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Why   are   there   far   far   more   slums   in   India?


    Contents

  1. Introduction
  2. Reasons why slums are more in India
  3. How can citizens of India reduce slums?
  4. Non-solutions


Introduction

Some 40% of urban India lives in slums. India has been having much higher slums compared to West. The purpose of this article is to enumerate and discuss ONLY those factors
  1. which increase proper housing, are present in West, and absent in India
  2. which decrease proper housinge, are present in India, and absent in West
The purpose of this article is NOT to enumerate factors that are present/absent in BOTH countries. Hence a large number of factors, such as moral values, greed etc will get dismissed as non-issues. Why? Becuase greed is present in US/West as well as India. And moral values are at same level in India as well as West.



Basic economics of slums

I am taking Oct-2003 price. The construction cost of building a 2000sqm 3-storey building on a 1000sqm plot, without lift, with all basic amenities, will cost about Rs 2000/sqm. With lift, and when construction is done using expensive matrial like marble tiles etc. the construction cost would increase to Rs 3500/sqm. In most Indian cities, flats go for the price of Rs 5000/sqm to Rs 20000/sqm. Why? Mainly it is due to cost of land. In general, given same construction quality, the variation in cost is ENTIRELY due to variation in cost of land.

A typical urban laborer earns Rs 2000/month. And if husband and wife both have work, they can earn upto Rs 3000/month. A family of 2, can live, with some discomfort but all basic amentities, in a 25sqm flat, and a familiy for 4-5 would need say 40sqm. So construction cost would be Rs 62500 to Rs 100000 (plus cost of land). Monthly rent (oct-2003) is about 0.6% of the cost. So if cost of land were to be zero, land on such small flats would be Rs 400 to Rs 600 per month. But given the cost of land, the price and rent is much much higher.

Now given area, where land price is very high, some 10-20km away, the land price will be very low, and so would be the rent. But in India, commute price is about Rs 0.50 to Rs 1.00 per kilometer, and so if a laborer shifts 10-20km away, he would lose Rs 10 to Rs 40 in two-way commute, and some 30-60 minutes of his time. A typical laborer who earns Rs 100/day cannot afford such commute.

So the labor seeks to find a place close to his place of employment. But land price in such area is often expensive, and so he cant afford to stay 10-20km away. As a result, he has no option to stay in a slum.



Factors why slums are higher in India compared to West

The reason why a much higher fraction of population lives in slums in India, compared to West, is due to 10s and 100s of large/small wrong ADMINISTRATIVE decisions that India's govts/citizens have taken in past 20 years, or due to several right decisions they DID NOT take. The cummulative effect of these wrong administrative decisions is that we have chronically high poverty and higher slum population.

So IMO, there is NOT 1 economic policy, changing which, slum problem can be solved. There are 100s of small changes we will need to make to fix the problem.

Following are the main reasons why India has been more slums than West :
  1. Higher poverty : Why would a a person live in slums? Becuase he cant afford to live in a good house, mainly becuase his income is too low. And why does India have far far more poor persons than the West? Several reasons ... please click here for a list.

  2. Defunct courts : When some persons in India build slums illegally, the defunct judges give stay order against its demolition at the drop of the hat. Mostly it has been due to judge/lawyer nexuses. This stiffles the demolition of slums, and hence more slums. The courts in West do NOT give such stay orders against demolition, and hence no slums.

  3. Lack of fuel : Given any slum, say some 10-20km away from that slum, plenty of small cheap houses are available. Then why dont the slum dwellers move there? In many cases, slum dwellers have to pay a rent for their slums, which may be almost as high as rent for those good clean small houses. The reason for not moving there is --- most will NOT be able to afford the transportation cost. In India, the daily wage in urban area is Rs 100/day (oct-2004). And cost of travelling 1km by public transport is 50 paise to Re 1. So if a person moves 10-20 km away, the cost of travelling will eat away 10% to 20% of his earnbings. So person tend to stay where job oppurtunities are high i.e. urban areas. Hence over-crowing and slums. In US, the fuel cost, compared to faily per capita earnings, are cheap and hence even a person with lowest wage can afford to commute upto 10-20km and thus stay in a decent house. But given the lack of fuel in India, which results into higher price, a large number of people have no option but to stay in slums.

  4. Rent act : The rent act in India is so, that eviction of tenant is next to impossible, nor can rent be raised wrt inflation index or change in market value of land/construction. Things have improved in last five years, but still eviction or raising rent is difficult. Due to such a cumbersome rent act, no investors ever decided to form a complex of small cheap apartments, where all apartments will be for rentals only. Due to lack of cheap apartments, slums mushroomed.

    Factors that push up the land price, and thus increase slums

  5. Lack of wealth tax : In India there is no wealth tax based on market value of the property. Most Western countries, including US, have annual wealth tax around 1% of market value of building as well as land. As a result, there is less tendency to hoard land/buildings in US and West. And if a person has bought some land/building for investment, he is very likely to rent it to so as to pay the wealth tax. In India, since tax on land/building is practically below 0.1% of value, or rather nil and there is NO tax on vacant land and unused building, so the wealthy individuals have tendency to hoarde land as much as they can. This pushes the land price, which forces a large number of poor to live in sulms.

  6. Lack of inheritance tax tax : In India there is no inheritance tax. Most Western countries have inheritance tax. eg US has inheritance of 35% of wealth (valued by market value) above US$ 700,000. Spain has inheritance tax of 30% if wealth is obtained from blood relative, and as high as 70%, if wealth is obtained from a person other than blood relative. So every year, huge amount of land/buildings come for sale in the real eastate market, as and when someone expires. This reduces the land price and so lesser slums.

  7. Wrongful land allocation in the name of education, health, welfare etc. : Huge amount of land in India, in PRIME areas, had been allocated to various government, private or semi-private institutions in the name of education, health and welfare. eg In Ahmedabad where I live, an institution has been occupying 100 acres of land in prime area. This land can be used to build some 25000-30000 flats of about 30-35sqm in area, which can house a small family with some discomfort, but with all basic amenities. IOW, in the name of education, this one institute has consumed land that could have housed 25000 poor families. This is just one institute -- the combined land that such 100s of insititutes in Ahmedabad alone would cross perhaps 10000 acres, which would be sufficient to provide houses to EVERY 500,000 slum dwelling familiy in Ahmebabad. In US, since the fuel is cheap, this land allocation for wealfare agencies did NOT create a catastrophe, as the poor could just move a few kilometers further. In India, this allocation in the name of wealfare has created a large number of slums.

  8. Rent act strikes again : Rent act also ruined the central areas of cities, where a large number of apartments were rented. The owners could NOT evict the tenants, nor could they raise the rents. So the rents were so low, that the tenanats would never move out as well. Hence, lakhs of tiny 1-story buildings stood there for decades, even though market conditions were ripe that they should be demolished and replaced by 4-10 storey buildings. Due to lack of land's availibity in the inner city areas, the people who could not afford to live and commute from far away place had no option but to live in slums, or sleep on the road.

  9. Archeological Survey of India : A central govt body, named ASI, has decided that height of building cannot be raised if within 100m of that building, there is a building which is older than 100yrs (so called heritage structure). This is utter nonsense. Now there are 1000s of old building in every old city of India. So given the defunctness of ASI intellectuals, a large number of buildings in inner city cant be demolished and replaced by taller buildings. This has created an articial scarcity of flats, and thus a demand for slums. In US, this type of nonsense if less seen, and so lesser slums.

  10. Currency printing strategy of Central Banks : This problem is seen in US/West as well as India, and impoverish the lower strata of the population. In India, as well as US/West, Central Banks and other scheduled banks create huge of new money every month, and distribute mainly amongst wealthy individuals who have sponsored the careers of directors etc of the Central Bank and other scheduled banks. The wealthy individuals, after getting this newly issued money or currency go on a buying spree and buy bus load of lands/flats. This pushes the land price. So the individuals of lower strata find it difficult to afford the land, and so they are forced to live in the slums. This recklessness of Central Banks and other banks in US has merely reduced wealth of lower strata, but not driven to the extent of extreme poverty so far. While in India, this has created extreme poverty and slums.



How can citizens of India reduce slum problem?

Trivial.

By building a large number of small cheap flats in cities, by increasing availibility of land, and by decreasing hoarding of lands and flats. How? Very trivial.

By removing laws that prohibit coming of cheap small flats, and enacting laws that would favor it. How? Extremely trivial
  1. Steps 1-3: The citizens should force MLAs, MPs and District Panchayat Members to create procedures that would enable citizens to pass laws in District Panchayats, Assemblies and Parliament. Please read LM.01 to see the procedure using which citizens can pass laws in District Panchayats and City Councils. Please read LM.02 to see the procedure using which citizens can pass laws in Assembly. And please read LM.03 to see the procedure using which citizens can pass laws in Parliament.

  2. Steps 4-18 : The citizens of India, using LM.01-03 can enact procedures EAS.01-15. These procedures will provide a monthly dole to EVERY citizen, and will provide higher dole to elders. This will reduce poverty and reduce slums. Further, EAS.15 deals with dividing rent obtained from govt-owned land equally amongst all the citizens. EAS.15 will not only reduce poverty, but also force a large number of private/public institutions to release the land, if they are NOT using it productively. This will increase availibility of land, and would increase availibity of cheap flats and would thus reduce slums.

  3. Steps 19-23 : The citizens of India, using LM.01-03 can enact procedures TX.01-05. These procedures will reduce regressive taxes. This will reduce poverty and increase the purchasing power of lower strata of the population, and will reduce slums. TX.03 also creates a wealth tax on land/buildings based on its market value, and hence will reduce hoarding of land/buildings, and will also increase availibility of land/buildings for sale or for rent. This will reduce price of land in cities, and thus reduce slums.

  4. Step 24-29 : The citizens of India, using LM.03 can the pass laws CURR.01-06. These laws will reduce the recklessness of Reserve Bank of India and other scheduled banks, and ensure that they cant issue new money and give it rich at their whim, which they do today. This will ensure that wealthy individuals in India no longer get buloads of newly issued money for free which they do get today. This will stop escalation of land prices, and coupled with TX.03, will also bring reduction in land price. Hence slums will reduce.

  5. Step 30 : The citizens of India, using LM.01-02 can enact procedures CIVIL.02. This procedure easens renting, eviction and changing the rent as per change in market price of land/buildings. So a large number of flat owners who are currently NOT renting the flat will start renting their flats, and many individuals/companies will come into market to create rental complexes. This will reduce the rent, and hence reduce the slums.

These TRIVIAL steps will reduce slums. Please note that it is not a requirement that citizens must take all 20-30 steps, and ONLY then slums will reduce. The first three steps on their own do NOT reduce slums --- they only reduce the cost of taking next 20-30 steps. And each step reduces slums by a fraction, irrespective of other steps are taken or not. Togather, they will reduce the slums to near zero. Except steps1-3, there is no significant dependency.



Non solutions : steps even if taken, will NOT reduce unemployment

Following are non-solutions i.e. steps even if taken by govt, will NOT reduce uneployment
  1. Govt programs : As of today (oct-2004) a large number of NGOs and economists are insisting that govt should start massive programs to build small houses to eradicate slums. As per them, govt would pay NGOs/contrators 1000s of crores of rupees, and they would build houses for poor. And where will GoI get this astronomical amount? By increasing taxes on tobacco, liquor, tea, coffee, sugar etc. This program is worthless for two reaons ---
    1. If GoI uses regressive taxes, like taxes on tea, coffee, tobacco, liquor etc, this will only further increase poverty, and will decrease purchasing capacity of the poor, which will INCREASE slums. If GoI uses only flat taxes, like income/wealth tax, the damage will be minimal. But chances are that GoI will use regressive taxes.
    2. The money will get siphoned out by officers, judges, NGOs and contractors and not to mention MPs/MLAs and Ministers. The houses these NGOs/contrators etc will build will be highly sub-standard, and worse than slums. As there will be massive taxation, which will increase slums, and no real increase in number of cheap houses, slums will only increase by these such schemes.


  2. Increase external investments : Indian economy is NOT falling short of funds. There are plenty of unused funds in private hands. But due to defunct courts, rentasl acts and low purchasing power of lower strata of population, potential investors rightly believe that investing in India's housing sectors, perticularly building rental complexses, is "all-risk little gain" proposal. IMO, it would be wrothwhile to improve our own courts, rental laws, taxation laws etc so that renting can become efficient and purchasing power of lower strata of population increases. This will reduce the slum problem, WITHOUT a penny of external investment in housing sector.

There are simply too many non-solutions to re-butt. All these non-solutions have become popular becuase of nexuses of intellectuals with those who benefit.




If you have any other question, please mail it to MehtaRahulC@yahoo.com. Thousand thanks in advance.