Our biggest imperative as a nation today is to create good jobs that would help our workforce transition out of low-productivity, low-paid work. To give a sense of the scale of the problem - 46% of India’s workforce is engaged in agriculture, even though the sector contributes just 18% to our GDP. Manufacturing is the only sector that can absorb relatively unskilled labour at the rate required to ensure sustained economic growth. Recognising the importance of manufacturing as a job-creating sector, Foundation for Economic Development has published a report titled “Worker Housing | Unlocking Labour-intensive Manufacturing in India”, underscoring the need for worker accommodation as a critical unlock for enabling large-scale, employment-intensive manufacturing.
Jobs in manufacturing and services are 3-6 times as productive as agricultural work. These jobs are likely to be found in large industrial clusters, which allow for the concentration of related industries and help leverage economies of scale. In such clusters, the labour requirement is much more than what nearby towns and villages can provide. However, the report finds that one part of the explanation for lower manufacturing employment in India is that our clusters lack proper housing for workers which would induce workers to move closer to them.
The report finds that worker housing is currently managed informally and often characterised by unauthorised slums or multi-storey settlements, which are both sub-scale relative to the number of ‘rooms’ required and of low quality. The lack of quality accommodation for workers near industrial clusters manifests in lower productivity and a shortage of workers for industries to rely on. Ultimately, the global competitiveness of India’s manufacturing exports is compromised, and job creation gets limited.
The report argues that market responses for providing worker housing through the private sector, which should have ideally filled the gap, are hindered by regulatory bottlenecks – inflexible zoning regulations, illiberal building byelaws and approval processes, and high operating charges. Hence, it is critical for government to carry out reforms and investments in worker housing
The report’s key recommendations on reforms for worker housing include the following:
1. Zoning regulations: Mixed land zoning should be implemented to allow for the construction of worker housing in all zones without any restrictions
2. Building bye-laws: Worker housing should be set up based on residential building bye-laws. These regulations can be further liberalised to bring down land costs. A system of third-party certification, insurance and self-certification by chartered architects can replace the requirement for prior government approvals
3. Operating regulations: Worker housing should be exempted from paying GST and residential rates must be charged for property tax, electricity and water tariffs to bring down land costs
However, the report also points to a chicken and egg problem – housing alone will not bring in industry, so investors will be reluctant to invest in worker housing, and without workers, industry will be reluctant to come in. To truly unleash Indian manufacturing, we must think of dense, large-scale worker housing as infrastructure, that can reap coordination and externality benefits for several stakeholders and reap great public returns. Therefore, the report also recommends financial support from the government in the form of schemes that can subsidise the setting up of worker housing and rental vouchers that can be issued to workers to be exchanged for rent to subsidise housing.
About FED
Foundation for Economic Development (FED) is a non-profit that aims to facilitate a sustained and broad-based economic growth of over 10% to improve the lives of all Indians. With an approach to identifying high-impact opportunities for economic growth in India, FED works with central and state governments across the ‘value-chain’ of reform to help realise those opportunities.
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