India’s forbidden cities

Francesco Giavazzi of Bocconi Univ Italy writes this nice article deploring the state of cities in India.

He begins the article  recalling his class in economics where an Indian student decides not to come to India despite a job offer. He choses to shift to London instead. He wants to come back but thanks to poor work-life balance has decided to remain away:

Professor, I think I didn’t get the point of your classes on exchange rates and price comparisons across countries,’ said Ashish. Since he had been the best student in my MBA class thus far, I was rather surprised. May be my students had indeed been confused. “Not at all,” replied Ashish, “You’ve been very clear, professor. But I still don’t understand. Let me explain why.

We are at the end of the programme, and last week I received a job offer from a firm in Mumbai. The position looks interesting and Mumbai is a great city to live in, although I grew up in Delhi and I’ve been there only once. The salary also looked attractive: it is not very different from what some European firms are offering us.

Over the weekend, I made a few enquiries with friends in Mumbai and did the numbers. There is no way I could survive in Mumbai with the salary they are offering. To be precise, I could survive, but I could only afford an apartment a couple of hours away from the office. The job is challenging and demanding, often you must stay in the office after dinner. Maybe I would end up sleeping in there. And then, what’s the purpose of moving to Mumbai if you cannot enjoy the city after work?

Ashish ended up accepting a job in London. He found a flat at Islington. Not close to the office, but on the tube it takes 45 minutes to get home, convenient even when he works late at night. He misses India and when I see him, he still asks what he didn’t get about that class on exchange rates and prices.

Giavazzi says good cities are all about attracting youth:

The drivers of a country’s development are its cities and the young. The cities because, as Harvard University’s Ed Glaeser explains in his new book Triumph of the City, they bring out the best in humankind. History has shown that a country’s success  depends on the health of its cities. The young, on the other hand, have ideas and the ability to turn ideas into profitable projects. You can do this when you are 25; at 50, it’s much harder. Mumbai’s loss of Ashish is a symptom of India’s development problems.

Yes, that is a major problem for India going ahead – lack of good livable cities.  Cities like Mumbai, Delhi, Bangalore etc where  jobs are available are just not exciting enough. They survive because of TINA (There is no alternative) factor. People have no choice but to live and slog there. As Ashish rightly says, most people just waste  time travelling. Then they are so exhausted in daily ordeals that travelling around the city during weekends is a major task as well. Some are ofcourse lucky who get plum jobs and can stay nearer to work place. This option is especially never really available to people in Mumbai.People end up sepnding nearly 25-40% of income on rent alone. Delhi has revamped its infrastructure but thanks to security issues it remains highly unsafe. Bangalore’s infra has been  creaking for a while and there is hardly any respite.

Anyways all this is well-known. What are the alternatives?

What would it take to make it possible for a young professional to live at a reasonable distance from his office in Mumbai? A number of somewhat difficult steps, which would require a very forward-looking government. Most of Mumbai is occupied by low-rise, inefficient houses. Forget their availability, they are far from the standards a young MBA is looking for. They should be leveled and replaced by efficient high-rise buildings. A few historical areas should be preserved, but they occupy a very small fraction of the half-a-million square kilometres over which the city extends. Shanghai has transformed itself preserving the Bund and a few historical markets. New York has leveled anything which existed prior to the 1920s: we don’t seem to miss it. The real problem is not the crumbling houses, but the people who live there. Once the new high-rise buildings are ready, there will be space for both the old dwellers and the young MBAs. But rebuilding Mumbai, even a few neighbourhoods, will take the good part of a decade. What happens to the current inhabitants in the meantime?

The solution is a modern metro system. Delhi has done it, Mumbai is about to inaugurate its first metro line. A metro serves two purposes. While the neighbourhoods of the city are being rebuilt, it will make it possible to temporarily relocate those who now live in the centre, without forcing them to give up their jobs. If the city becomes a big success, even the new high-rise buildings will not suffice to house all who will want to live in the city: the metro will make it possible to develop new areas at an easy commuting distance.

This growing vertical Mumbai has been suggested by others as well. Abhijeet Banerjee compared Mumbai to Kolkata and said the same-  challenge for Mumbai is to move its youth closer to work places like south and central Mumbai. But then this is unlikely to solve the problem as well. Mumbai has crazy housing prices and rentals and higher floors come at much higher rates. Builders charge high floor rates from 2nd floor onwards and this translates into high prices and rentals as well.

Going vertical will help increase the supply but is unlikely to force living costs lower. The supply curve logic of more supply leading to lower prices does not work here. Comparing to NY is ideal but does not work here. You have a much cleaner housing market in NY, in Mumbai it is just corruption and shady. So  normatively it looks good, not sure how it would help positively. Youth will again be forced to live far because of such costly living.

He praises Delhi Metro for making travel easier and asks for more allocation to infrastructure:

an new metro projects be launched, not only in Delhi and Mumbai, but also in Bangalore, Kolkata, Chennai, Hyderabad? I think they can, for two reasons. First, Delhi and Mumbai are doing it. The new Delhi metro is clean, efficient and has already opened up new areas of the city. Two years ago, living in Gurgaon and working in downtown Delhi would have been a nightmare: now the commute takes 30 minutes. The Delhi metro is the evidence that even in India, such a project can be completed.

Second, the financial resources could be made available. India’s GDP is growing at 8% per year and the real interest rate is around 5% (I am following the most recent IMF projections). The government is targeting (for 2014-15) a balanced primary budget, that is a level of total spending (at the Union and the state level) equal to the volume of projected revenues. With such a wide gap between the growth rate of the real interest rate, a balanced primary budget means a falling debt-to-GDP ratio. If instead India were to target a constant debt ratio (just below 70% of GDP, the target set by the 13th Finance Commission), the fiscal space available for investing in public infrastructure would be as large as 2% of GDP per year. Such a volume of infrastructure investment may be what is needed to make an 8% growth sustainable.

Is riding the trade-off between reducing the debt below 70% of GDP and investing in infrastructure a risk India can run? It all depends on the quality of public projects. To be productive, to be completed in time and to avoid corruption, public investment should be concentrated in a few, easy-to-monitor projects. The Delhi and Mumbai metros are two good examples. They should be the first in a sequence of new projects.

Real interest rate at 5%!! It has been negative for so many months now. Again too much of normative stuff. Quality of governance is too low here and hike in infra spending would just lead to hike in overall spending with hardly any additions in infrastructure. The projects which go through are usually way over cost and  late by many years.

Till then, we will keep having such cases like Ashish. India  is sitting on so many opportunities but it is only in numbers. Many migrated back looking at these numbers, am wondering what their experiences have been living in Indian cities. India today dubbed them as urban hells

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5 Responses to “India’s forbidden cities”

  1. Vivekanand Subbaraman Says:

    Very interesting post. Housing/quality of life will surely be a big factor for the talent pool to decide where and how to work.
    Additionally, as the skills that Indians possess/develop, align with the skills in demand in the global work-stream, it’s going to get far easier for today’s ‘young MBA’ to choose between working in Mumbai/London/NY.

  2. Amar Ranu Says:

    Superb! very nice inputs on Indian cities…

  3. vikas gupta Says:

    realy true ,,all the metro cities in india living cost so high,, n most biggest problem is travling,, i agree this ,,,

  4. bogota aparment Says:

    bogota aparment…

    […]India’s forbidden cities « Mostly Economics[…]…

  5. Live in South Delhi Says:

    In terms of safety and public amenities , South Delhi still scores among the best in India

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