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Opinion Columnists

Low-cost homes can shelter India’s dream after COVID-19

Giving rural migrants an incentive to return to cities will help restore economic activity



Migrant workers from other states trying to return to their homes wait for transportation to a train station in Ahmedabad, India, Sunday, May 17, 2020. Tens of thousands of migrant laborers have been returning from big cities to their villages after losing jobs because of a countrywide lockdown imposed in late March to contain the spread of the coronavirus.
Image Credit: AP

India quite literally needs to put a roof over its China dream.

It took a pandemic and a lockdown to highlight the precarious existence of the country’s blue-collar workers. Left without jobs and shelter, an estimated 30 million — roughly a fifth of the urban labour force — have gone back to their villages, with many completing long, hazardous journeys on foot when trains and buses shut down.

No wonder, then, that Prime Minister Narendra Modi’s government cleared a plan to build inexpensive rental dwellings in cities for 350,000 workers.

Giving rural migrants an incentive to return is crucial to restoring economic activity to pre-COVID levels. But there’s an opportunity here to do much more. For India to industrialise, rethinking the housing situation will be as important as freeing the urban poor from large medical bills and helping them build retirement savings. If the country of 1.3 billion people wants to be a factory to the world — the next China — it must start by giving workers low-cost living quarters.

India must also make more shoes, clothes and toys. To create a permanent urban workforce that will both produce and consume those wage goods, it should also build millions of new homes.

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India is sitting on an inventory of more than 1.3 million unsold homes. Mumbai-based property researcher Liases Foras estimates that roughly half of these units could face delays and other execution risk; prices on nearly nine out of 10 apartments may have to be cut by 5 per cent to 15 per cent to hook wary buyers. That’s billions of dollars in lost revenue.

It may not be possible to repurpose this stock as worker accommodation. Nevertheless, as losses on pricey condominiums crystallise for struggling developers and stretched financiers, they can be made more bearable by tax breaks, cheap government land and other fiscal support for affordable rental housing — a new revenue stream. Assured of a decent rental yield, investors will be encouraged to finance this new asset class. Institutional capital will return to depressed real estate. Construction will absorb surplus manpower and create badly needed wage income.

Cheap urban rents will bring India the full benefit of labour mobility, which isn’t constrained by Chinese-style hukou, or city registration requirements. Yet the rapid urbanisation that turned East Asia into an exporting powerhouse and created a foundation for mass consumption has eluded the country. Young men migrate to cities for economic reasons, and return to their villages in old age. Apart from cultural factors, availability and cost of housing is the main reason why women and children stay behind, making urbanisation in India both slow and rather “masculine,” as economist Chinmay Tumbe, who has studied migration trends since the 1870s, has put it.

Poor infrastructure, red tape peg back manufacturing

While the gender ratio of large cities is no longer as skewed as it was in the early 20th century — 500 to 600 women for 1,000 men — it’s still a lopsided 868 in Delhi. For Surat, a major diamond-cutting and textile Centre on India’s western coast, the ratio is even more unbalanced at 756. Surat is still an exception in that it has a lot of manufacturing. A peculiar facet of rural-urban migration in India, according to Tumbe, is that most of the workers end up in service-industry jobs.

Creaky infrastructure, infuriating red tape, occasionally overvalued currency and lack of meaningful free-trade arrangements have held back the share of manufacturing in the economy to 16 per cent — a modest rise from 5 per cent in 1901. Back then, British colonialists had kept India under-industrialised so they could sell their wares in a market that produced little of its own. Now, it’s a small urban elite — whose own ancestors left villages a long time ago — that’s keeping new migrants employed as chauffeurs, housemaids, condominium security and ATM guards.

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The economy is geared to satisfy the top 150 million earners, as Rathin Roy, until recently the director at the New Delhi-based National Institute of Public Finance and Policy, has argued. This depresses the wages that would be generated by becoming good at making what the next 300 million want. In the absence of broad-based income growth, consumers boosted spending by borrowing. When they eventually started to deleverage last year, India faced an acute demand funk, even for 7-cent munchies.

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Since then, COVID-19 hasn’t been the only wake-up call. Rapidly deteriorating US-China relations portend sweeping changes in global supply chains, but even in its own neighbourhood, India isn’t competitive in manufacturing. A once-in-a-generation opportunity could slip out of its grasp.

At a furniture store in Ho Chi Minh City some years ago, I saw colourful satin-upholstered sofas whose sides were drab black polyester. This, I was told, was because the sides would take dirt from motorbike tyres and must be easy to clean: A Vietnamese family would park the two-wheeler, its most precious possession, next to the living-room furniture to keep it safe at night. Societies that value and make things that workers themselves use lift living standards and labour productivity. No wonder Vietnam, now a hub for Samsung Electronics Co., is winning investments from Inventec Corp., Apple Inc.’s main assembly partner for AirPods, as well as Hon Hai Precision Industry Co., better known as Foxconn.

India must also make more shoes, clothes and toys. To create a permanent urban workforce that will both produce and consume those wage goods, it should also build millions of new homes.

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— Bloomberg

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.

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