Cornerstones

Population aged under 15 years in 2005:

Sourced from Wiki: http://en.wikipedia.org/wiki/Youth

In a country like India, with over 400 million youth by 2022, the three most important policies that form the cornerstones of an economy include:

Basic Education Needless to say basic education, expected to be achieved through the Right To Education Act, is the most important step that has been taken in this direction.

However, it is unlikely that Indian economy can provide so many white collar jobs and therefore may result in inadequate returns to education. Besides, of course the issue of supply of education remains, after all only so many graduate out of the IIT and IIM. What is required is vocational training.

Given that cities are the places where a large proportion of this youth is likely to be employed, Housing policies assume as much importance as the above two. With the present land demand and supply dynamics, the real estate costs make it prohibitive for a large proportion to access affordable housing. Capabilities that enable one to earn livelihood but not enough to afford shelter are rendered useless! Constant exclusion makes white collar jobs with remunerative returns seem like the only solution to the issue of housing in cities. Govt. policies targeted towards provision of low cost housing are thus the third supporting pillar.

13 million hectares of forest land was diverted for non forest purposes each year between 2000 and 2010 according to the World Forest Resources Assessment (FRA) Report (also see 550 years, published Oct'10).

This piece is about the value of the forest resources.

Determining the value of Indian forests was a long drawn process, a Supreme Court referred committee estimates, which were to be vetted by the Central Govt. established committee.

The Central Empowered Committee placed a value of Rs 8 lakhs on a hectare of average forest land. More productive or more dense lands have a higher value, 8 lakhs scaled up by factor based on ‘judgment’. The process needless to say is non transparent and needs revision.

According to the FRA, revenue derived from forests is close to world average. Also, the value of fuel and wood products from Indian forests is relatively higher in India as compared to other countries.

The chart below shows per hectare forest revenue collected by country (2005, progressively darker implies a higher revenue, Source: FRA)

Fiscal implications of RTE

The GoI has enacted the RTE with a vision to provide ‘free’ elementary education (class one to eight) to ‘each’ child in the age group six to fourteen. Capital task, the need of the hour, particularly in view of the demographics of India where over 35 crores, currently in the zero – fourteen age group will add to work force over the next fifteen years.

However, RTE will have large fiscal implications, as the Govt will need to step up its education expenditure. Expenditure will rise on account of existing schools with current enrolments to become RTE norms compliant (in terms of infrastructure, number of teachers etc). Further, ‘compulsory’ education will entail students currently out of schools to be enrolled; new schools will need to be built and additional teachers employed. The act looks to provide training and learning material to teachers and schools. ‘Free’ education will entail reimbursing students’ textbook, writing material and uniform costs.

To see detailed estimates for two components of total costs - infrastructure and teachers, for govt. schools in rural India, please see:

http://www.accountabilityindia.in/sites/default/files/state-report-cards/paisa2010report.pdf

Demographic estimates from 'Indian Demographic Scenario, 2025' by Prof. P N Mari Bhatt

the market solution to slum rehabilitation

I was recently introduced to the concept of market based solutions for slum rehabilitation.

At the fore: slums are not a result of market failure, rather a result of markets. The solution therefore, lies embedded in the working of markets.

The solution is provision of low cost housing to the slum inhabitants, who were too poor to afford extant housing. A prerequisite: inexpensive land. The current demand supply mismatch in the real estate market seems large. Authors suggested accelerated clearance of disputed land, conversion of unused public lands and conversion of agricultural lands at city periphery for urban use.

Following calculations based on cheapest available land around Bombay (Thane district?) at Rs 2,500 /sq ft show ~1,000 acres of residential land needs to be made available (further, land for infrastructure will also need to be made available) to meet demand. There may still be some people who may need titling benefits or subsidies.

Releasing this kind of land should not take much, it is only about 1% of Mumbai’s total land.

• Households with annual income less than Rs 90,000 per annum will be eligible for subsidies.
• Given the magnitude of 'inexpensive' land required, converting agricultural land and developing satellite towns may actually be the best available option.
• Substantial investments would have to be made for provision of infrastructure, particularly transport.

Paper: "Working with the Market: a New Approach to Reducing Urban Slums in India"

the scintillating urban and the static rural

Higher urban wages attract rural poor, leading to migration, unemployment, emergence of squatter settlements etc.

Higher wages or the ‘expected higher wages’ in the urban sector drive the immigrants.

Of course migration cannot be stanched. Two pronged policies:

• Cities should expand to keep pace with immigrant population. Policies to integrate informal into mainstream economy, Govt provision of adequate physical infrastructure.

• Productivity in rural areas can be enhanced (for example through imposition of minimum wages).

In India, rural labour market seems to have settled at a low productivity equilibrium encouraging migration.

Productivity in Agriculture sector has not progressed over past few years:

Why land titling does not work? It doesn't teach you how to earn!

Land titling is an incomplete solution. It does give the inhabitants a house but not the assured stream of income to maintain the house. Government should extend the policy purview (Rajiv Awas Yojna for slum rehabilitation) to include establishment of vocational training institutes that will provide the dwellers with the skill set required for sustenance. This can be implemented through a government financed slum development authority or through involvement of private developers.

Land titling is successful in so far it eliminates the need for the presence of an adult member in the house at all times to protect eviction from property. Thus, property rights provided to an x number of households makes available a comparable number of adults and consequently an equivalent amount of productive labour. Since the households become registered and therefore legal, numerous other problems such as electricity theft are alleviated.

However, any significant increase in access to credit has not been recorded, as a study in Peru, the developing country with the largest land titling program revealed. Plausible reasons are the costs associated with small ticket credit approval process; determination of creditworthiness of a borrower which entails evaluation of individuals on accounts of land available for collateral besides employment and level of income, education level, counter-guarantee, purpose of loan (productive or consumption) etc.

A potential problem with the land titling policy: reversion of the targeted group to slum dwelling and renting out the newly possessed property.

Slum rehabilitation authority with an initial paid up capital allocated in the budget. This authority should plan, aid and oversee the construction of a complete township. The house area, if we assume to be of double carpet area of the initial slum houses, and three storied, will leave almost one-third area available for workshops and other commercial trade centers.

This authority should undertake the establishment of vocational training institutes. Depending on the supply side feasibility, each slum can create a niche in some craft. The onus of marketing and the brand building exercise should also be on the authority. This is analogous to the highly successful state emporia model, an initiative of the state governments to showcase and sell its state’s traditional handicrafts.

This would also bring a sizable number of taxable transactions or sometimes even the flourishing black economy under the government net.

The program can also be designed to involve private developers who can use the land available commercially, while also showcasing the crafts associated with the slum.

Slums are a large part of the informal economy.