Urbanisation in India has thrown up unique challenges. One of the most critical among them is how to house the large numbers that move into cities every day. The government’s one-stop solution for managing slums and unauthorised settlements has been the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). But is it enough to provide subsidised housing? Can basic infrastructure like transport, water and sewage be ignored? Or, can the government depend on the private sector to take care of them? Partha Mukhopadhyay, senior research fellow at the Centre for Policy Research, raised these issues in an interview with BW|Businessworld. Edited excerpts:How do you view urbanisation in India?In India, we use a definition of urbanisation that is most unique. In terms of size, density and economic activity, a settlement has to have over 5,000 people, more than 400 people per sq. km. and three-quarters of the male working population in the settlement must be engaged in non-farm activities.We are the only country that defines urbanisation along such parameters. So, it is pretty hard to be urban in India in that sense.Do such settlements have to be near big cities?Most people are under the impression that urbanisation occurs in and around large cities. That is not true. Currently, only about 31 per cent of our population is in cities with over 1 million people. In fact, if you look at the proportion of the urban population living in cities that already had over a million people in 2001, it has actually gone down. This is because other places have grown faster. The notion that hordes of people are migrating to big cities is not entirely supported by the available data. In fact, the data indicates that there is not much migration in India. Of the 90 million who became urban dwellers between 2001 and 2011, about 40 million were born in urban areas, 30 million got the tag due to morphing of places, i.e., the change in the economic character of the settlement, and only about 20 million migrated.Why is there a perception that Delhi, Mumbai and other metros are brimming over on account of a rural influx?Delhi, for instance, is adding numbers far slower (in comparison to other metros). Between, say, 1970 and 2000, it grew over 4 per cent since 1951 and in the last 10 years, the growth rate has dropped to about 2 per cent. How did that happen?Delhi has not shown any dramatic growth, but peripheral areas like Gurgaon have grown sharply. In Mumbai, the population of the city has remained almost flat, while outer areas like Thane have shown a growth of around 3.5 per cent. Kolkata and other metros also have not shown much growth. So, it appears that the population growth in the core cities is, in fact, slowing down.The only city that has shown strong growth is Bangalore. It has grown at an annual rate of about 5 per cent for the past 10 years. What are some of the emerging urban centres?We now have more than 50 cities with over a million people spread across 18 states. Urban growth in India is taking place pretty much across the country. It is no longer just about Delhi, Mumbai, Kolkata, Chennai, Bangalore, or even Hyderabad, Pune and Ahmedabad. What are the challenges that such urbanisation throws up?Only Maharashtra and Gujarat offer some functional autonomy to their cities — Mumbai and Ahmedabad, respectively. Few cities actually have a functioning mayor and a council system. The cities are mainly managed by various state agencies, which don’t always function perfectly. This is partly because the capitals of states don’t want a parallel authority just as powerful as the state chief minister. A strong mayor can well be a political rival. For instance, the mayors of Paris have often gone on to become the president of the country. This may be the reason why chief ministers are reluctant to cede powers in capital cities.Be that as it may, it’s a problem, as in that case the authority to take decisions rests on the city commissioner. But commissioners do not stay for an extended period of time — two to three years at best. Therefore, there is a structural problem with the agencies that manage our cities. Delhi is somewhat of an exception, but even in Delhi, land and police are not with the state government. It is due to this governance structure that there is a lack of trust among people for city employees.How can the government handle affordable urban housing better in cities like Delhi and Mumbai?It has to plan better. Connecting affordable housing with the public transport system is key. Take Delhi, for instance. We built the Metro at approximately the same cost as the Golden Quadrilateral highways, which means that connecting Delhi cost as much as it did to connect India. If you look at Metro stations in other countries, they have a large number of low-cost housing units around stations.In Delhi’s metro stations, much of the area is reserved for parking. It is so because the Metro is not integrated with the rest of the public transport system. But, over time, the idea is to get more and more of the city to move around the Metro. Globally, cities try to get low-cost housing connected to the Metro system. In Delhi, the JNNURM housing is in far-flung areas. Besides connectivity, people have to be provided with other basic services such as water, sewage clearance, schools and hospitals. Forget jobs.If you look at the JNNURM housing story, about 1.4 million houses were sanctioned, of which 8,30,000 have been built so far. But only about 6,00,000 are officially recorded as occupied. The remaining are not. This is because they have been built badly or don’t have basic facilities or are simply impossible to get to. You have to plan infrastructure if you want to relocate people from slums to these houses. I am not sure how well the JNNURM can work unless some of these issues — transport, location and sewage — are taken care of.People in slums work in industries, so if you try and make these slums disappear overnight, the economy of the city will collapse. So, instead of trying to relocate them to uninhabitable locations, if you offer the residents some security in terms of land tenure, you will find the residents making investments. There are around 1,200 unauthorised colonies in Delhi that are to be regularised. The government was supposed to make investments in infrastructure in these colonies, but not much has been done (a recent CAG report also came to this conclusion).In a way, let people fix their own problems. We provide them tenure rights and let them invest in facilities they need to make the place livable. I believe it is a better option compared to what the government is trying to do — putting them in heavily subsidised housing in some corner where no other facilities are available. But everything cannot be done by people themselves. For instance, we have no public provision of low-cost rental housing in India. This is something we need to look at and offer in the new urban centres. The government has been reluctant to take this on. It tends to lean on the private sector for anything that it cannot handle itself. They can’t always say: “We can’t do this, let the private sector take this on” or “We can’t do that, let CSR by companies take care of this”. The government has certain powers and it cannot run away from its responsibilities. There is this abdication of responsibility, but it seems acceptable to everyone. If we don’t want to hold the government responsible, how can we progress? anjulibhargava@gmail.com(This story was published in BW | Businessworld Issue Dated 08-09-2014)
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Housing in India is a growing concern, not just for citizens but also for planners. Little wonder that Prime Minister Narendra Modi touched upon the subject in his very first address to the Lok Sabha after taking charge — he spoke about the need for all stakeholders to pitch in to ensure housing for all by 2022.
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From infrastructure experts to economists, everyone has underscored the importance of transport. While India has taken a few steps towards improving connectivity betweenits cities using transport networks such as the Golden Quadrilateral highways and the Delhi Mumbai Industrial Corridor (DMIC), yet bottlenecks to infrastructure development are so grave that India continues to lag behind other emerging nations in its quality of roads, railways, ports and airports.Transport infrastructure projects in India face a catena of problems (such as delays in the pre-tendering process, land acquisition, clearances and construction) throughout the project cycle, resulting in time and cost overruns. Even after completion, several transport projects have faced financial challenges due to regulatory uncertainties. For instance, the dispute over the applicable statute in tariff determination for the Mumbai Metro project can have a significant financial impact on the project.Land AcquisitionLand acquisition is, perhaps, the most significant roadblock to the execution of transport infrastructure projects in India. Pervasive state controls often become a highly contentious issue between the state/developer and landowners. The new Land Acquisition, Rehabilitation and Resettlement (LARR) Act, with its various ambiguities, has worsened the situation. First, the term “public purpose” is not well defined and can, therefore, hinder land acquisition by the government, even for government or public-private projects. Second, the requirement of obtaining consent from 80 per cent of landowners for acquisition is a catastrophic concept in “eminent domain” legislation. This was demonstrated in the recent case of land acquisition for the Navi Mumbai airport project, where landowners of a few villages rejected the acquisition formula despite the highest ever compensation package offered in India’s land acquisition history. Clearly, the LARR Act requires a complete overhaul if any significant infrastructure development is to take place in India. Hemant Sahai & Avirup NagMultiplicity Of ApprovalsA major bottleneck leading to delays and cost overruns is the tedious and complex process of obtaining clearances from multiple authorities. Even projects like the Golden Quadrilateral and DMIC aren’t immune to this. Again, construction of transport projects is often held up due to law and order problems and other peculiar issues like difficulty in removing religious structures; a strong political and administrative will is needed to tackle such issues. In order to streamline the process of obtaining clearances, better co-ordination is required between the central and state governments. A co-ordinated “single window” clearance mechanism should be created, especially for the more complex projects.Given the mercurial disposition of Indian politics and governance, projects are often affected by the shifting legal and regulatory environment. For projects that cut across states, a common set of rules and regulations should be put in place. Such policy frameworks should be based on binding targets or key performance indicators and should reassure investors that the regime is stable and can provide the basis for a long-term capitalintensive investment. Integrated Approach Transportation projects face planning issues, are complex to execute and operate, have long lead times, and are usually very expensive. Therefore, given the budgetary constraints faced by India, prioritising projects requires changing the approach from the current “internal rate of return/ viability” to the “economic rate of return” evaluation, meaning projects should not be evaluated merely on the viability of the project but on the economic impact the project will have on the economic region.Take, for example, a road project that connects an industrial development to a new port project. As an isolated project, the road may be hard to justify based on a cost-benefit analysis. However, when one combines the larger macroeconomic benefits of delivering products to export markets with the increased throughput of the port and the potential for job creation, it becomes abundantly clear that the road can provide exceptional economic value.Another key factor in the success of transport projects is their ability to interconnect with alternative forms of transport that together can provide a wider operation network to enable ‘door-to-door’ service. The São Paulo Metro PPP and the Gold Coast Rapid Transit project in Australia are good examples of how regional and inter-city modes of transit can be integrated with other forms of public transport. break-page-breakOn similar lines, Indian planners need to ensure that new transport projects are integrated with the existing transit system, including airports, high-speed rail, Metro, rapid rail and regional railways. This will not only enhance the value of the new transport system but will raise the individual value of each infrastructure asset in the network by enhancing usage and, as a result, revenues.To this purpose, the lesser exploited rail and air routes need to be given a significant push to effectively connect Indian cities.Innovative FundingAnother significant consideration that relates to transportation projects is the implementation cost. With constrained government budgets and competing priorities, there is a need to explore innovative funding approaches. For example, in London, the local authority raised more than £4 billion to fund the new Crossrail initiative through a supplementary business tax. India can also take lessons from Japan’s initiatives in road development through integrated toll pools; the total toll collected can be used for development of all toll roads instead of making it project-specific.Globally, the trend is moving towards private-public partnership (PPP) models, where the authority procures the infrastructure and underwrites part of the demand risk, while private sector partners provide funding, construction expertise and operating experience.The new government’s decision to continue with the PPP model (including in railways) and further strengthen it as the primary source of investment in infrastructure development is a welcome announcement. According to a World Bank report released a few years ago, India is ahead of the rest of the world in PPP projects. PPP development is one area where India has had extremely valuable experiences.The country has a vast pool of projects that are suited for PPPs. Transport projects, including railways, highways and airports, form a significant portion of existingpartnerships.However, in the Indian context, the government and project planners must carefully consider the implications of their financing choices. Given the economic and demographic set-up in India, few people are willing to spend a big part of their personal budget on daily transport, so any transport project must stay focused on being financially competitive, efficient and affordable. In this context, India has had mixed success as the regulatory framework on tariff determination varies significantly across sectors. There is, therefore, a need to bring uniformity on tariff principles across sectors. Ideally, we should be moving away from the traditional “cost-plus” methodology to “price-cap” or predetermined tariffs, coupled with “viability gap funding”. The government should ensure that affordable and world class infrastructure assets are created.Its key focus should be on improving efficiency of such projects through effective implementation and better interconnectivity with existing projects. Also, it is imperative to set up a transparent, organised and systematic body of experts and government officials (both from the Centre and relevant state governments) for complex projectsto ease obtaining consents.Sahai is managing partner of HSA Advocates and Nag is an associate partner(This story was published in BW | Businessworld Issue Dated 08-09-2014) ]]>
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You work day and night to scrape together enough for the down payment towards an apartment and then approach a bank or housing finance institution to borrow a large sum that you will pay back in equated monthly instalments. You then scout around for a developer and hope he gets your dream house ready before you turn grey repaying the hefty loan. You know your flat is likely to take longer to be completed than promised because practically no developer delivers on time. In the meantime, you live in a rented flat waiting for the day when your house will be ready. That day almost arrives... ...and then you learn that your house or apartment is in violation of rules and norms by a court and will be demolished as per the order; that the builder cheated you; that the authority in charge of giving the necessary clearances was in collusion with the builder; that the bank you took the loan from was either unaware of this nexus or was itself in cahoots with the builder; that the fact that the bank had agreed to advance the loan did not mean all was well.Slowly, the implications begin to sink in. The wait for your home becomes indefinite even as you continue to fork out instalments on the loan. Your expenses pile up, but nobody seems to care. This, in a nutshell, is the agony that buyers of flats in Supertech’s twin towers in its Emerald Court project in Noida have been put through over the past few months, ever since the Allahabad High Court ordered the demolition of the twin towers in April. But the Supertech imbroglio is just one among numerous instances of home buyers in India suffering on account of unscrupulous builders and real estate developers. The realty sector is one that has managed to escape regulation and where indulging in unfair practices is more or less the norm. Even reputed builders are often on the wrong side of the law and are as likely to mislead customers as smaller, fly-by-night operators. Roadblocks To RegulationThere is no dearth of ideas on how this sector can be regulated. The Real Estate (Regulation and Development) Bill 2013, spearheaded by the Ministry of Urban Development, has been pending enactment by Parliament. The question is will it ever be passed and, if that happens, will the states take the legislation seriously and enforce it? WHAT THE BILL PROPOSESThe Real Estate (Regulation and Development) Bill 2013 seeks to bring the sector under a watchdog and protect the interests of consumersMandatory registration with the regulator for all real estate projects over 1,000 sq. m and more or where the number of apartments exceeds 12; as well as for all real estate agentsPromoters will be liable to pay compensation to customers in case they fail to discharge any of their obligations under the proposed legislationEstablishment of the Real Estate Regulatory Authority as a watchdog whose job will be to advise the government on issues relating to the sector, publish and maintain a website with records of all real estate projects registered with it and ensure compliance with its guidelines for promoters, customers and real estate agentsSetting up of an Advisory Council tasked with advising the government on implementation of the proposed legislation; on matters of policy; protection of consumer interest; growth and development of the sectorEstablishment of the Real Estate Appellate Tribunal for hearing appeals against the orders of the regulatorAppointment of an adjudicating officer by the authority for adjudging compensation under Sections 12, 14 and 16 of the proposed BillPunishment and penalties for non-compliance with the provisions of the proposed legislation as well as orders of the regulator or the appellate tribunalGives veto powers to the government in special cases specified in the BillThere are several hurdles to the passage of the Bill. Real estate remains a state subject and states have been quite tardy in setting up regulatory bodies or even in preparing legislation.Says Ashok Chawla, chairman, Competition Commission of India, which has been quite active in the area of looking into consumers’ complaints in this sector: “Some states have a modicum of regulation enforced through their town and country planning bodies, but many lack any serious regulation. Setting up a regulator in a state is the responsibility of that state itself; Parliament has no authority to set up a central regulator.”Protecting Their TurfChawla’s point is that regulation of the real estate sector is a grey area, falling between the Centre and the states, with no one fully accountable. Officials say while the Bill is theoretically and conceptually sound, it may still not get passed because of stiff opposition to stricter regulation at all levels. Another reason why regulation is yet to happen is because of the local authorities’ reluctance to cede power. “At present, most decisions rest with the states and local town and planning authorities,” says Rajiv Singh, a Gurgaon-based broker who has been in the sector for 20 years. “It is a Haryana Urban Development Authority, Mumbai Metropolitan Region Development Authority or a Noida Authority that takes the final call or gives clearance. A parallel regulating authority may adversely affect those who run local bodies.” BLAST FROM THE PAST: Residents of Mumbai’s Campa Cola society are paying the price for the lack of regulation (Photograph by Subhabrata Das)According to Singh, even if a state makes a concerted effort at regulation, chances are that a retired bureaucrat will head the new regulating body — as is quite common in India — and then things will practically be run the way they are at present.Obviously, developers and brokers are not keen on regulation either. Top officials of real estate firms, especially the big ones, describe the Bill as draconian and are against many of its provisions. A former employee of realty major DLF says opposition from builders is not entirely unreasonable. “They (the firms) fear that this will be just another licensing authority,” he says. “You can add one more to the endless list of clearances (50-60) and agencies we need to pay off.” Brokers and real estate advisors — both of whom are used to little regulation — also oppose the Bill, but don’t want to admit it. A large proportion of real estate transactions in India happens in “black” and it is one of the largest generators of quick, tax-free income. “Everyone is keen on making a quick buck, including speculative buyers of apartments and land,” says a former secretary in the urban development ministry. “We can’t blame individuals or groups; the system is such.”Once they register with an authority, brokers will come under the scanner of various authorities, including the income-tax department. “This is not something they welcome,” says Ajayya Gulati of Future Gold Properties, a Gurgaon-based real estate agent. Gulati’s firm is known for its above-board dealing — a rarity in the National Capital Region.Finally, it is the lack of political will that keeps regulation from becoming a reality. “When politicians, local agencies, bureaucrats, builders and brokers are all in it together, there is no way consumers, who lack cohesiveness, can take anyone to task,” says a senior bureaucrat. “Who has the bandwidth to deal with lawyers, companies, courts and so on?”While the UPA government did lay the ground for the regulatory framework, the Bill did not — either due to lack of political will or lethargy that paralysed its decision-making process — make much progress. The onus now lies with M. Venkaiah Naidu, the current minister for urban development, and, finally, Prime Minister Narendra Modi himself. anjulibhargava@gmail.com(This story was published in BW | Businessworld Issue Dated 08-09-2014)
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Urban India is on the move. It is estimated that around 30 rural dwellers relocate to cities every minute. A McKinsey Global Institute (MGI) study released in 2011 predicted that the population in Indian cities will go from 340 million in 2008 to 590 million by 2030, accounting for 40 per cent of India’s total population. In 2011, the Union Ministry of Housing and Urban Poverty Alleviation estimated the shortage of houses in the country at 24.7 million. Monitor Deloitte, a consultancy specifically working on the private affordable housing segment, indicates that the realistic and active demand from potential buyers of homes is a staggering 15.1 million. With India’s rapid urbanisation, probably the fastest in the world after China, ‘homelessness’ is only going to increase. The population of slum dwellers in the country has shot up from 52.37 million in 2001 to 65.5 million in 2011, housing and poverty alleviation minister M. Venkaiah Naidu told the Lok Sabha recently. Maharashtra topped the list with a slum population of over 11.8 million. Aware of the looming crisis, states have been pushing for mass-housing schemes at affordable prices. The largest-ever housing scheme by the Delhi Development Authority (DDA), which opened for applications recently, will have over 26,000 flats — mostly one-room apartments, priced at around Rs 15 lakh — spread over Rohini, Narela and Dwarka. On the other hand, the Mumbai Metropolitan Region Development Authority (MMRDA), which experimented with rental housing, has had little success. The 3,000 flats in Virar that were developed as rental stock will now be sold as low-income homes. THAT SINKING FEELING: To improve the lot of city dwellers, drainage and sewage infrastructure will need attention (Photograph by Umesh Goswami)At the central level, the government has done precious little to address the situation. Schemes like the Rajiv Awas Yojana and the proposed regulation Bill, aimed at protecting consumers from rapacious builders, have been non-starters. The annual budgets of the previous UPA government committed piddling funds and very little perspective. In this context, the NDA government’s recent budget — comprising a slew of measures intended to generate investments for the housing industry and address the problems of urbanisation — was a welcome change.To spur investment in construction, finance minister Arun Jaitley’s budget has reduced the built-up area threshold from 50,000 sq. metres to 20,000 sq. metres and the minimum investment limit from $10 million to $5 million for foreign direct investments (FDI). He has also legalised Real Estate Investment Trusts (REITs), which will be a significant source of funding for builders. Additionally, the tax exemption on interest on home loans has been raised from Rs 1.5 lakh to Rs 2 lakh.He has also alloted a sum of Rs 7,060 crore to develop 100 ‘smart’ cities with modern connectivity, education and employment opportunities. But, will it be enough?A Hundred Smart CitiesThe existing cities are splitting at the seams; layer upon layer has been built without a plan to accommodate a galloping population. The constant migration to cities has put energy, transportation and housing resources under strain, so much so that life in a city today is a nightmare. To bring method to this madness, the government and planners are working on creating new cities and turning existing ones into satellite cities. It is in this context that analysts have come up with the concept of ‘smart’ cities. There is, however, no clear definition. Jaitley too did not provide any in his budget speech. Broadly speaking, a smart city is one with good connectivity, both in terms of physical transportation as well as digital. The cities should have amenities that make life comfortable and less stressful for urban dwellers. Business consultancy Frost & Sullivan, having studied the trend of smart cities internationally, identified eight key factors that define a smart city: smart governance, smart energy, smart buildings, smart mobility, smart infrastructure, smart technology, smart healthcare and smart citizens. A city has to qualify at least on five out of eight parameters to be declared ‘smart’; those qualifying on just a few can only be called ‘eco-friendly’ cities.Frost & Sullivan expects around 26 global cites to meet these rigorous ‘smart’ norms by 2025. Of these, 50 per cent will be in North America and Europe. Amsterdam, for one, has been ahead in implementing smart and intelligent systems, executing projects in energy and mobility and good governance. The consultancy estimates the potential of the smart city market globally at $1.5 trillion. Back home, the NDA’s plan for 100 ‘smart’ cities is a continuation of the Gujarat discourse — under which 24 new ‘smart’ cities, most of them along the Delhi-Mumbai Industrial Corridor (DMIC), were planned —initiated by then chief minister Narendra Modi. However, when and how the funds will be raised to develop these 100 cities has been left to conjecture. The outlay of Rs 7,060 crore, barely $1.15 billion, may not be even be sufficient for the planning process. The satellite cities project too has been plodding along for some time now. The Mumbai Metropolitan Region, a 130-km multi-nodal corridor running in a semicircular arc from Virar in north Mumbai to Alibaug in the south, is said to have satellite cities in the Vasai-Virar region, Kalyan-Bhiwandi, Panvel and Uran areas. High-speed rail and road connectivity is also being planned along this arc. If these plans turn into reality, Mumbai can hope to see a major decongestion process as these new townships become alternative settlement magnets for the migrants. “Land for the corridor has been identified, and the acquisition process has begun; but it is a long way from implementation,” concedes U.P.S. Madan, the MMRDA commissioner handling the project. FOR A SMOOTHER RIDE: To create smart cities, the government will have to spend more on transport options such as the monorail (Photographs by Subhabrata Das)We are indeed a long way from smart cities. For instance, a new airport planned at Navi Mumbai — a crucial link in the chain that will herald Mumbai’s progress — was embroiled in environmental disputes for five years before crossing the hurdle. But for the past two years, the state government has been unable to acquire land for the project in the face of high demands for compensation. A final package — offering 22.5 per cent of developed land in exchange for the farm land acquired for the airport — has been hammered out recently, but it remains to be seen whether fresh glitches emerge. Meanwhile, there is no new airport on the horizon. Similarly, nothing happened to the small village of Dholera that was declared a ‘smart’ city site by Modi. Planned as a 903 sq. km layout, it was billed to be twice the size of Mumbai. It even found mention in former finance minister P. Chidambaram’s budget speech last year. After years of effort, Dholera remains the village it always was. In the current context of land acquisition laws, and without a consensus on the need for rapid urban expansion, the call for 100 ‘smart’ cities will remain little more than a slogan. break-page-breakHousing For AllOne of the keys to building good cities is providing homes. The finance minister in his budget speech and the NDA government in repeated pronouncements have committed to housing for all by 2022. While rural folk are not the best housed, over the years they have been able to find do-it-yourself answers to shelter. In the urban swathes land comes at a huge premium, thereby making the problem of shelter acute. Housing for all by 2022 is obviously a tough call. The problem is not lack of demand. There is a massive shortage of 24.7 million homes. The problem is also not lack of supply. Between Mumbai and the National Capital Region (NCR), the inventory stands at over 4 million sq. ft of residential space. The real problem is that these homes are unaffordable. In fact, there is runaway demand at affordable prices. The Maharashtra Housing and Area Development Authority (Mhada) in Mumbai sells 5,000 homes priced between Rs 15 and Rs 50 lakh every year through a lottery system. To illustrate the kind of demand these homes generate, sample this: the housing body received 87,647 applications for 1,244 houses put on the block in June 2013. For a single one-bedroom flat, priced at Rs 30 lakh, at Pratiksha Nagar in the middle-income group, Mhada received 1,500 applications! But when the same 500 sq. ft flats are priced at Rs 1 crore by private builders, the demand evaporates. The other problem is that the private sector does not construct enough homes in the mass, affordable segment as the margin for these products is thin and marketing costs high. Ashish Karamchandani, CEO of Deloitte Monitor, estimates that over the last decade only 78,000 units were sold in this budget category that has a potential demand of Rs 9 lakh crore!There is no robust data on how much government housing bodies are doing in this area; but it is nowhere near what needs to be done. DDA, which is serving the NCR, is among the largest public sector players in mass affordable housing. It has 44 ongoing schemes, currently open for bookings. The Bangalore Development Authority follows a do-it-yourself model, selling land in developed layouts and leaving house-building to the land buyer. It claims to have developed 62 layouts and made about 2 lakh site allotments since 1976. In Mumbai, MHADA has been averaging 5,000 budget homes annually, whereas the demand is ripe for unloading 100,000 every year. In the post-liberalisation phase, in 2005, the central government redefined its housing policy, recasting itself in the role of ‘facilitator’ from that of a ‘builder’ of homes. According to the policy, the government would provide land and other infrastructure, and leave construction and marketing to private developers. It hasn’t, however, worked out well as builders prefer operating in more lucrative segments such as middle-income and luxury. And, they refuse to drop prices despite a huge glut of housing stock. The Issue Of LandProminent Mumbai-based builder and promoter of the ‘Rustomjee’ brand, Boman Irani, says the flexibility for builders to drop prices is minimal due to “high cost of land, increasing cost of building infrastructure, construction material and permissions”. He claims 38 per cent of all capital investment in a project goes to government taxes, with last-mile taxes — service tax, stamp duty and labour cess — accounting for as much as 11 per cent. “Cut stamp duty on homes from 5 per cent to 1 per cent and ensure all approvals in three months, and we can drop prices by 25 per cent,” says Irani, who is also vice-president of the Maharashtra Chambers of Housing Industry (MCHI). In this pack of cards, land is the ace. It is not only the most expensive but most elusive too. Anecdotal evidence collected from builders shows that in metropolitan areas, the cost of land makes up about 70 to 80 per cent of the total project cost, while in tier-II and tier-III cities, it is in the range of 40-50 per cent. Such a high fixed cost doesn’t allow builders to drop prices of apartments. On a larger plane, land acquisition represents a huge challenge for the government or any development authority building townships. The Land Acquisition Act 1894, which was in force until last year, was challenged by farmers and landholders for its draconian provisions of eviction in case of acquisition for public purpose under the ‘urgency’ clause and the pittance it allowed in the name of compensation. It did not help the government acquire land and, instead sparked social movements and unrest. The old Act has now been replaced with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, which has enhanced compensation to twice the market value for urban land and four times for rural land. It also made the consent of the landholder necessary for non-government projects. The Jairam Ramesh-piloted Act has not, however, solved the crying need for land for rapid urban development. “It only freezes land acquisition through lengthy procedures and the imposition of high costs that render projects unviable,” says Chandrajit Banerji, director general, Confederation of Indian Industry (CII). Gujarat, in September 2009, enacted its own law with the Special Investment Region (SIR) Act, but that too has been unable to tackle bottlenecks in land acquisition.There have been some brave attempts to cut through the clutter. The Ahmedabad Urban Development Authority, for instance, has institutionalised the voluntary surrender of land by owners on the outskirts of the city. The development board, after aggregating the land, putting up roads and water lines, etc., returns the balance land to the original owners. The land owners, sensing a sizeable appreciation in the value of the land with urban layouts, are only too happy to participate. This process bypasses the land acquisition stage completely.But even if the government has the land, where would it get money to build infrastructure? McKinsey Global Institute estimates India will have to spend $2.2 trillion on cities over the next 20 years, including $1.2 trillion in capital investments. Japan has been contributing to India’s urban infrastructure development through the Japan International Cooperation Agency, which lead-financed the Delhi Metro and the Delhi-Mumbai Dedicated Freight Corridor. India also partnered with the US to launch the $10-billion dedicated Infrastructure Debt Fund in 2010. The private sector invested $225 billion or roughly 12 per cent of GDP, between 2007 and 2012, in urban infrastructure; but a steady stream of investors has exited in the last two years citing lack of returns and ever-changing norms of compliance. Meanwhile, the amount of money required to fix the urban landscape continues to rise.Despite the bleak scenario, the march of urban India is irreversible. By 2030, India will have 68 cities with more than 1 million people, 13 cities with more than 4 million, and 6 mega-cities with 10 million or more, of which Delhi and Mumbai will be among the five largest in the world. Cities are not about congestion and pollution alone. They are about high income levels and powering the growth of the country. MGI forecasts that cities will generate 70 per cent of new jobs created till 2030, 70 per cent of the GDP, and a four-fold growth in per capita incomes.Smart cities are the only future we have. We have to invest in them in a big way. gurbir@businessworld.in Twitter: @gurbir110(This story was published in BW | Businessworld Issue Dated 08-09-2014)
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Oil retailers will suffer no losses on diesel after a hike in prices in September, says Goldman Sachs. That would mean diesel prices charged by retailers could be market-priced by September, the investment bank adds. India has been gradually raising diesel prices every month since January 2013. Oil retailers gain on Tuesday after Brent crude hits new 14-month low. Hindustan Petroleum Corp gains 1.9 per cent, Bharat Petroleum Corp rises 1.4 per cent while Indian Oil Corp advances 1.3 per cent. (Reuters)
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At a time when the private sector power players are aggressively acquiring distressed power plants, a government panel has asked NTPC to act fast to acquire the right assets available in the market. The panel has also asked the company to increase its renewable energy portfolio to 10 per cent of the total capacity in the next five years.As much as 50,000 MW of distressed generation capacity is on the block, ready to be acquired due to bad financial position of the owners of those plants. NTPC currently has an installed capacity of 43,000 MW.“NTPC’s recent initiative to acquire stranded power projects under construction is indeed laudable. However, NTPC needs to complete this exercise at the earliest, say in six months or so, to get over the uncertainty on other new projects which the company should be implementing. It should not happen that the company slows down other new projects and also does not decide on taking over stranded projects due to one reason or the other,” read the minutes of the meeting of the advisory group for integrated development of power coal and renewable energy. Read Also: Adani Buys Lanco Asset In Rs 6000-cr DealRead Also: How R-Power Outbid Adani For Jaypee ProjectsNTPC was the first company that received expression of interest from over 30 companies wanting to sell their distressed assets to the largest power generator of the country. However, NTPC, like many other Public Sector Undertakings (PSUs) in the past, has been accused of going slow in decision making leading to missing out on opportunities.In the past few weeks, private sector players, Reliance Power and Adani Power have acted aggressively in acquiring distressed assets in the market. While R-Power entered an exclusive memorandum of Understanding to acquire Jaypee Infratech’s three operational hydro power plants having 1,791 MW generation capacity at a valuation of Rs 12,000 crore, Gujarat-based Adani Power, which is also India’s largest private sector power generator, bought 1200 MW Udupi power plant by shelling out Rs 6,000 crore from Lanco Infratech.Interestingly, both these companies have acquired assets despite having highly leveraged balance sheets. While Adani Power has a debt of Rs 22,317.20 crore and a cash surplus of only Rs 412 crore as reported on March 2012, Anil Ambani owned R-power has a debt of Rs 27,715 crore and cash of Rs 3,000 crore on its books. On the other hand, NTPC had Rs 15,311.37 as cash and bank balance on its balance sheet as on March 2014, whereas the company reported a debt of Rs 62,405.75 crore on March 2014.The panel headed by former power minister Suresh Prabhu has a mandate to ensure 24x7 electricity to consumers in the country.
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The sudden aggression from Adani Power in adding generation capacity by acquiring Lanco's Udupi Power is part of its strategy to consolidate at the right time to meet its own goals for growth, note industry observers. The 26-year old group, which is trying to become a global integrated infrastructure player by realigning its businesses two years ago, was lagging behind in its power generation production and capacity targets. As part of its Vision 2020, Adani Power targets 20,000 MW of power generation capacity and in the short term was targeting 9280 MW capacity by the end of 2013-2014 from 4,620 MW at the start of 2012. Adani Power's power plants are located at Mundra (4620 MW) in Gujarat, Tiroda (1980 MW) in Maharashtra and (1320 MW) at Kawai in Rajasthan. With the commissioning of the fourth unit of 660 MW at its Tiroda Power plant in Maharashtra in April, Adani Power's total installed capacity had increased to 8,620 MW to become the leading private power producer in the country overtaking Tata Power's 8613 Mw capacity."We are confident of achieving a target of generating 9,240 MW of electricity by March 2014,” Gautam Adani, Chairman, Adani Group had said in December. Sources say Adani Power is targeting adding 5000 MW in near future through greenfield and acquired projects, despite its debt of over Rs 22,000 crore. Two weeks ago, Adani Power had attempted to takeover the hydro assets of Jaypee group, but lost out to Anil Ambani's Reliance Power. "Gautam Adani is one among the few buyers in the market place with deep pockets and can raise equity or debt in the current situation. Udupi Power is an operational power plant with cash flows, which makes it an attractive target for a buyer like Adani", says Sanjay Sethi, executive director- infrastructure, Kotak Investment Banking. He notes that while the sale of Udupi Power helps Lanco to get rid of Rs 4,000 crore debt from its books and an additional cash of Rs 2,000 crore, the buyout of an operational plant helps Adani get rid of the headaches of setting up a greenfield facility. "With many attractive brown field projects that are available for sale, it makes sense for Adani tolook at acquiring them rather than thinking of greenfield additions", says Sanjay Sethi. In FY 14 alone, Adani added 2640 MW, almost 15 per cent of the 17,000 MW added in the country that year. Adani Power commissioned two 660 MW units in the first quarter, one 660 MW unit in third quarter and one 660 MW unit in fourth quarter of FY14 -, two each at Tiroda in Maharashtra and at Kawai in Rajasthan, besides adding a 40 Mw solar power plant at Kutch in Gujarat. However, this was short of its target of 9280 Mw and with the acquisition of 1200 Mw Udupi Power, Adani's total installed capacity will now move up to 9820 MW.
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