts about the Chinese economy.

1. Services sector employs more people than the manufacturing sector. The graphic shows that manufacturing sector, in terms of total jobs in the sector, actually declined for some part of the nineties but recovered slowly in the last decade.



Examining China's jobs growth over the past twenty years, Felix Salmon writes,

But it is surprising to see that if you take out the services sector, total Chinese employment has been going nowhere, and basically falling... Meanwhile, the services industry — tertiary industry — has been on fire: it now employs 263 million people, more than are employed in secondary industry (218.4 million), and has doubled since 1992... Of course it’s hard to find work in the services industry if you’re a rural peasant: tertiary industry is a fundamentally urban thing.

2. The growth in jobs has been coming mainly from the urban areas though rural China provides more employment than its cities. Apparently 13.7 million urban jobs were created in China in 2010 alone.



Felix Salmon makes the important point that unlike the US, where the construction boom was confined to the real estate sector, the Chinese construction boom "is building cities and roads and crucial infrastructure, which allows the service economy to keep on growing at a torrid place".

Both these graphics highlight the important role played by the services sector and cities in boosting China's labour market. Felix Salmon points to the closely inter-twined nature of cities and services sector job creation,

How do you create service-industry jobs? By investing in cities and inter-city infrastructure like smart grids and high-speed rail. Services flourish where people are close together and can interact easily with the maximum number of people. If we want to create jobs in America, we should look to services, rather than the manufacturing sector. And while it’s hard to create those jobs directly, you can definitely try to do it indirectly, by building the platforms on which those jobs are built. They’re called cities.

Will policy makers in India, obsessed with a rural-centric public policy paradigm, take notice and emulate China?

India Vs China - the role of urbanization

The Economist points out that in 2011 China's urban population surpassed its rural population. This stands out in stark contrast to 1980, when less than a fifth of its population lived in cities, a smaller proportion than India, whose urban population share in 2011 was just above 30%.



The rapid pace of urbanization, especially manufacturing led urbanization (where factories are located in cities or its urban agglomerations), has been the primary driving force behind China's spectacular economic growth of the past three decades. In fact, it is no coincidence that China's pace of urbanization picked up sharply since 1995 (as observed from the graphic). This coincided with a rapid spurt in the economic growth.

In contrast, India's urban population has grown slowly, a reflection of its rural-centric growth strategy. State and central governments in India will have to redress this skewedness in priorities in order to push the economy into a sustainably higher growth trajectory.

China real estate market facts of the day

FT points to the danger posed by a cooling property market to local government revenues in China,

"Local governments owed Rmb 10,700bn at the end of 2010, and 53% of that must be paid back before the end of next year, according to the national audit office... land sales formed 74% of their revenue base in 2010, up from 10% in the late 1990s."

It is not just local governments, the economy itself is heavily reliant on real estate activity,

"Property construction accounts for 13% of GDP, so if property slumps so does the economy as a whole."

The capacity addition in residential property market has been truly staggering,

"The country’s 80,000 property developers own enough land to build nearly 100m apartments. Add this to vacant apartments for sale... and China already has the capacity to satisfy housing demand for up to 20 years."

India's growth dilemma in a graphic

I am labouring this point. Cities are already India's economic growth engine. In the years ahead, they are estimated to contribute 70% each of the national economic growth and all new jobs created. But rural India, where 65% of the population lives, takes up the major share of public spending and administrative energies. The graphic below summarizes India's public policy priorities.



This skewedness may be guilty of killing the goose that lays the golden eggs. India needs to grow near the double digit rate so that its tax revenues and new jobs created grow fast enough to meet the massive and growing demand. Higher tax revenues would provide governments with the necessary resources to expand public investments, both in rural and urban areas. Faster pace of job creation would provide adequate opportunities to accommodate the rapid additions to the workforce. It would ensure that the danger of our demographic dividend turning sour is averted. And, as I have blogged earlier, transfers are a function of tax revenues. Higher the tax revenues, more the resources available to reduce poverty and mitigate any rise in inequality through effective redistribution policies.

Unfortunately, both state and district-level public policy and public spending (investments and welfare spending) are disproportionately focussed on rural India. Much more needs to be done for rural development. But a more effective strategy to achieve that objective would be to strengthen the urban growth and job creation engine and then utilize the resultant growth in tax revenues to promote effective rural development.

Urban renewal on Railways Lands

FT has an article that describes the successful ongoing re-development of the King's Cross district of London, the largest urban re-development project in London in the past 150 years. It consists of the redevelopment of a particular area, King's Cross Central,

"Ten years ago, prostitutes and drug dealers loitered on the streets and many buildings were disused or derelict. Now King’s Cross has been cleaned up and is in the middle of a £2bn redevelopment programme, which is transforming the area and making it an appealing place to live...

Behind the station is a 67-acre former brownfield site, which is being turned into a new community, King’s Cross Central. Owned by London & Continental Railways, a UK government-owned property company, and DHL Supply Chain, it is the largest single-owned site to be redeveloped in central London for 50 years and even has its own new postcode, N1C...

The statistics for King’s Cross Central come thick and fast: there will be 20 new streets, 10 major public spaces and 50 new buildings. Meanwhile, 20 historic buildings and structures are being restored and refurbished. There will be 8m sq ft of mixed-use space and 22 per cent of King’s Cross Central has even now been "taken"... Two thousand new homes (44 per cent of them affordable) are also planned, with the first stage of 143 homes being completed by 2013...

In the past seven years, prices for homes in the King’s Cross district have doubled, from £400 per sq ft in 2004 to between £800-£1,000 per sq ft today. By comparison, homes in neighbouring Bloomsbury and Fitzrovia fetch about £1,200-£1,300 per sq ft."

The biggest challenge with urban re-development is the difficulty associated with negotiating with multiple property owners and convincing them about a single comprehensive plan. The much diminished credibility of governments in many developing countries adds to the difficulty of convincing them. They are likely to be wary of time over-runs and suspect governments to infringe on their contractual obligations.

In this context, like with the King's Cross Central, the large swathes of sub-optimally utilized lands around railway stations in many large Indian cities offers tremendous opportunities for commercial development and urban renewal. There are two big advantages in choosing such areas. One, the major chunk of land parcels around these stations are likely to be owned by Indian Railways. This would eliminate much of the practical difficulties associated with re-development.

In fact the King's Cross Central re-development project benefited from the fact that all the land was held by the same owners, thereby eliminating the need to manage multiple contract negotiations, and facilitating the process of comprehensive planning and delivering ‘joined-up’ infrastructure. Nevertheless it is an impressive project.

Second, they are generally located in the older part of the city, have crowded residential and commercial units, and could do with a big dose of urban renewal. Re-development projects in such areas would deliver the biggest bang for the buck. Such renewal projects can provide the stimulus to revitalize stagnating urban districts. It would form the anchor around which modern economic activities can emerge and flourish. Land values will invariably increase.

Areas where government departments have large tracts of land and where the renewal projects can potentially provide the platform for a much larger development agenda too can be prioritized for such projects. However, such projects require very careful and painstaking preparatory work before arriving at any re-development plan.

This assumes critical importance since there is a serious risk that such projects become viewed more as engineering and architectural projects than as area renewal projects. The former approach overlooks the social, economic and political dimensions of such re-development projects. How does the project promote livelihood opportunities, both for those within the project area and those outside? How does it mesh with the social and political realities of the area?

Further, urban planners and developers miss the big picture and tend to view these projects as self-contained developments. They need to realize that the value of these projects go beyond the specific project area and has to form a catalyst to usher in more broad-based development in its surroundings. In other words, such projects have to provide the economic, social, and cultural development opportunities that its neighbourhood can leverage to their benefit.

All the aforementioned means that such projects cannot be mere Railway Department Projects, if they are built on railway lands. It will have to be driven by the local municipal body, draw on professional expertise in design and implementation, and involve profit sharing with the railways. The local government will invariably lose money, atleast in the initial years. However, the net long-term social benefit from carefully structured urban renewal projects will always be a huge positive.

Enabling reservation requirements in Urban Housing

My op-ed in Mint today presents an alternative strategy to enabling the regulatory requirement that earmarks certain proportion of land in layouts and built-up area in apartment complexes.

The larger message is that simple and apparently logical regulatory restrictions come up short when faced with real-world implementation. In the circumstances, a more nuanced strategy that aligns the incentives of all sides stands a better chance of success.

Economic growth and high density areas

This blog has been a strong and consistent advocate of urbanization, arguing that it is the most effective strategy to address the issue of economic growth in developing countries. In fact, it is not so much the demographic constructs called cities that are important, but its distinguishing characteristic of large populations residing in high density areas.



NYT has this excellent excerpt, which explains the benefits of large densified population centers using the example of a Vietnamese cuisine restaurant, from Ryan Avent's new e-Book. It is worth reproducing in whole and is a brilliant illustration of the dynamics of large densities - specialization, choice and insurance, productivity increases, competition, cost-effectiveness, quality improvements, innovation etc - and how the larger markets and workforce contribute to economic growth - jobs, consumption, investments, and growth spillovers. It reads,

"Suppose that within a population one person in 100 develops a taste for Vietnamese cuisine, and suppose that a Vietnamese restaurant needs a customer base of 1,000 people to operate profitably. In a city of 10,000 residents, there aren’t enough people to support a Vietnamese restaurant. The only restaurants that can operate profitably are those appealing to considerably more than one in 100 people — restaurants offering less daring fare. In a city of 10,000 people, there is little room for specialization, and less for experimentation.



A city of one million people, by contrast, can support multiple Vietnamese restaurants. Not only will this larger city enjoy a specialty cuisine unavailable in less populous places, but its ability to support multiple producers of this cuisine allows for competition, improving the price and quality.



A city with multiple Vietnamese restaurants may attract sellers of the fresh ingredients used in Vietnamese cooking, who then invest in distribution of those products in the larger city. This, in turn, attracts the sort of discerning eaters who favor authentic, high-quality Vietnamese food, reinforcing the concentration of Vietnamese eateries. The larger market facilitates competition, which again boosts quality and reduces prices. This is good for consumers. But competition also means better service from suppliers and growth in the consumer market, which is good for the restaurants. The result is a stronger, more productive and higher-quality microeconomy than in the city of 100,000, where only one Vietnamese restaurant can survive, or the town of 10,000, where there is none at all.



Density doesn’t work without talent. A small market may only support restaurants producing food that caters to a broad range of tastes. These restaurants will have to hire generalists — cooks who can produce a broad range of cuisines. Specialization and fine-tuning of one’s skills aren’t rewarded; too few patrons will have the specific taste for the particular cuisine to appreciate the quality. Time spent nailing down the nuances of one cuisine is time a chef isn’t using to maintain a good-enough command of a broad range of dishes.



In the larger market, supporting multiple niche cuisines, the calculus is different. Because there may be multiple Vietnamese restaurants competing for patrons, mastery of that specific style is necessary to maintain an edge against the competition. This is particularly true as the concentration of Vietnamese restaurants is likely to attract devotees of the cuisine with a well-developed knowledge of and taste for it. Hence, the larger marketplace pushes for, rather than against, specialization.



Meanwhile, a worker hoping to make a living as a Vietnamese chef will have a much easier time of things in the larger city. Labor turnover may be greater — if there’s only one Vietnamese restaurant in a town, then head-chef spots may only rarely open up — and so the odds of finding employment are higher. The larger city also provides insurance against bad fortune. If you’re a Vietnamese chef working at the one Vietnamese restaurant in a town and the one Vietnamese restaurant goes bankrupt, then you’re obviously in a tough economic situation. You must either take another job for which you’re less qualified, which may mean a reduction in compensation, or move. In the larger city, by contrast, competing restaurants can absorb and reemploy the labor and resources of defunct competitors.



This insurance function is important. It reduces the risks associated with specialization and therefore encourages more of it. By allowing workers to focus on tasks at which they’re relatively better than others, specialization helps drive economic growth. It’s also an engine of innovation. As workers focus on a specific task, they may well find better ways to do it. They might better schedule their days or invent something entirely new — software code written to expedite repeated tasks, or a machine that automates portions of a task. Of course, existing companies can be resistant to innovation. Dense cities, by acting as a source of insurance, enable workers with good ideas to take risks and start new businesses. If these workers fail, they have a good chance of finding employment elsewhere in the city. And if they succeed, the task of staffing the company is made easier by the existing pool of talent, and odds are good that customers and suppliers are close to hand, as well. Big cities provide a climate in which innovation can flourish, and in which innovators have the resources they need to exploit new ideas."

Arguably, the biggest challenge for large developing countries like India is the creation of large numbers of jobs to absorb its massive and expanding labour force. Economic growth is the only way to satisfactorily address this challenge. As economies grow, businesses invest, which in turn creates jobs, which fuels demand, and more investments follow, and the virtuous cycle repeats.



Fragmented and infrastructure deficient rural markets cannot generate these dynamics and therefore cannot be the platforms to replicate growth in the scale required. This virtuous cycle can be replicated on a large enough scale only in densified urban environments. The newly created jobs require a pool of readily available labour and their products demand a large enough consumer base. There is also the need for the entire infrastructure logistics that can support these job creating economic activities.



However, in case of massive countries like India, this densification approach has to be complemented with a strategy that promotes growth of smaller towns and cities, either by themselves or as satellites to larger cities. Infrastructure improvements in these smaller cities will attract immigrants, who in turn form the workforce and the market to sustain an expanded pool of economic activities. Investments and jobs will more often than not follow.

Parking charges across cities

Urban Demographics, via MR, points to an international survey on car parking rates by Colliers International. The results of monthly parking rates presented in the chart below, shows how cheap parking rates are in Indian cities.



(Please click on the figure to enlarge)

This blog has argued repeatedly about the importance of parking charges in addressing urban traffic challenges. Also see an earlier post on parking charges here.

Issues from urbanization trends in India

The latest figures released from India’s Census 2011 shows that for the first time ever India added more people to cities than rural areas. Cities and towns added 91 million people to 90.4 million by villages in the 2001-11 period. The decadal population growth rate for urban India was 31.8%, while for rural India it fell to 12.2%.

It also found that 31.2% of the total population lives in urban centres compared with 27.8% in 2001 and 25.5% in 1991, with South Indian states leading the urban charge. Cumulatively, of the 1.21 billion population, 833 million live in rural India while the remaining 377 million reside in urban India.



The number of towns in the country rose 53.74% to 7,935 between the last two census. However, this conceals an interesting division - the number of statutory towns (notified as a municipality or corporation) rose by 242 to 4,041, while census towns (officially gram panchayats, but have large populations) almost trebled to 3,894. The emergence of such small and informal census towns, especially in states like Kerala (where urban population share nearly doubled in the last decade), is a cause for concern.



As Mint reports, the residents of these census towns benefit from all government benefits that go to rural areas and also lower property taxes and other permit fees. The tax revenues foregone aside, more worryingly, these areas are currently being administered (or not administered) by gram panchayats with limited expertise in managing governance and infrastructure service delivery for larger population centers. This administrative deficit is likely to have adverse long-term consequences for these cities, especially since they are experiencing rapid pace of expansion and development.

These census towns, which are in the early stages of their development, do not have the infrastructure nor the governance capabilities to absorb the sudden influx of migrants from neighbouring villages. Adhoc and chaotic growth in residential settlements and commercial establishments and deficient or absent civic infrastructure are inevitable. The unplanned layouts which emerge from such growth resemble squatter settlements, and leave little scope for future growth and severely constrains the subsequent establishment of standard civic infrastructure facilities.

This failure to plan urban development is a classic case of policy paralysis that characterizes much of policy making in India. In most of these cases, political considerations take precedence over objective requirements. The local panchayats in most cases oppose merger into the neighbouring city or notification as a municipality. Panchayat members risk losing power and play up local resident's fears over higher taxes. Finally, when the merger or notification comes, it is too late. The city's broad topographical layout is already in place, leaving little room for any planned expansion.

On the positive side, in a reflection of the growing political prominence of cities, the number of urban Lok Sabha seats increased from around 70 to at least 100. This growing political influence of urban India will help correct the skewed nature of governance bandwidth in the country. However, since nearly 70% of Indians continue to live in rural areas, the compulsions of electoral politics dictates that rural issues will get priority over urban ones.

The impossibility of regulating street vendors

The Times reports that many American cities are grappling with the issues raised by an increase in food trucks vending relatively inexpensive and convenient food in its streets.

Opponents of food trucks argue that such food trucks clog streets, eat into scarce parking spaces, pollute the area, annoy neighbours, and cannibalize the earnings of existing restuarants. Therefore, several US cities - Seattle, Chicago, and Raleigh - have sought to regulate food trucks with more restrictions - notifying areas where they could park, types of food they could sell, distance from restuarants etc. Such restrictions are expected to regulate the food truck business without causing much harm to existing business, raising opposition from neighbours, and by minimizing negative civic externalities.

This example is an excellent illustration of the difference between societies like India and the US in using regulations to control such types of activities in our cities. The city councils in the US obviously take for granted that these restrictions are enforceable and the minority of deviants could be forced to toe the line by strict enforcement. In contrast, in Indian cities, practical considerations, as discussed here, makes enforcement a near impossibility.

For a start, most city spaces and corners are already occupied either by squatting hawkers or cart-based vendors. Despite grappling with the problem for several years now and having passed numerous legislations, no Indian city has even remotely succeeded in addressing the problem of regulating street vendors. In simple terms, the challenge is in choosing between depriving tens of thousands (as in the case of any decently large city) off their livelihoods and in the process bringing order and discipline into urban life or leaving cities as stages for vibrant small-scale entrepreneurial activity with all its attendant disorderliness problems.

There are two issues here. Is there enough space to accommodate the demand? And assuming there is enough space, is enforcement of regulations possible? The first question is easily answered. No! The rapid pace of urbanization in recent years has ensured that there is no corner of any city which has been left free from being encroached. The informal market (controlled by local musclemen) in accessing such spaces and the magnitude of its rents is a reflection of their huge demand.

Any rationing would perforce leave massive numbers of people without their livelihoods. This is apart from sucking the government into a highly corrupt and inefficient allotment process, which the informal second-best market is currently administering with reasonable fairness and efficiency. The possible incentive distortions with such an arrangement are unimaginable and hugely counterproductive.

About the second issue of enforcement, as already discussed, it is a non-starter. When deviations and violations are the norm than the exception, enforcement becomes simply impossible. Enforcement works when deviations are at the margins. Strong enforcement signals can get the recalcitrant few at the margins to fall in line. It fails when the majority are deviants or violators.

Given the scarcity and demand for space, actual enforcement would involve uprooting large numbers of street vendors from each area in order to limit, regulate and discipline the hawking activity. Apart from the political impossibility of getting such policies through municipal councils, there is the practical issue of finding out alternative livelihoods for them.

This argument should not be seen as one supporting street hawkers. It is merely outlining the challenges that need to be overcome if we are to regulate street vendors in developing countries. Unfortunately, it is a challenge which does not appear to have been satisfactory addressed anywhere.

The dynamism-dysfunction paradox

I have an article in this month's Pragati that examines the challenges facing Indian cities. It advocates that more than improvements in municipal governance, the need of the hour is massive public investments in civic infrastructure coupled with efforts that seek to increase willingness to pay among users of civic services. It also argues that even with enabling policy frameworks, private sector can be only marginal player in the process of city building, atleast at this stage.

See a contrarian take by Harsh Gupta here.