550 Years!

The annual average rate of gross deforestation is a little under 3.5 bn metric tonnes (2005-2009). India is responsible for ~10% of this. USA and China for another 11% and 9% respectively.

Following table: Percent share of countries (top 50%) in gross 3.3 bln mtrc tn deforestation in 2009:

The forest cover has depleted at a much higher rate of over 85,000 Sq Km between 1990-2000. This has moderated to close to 70,000-75,000 Sq Km in recent years. Nevertheless the rate is not innocuous. It is not just deforestation that contributes to green house effect and climate change, the effect is compounded also by the derived wood fuel that is burnt.

At this celerity, the forest land will completely disappear in ~550 years!!

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:

50% of India's growth emanates from 5 states alone

What may be surmised: unequal growth, unequal opportunities, rural urban divide, rural to urban migration, slums. It is not a coincidence that these are the states with the metropolis.

Growth needs to be more equal, rather made to be more equal; to tackle the migration problem and increase urbanization [more in next posts.]

Integration of the rural into mainstream economy is essential! If the rest of India grows at 8%, from the current ~6%, it could add a whole percentage point to the national output.

Data not available for all states FY07 onwards.

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.

The exponential rise of India's Black Economy

The rising levels of currency with public are an indication of the rising unaccounted transactions, out of the tax nets:

Currency is withdrawn from the banking system at some point during the multiplier process after which it falls out of the tax net. If after this point in time, it is assumed that money changes hand even once (i.e. multiplier = 2), size of transactions that are unaccounted have doubled to 16 lakh crores from 8 lakh crores in the short span of 2006-2010.

A case in point is the FCI procurement payments, which are made in cheques up to the middle men arthias, but ultimately reach the farmer in cash who further uses the currency and makes some more cash transactions.

Why we need the Food Security Bill? Part 2

Another argument, seemingly less compelling but legitimate nevertheless, in favor of food security:

While much needed and absolutely commendable, it is commonly understood that hike in diesel prices will feed into food inflation; slightly dated but diesel costs were 7% of agricultural input costs in FY09.

Incorporating the current 7% hike in diesel prices, a preservation of farm incomes (agricultural GDP, Estimate 3 in table below) would require 2.3% rise in value of output i.e. farm prices: - value of output in case there were a 7% hike in diesel price and costs were passed on in full, is 2.3% higher than actual value in FY09, implying food inflation would have been higher by 2.3 pct points.

Figures in Rs crores

In Why we need the Food Security Bill? Part 1: How food inflation eats away real income.