Economics

Ideas of India: Urban Economics and Policy in India

Shruti Rajagopalan and Vaidehi Tandel talk about urban policy in developing areas, especially Mumbai, India

Slum near Mumbai International airport. Image Credit: Joerg Reichel/Getty Images

Ideas of India is a podcast in which Mercatus Senior Research Fellow Shruti Rajagopalan examines the academic ideas that can propel India forward. You can subscribe to the podcast on Apple, Spotify, Google, Overcast, Stitcher or the podcast app of your choice.

This episode is the fifth in a series in which Shruti speaks with doctoral candidates and postdoctoral scholars about their research as they enter the job market and the world of academia. The first episode featured Vaishnavi Surendra, the second featured Rohit Ticku, the third episode featured Tanu Kumar, and the fourth episode featured Proma Ray Chaudhury. This episode features Dr. Vaidehi Tandel talking about her research on urban political economy and policy in India, especially in Mumbai. Tandel is a junior fellow at the IDFC Institute, specializing in urban economics and governance.

This transcript has been slightly edited for clarity.

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, a podcast where we examine academic ideas that can propel India forward. My name is Shruti Rajagopalan, and for the next few weeks, I will be speaking to young doctoral and postdoctoral candidates entering the academic job market about their newly minted research on Indian political economy.

The fifth scholar in our young scholars series is Dr. Vaidehi Tandel. She is an economist specializing in urban political economy and policy in India. I spoke with Vaidehi about her work on urban economics in India, in particular, her paper “What’s in a Definition? A Study on the Suitability of the Current Urban Definition in India through Its Employment Guarantee Programme (with Komal Hiranandani and Mudit Kapoor) and her paper titled “Too Slow for the Urban March: Litigations and Real Estate Market in Mumbai (with Sahil Gandhi, Alexander Tabarrok and Shamika Ravi), as well as her joint work on using a system of adaptive controls in the battle against COVID that also won the Emergent Ventures Covid Prize awarded by the Mercatus Center. For these papers and her other research and for a full transcript of this conversation, click on the link in the show notes or visit DiscourseMagazine.com.

Hi. Vaidehi. Welcome to the show.

VAIDEHI TANDEL: Hi Shruti, great to be here. Thank you for having me.

RAJAGOPALAN: One of the seminal things you’ve talked about in your research is that India is actually much more urban than it appears to be. That is, in terms of official definitions, areas that are categorized as urban versus rural, there are a lot more “rural” areas that are urban. Now, why is that, and what are the mechanisms that drive that? And given that that’s what’s happening, how does it impact urban policy in India?

Why Isn’t India More “Urban”?

TANDEL: This is largely an artifact of how we measure urban areas and how we classify them as urban. The default classification of a settlement is rural in India. It becomes urban if two things happen: one, if the state government decides that this is no longer going to be a rural area, and so through an administrative notification converts an area into a town, and then deems it to be an administrative town.

The second way this happens is when the census of India—which is a different body which is in charge of counting the population of the country every 10 years—when the census is enumerating its settlements, it uses a three-part classification which is based on population size, population density and the nature of nonagricultural economic activity. So, if a settlement has more than 5,000 people, more than 400 people per square kilometer and more than 75 percent of its male working population working in nonagricultural activity, that settlement gets classified as urban.

Now, if you compare India’s classification and definition to other countries around the world, you’d find that India’s definition is too stringent. No country virtually applies a four-part classification the way India does. It’s usually only the administrative classification, which is the first part I told you about. And as a result of that, India is said to be about 31 percent urban—this is according to the 2011 census. The new census is coming up, so the picture may well change in the next year or two.

But if you apply any of these other definitions, if you apply just a 5,000-population definition, you would see that India would be much higher; it would be around 40 percent urban. And what this ends up doing is, you end up effectively denying de facto urban settlements urban public goods and services, such as urban planning, building regulations, and so on.

RAJAGOPALAN: In a paper that I wrote with Alex Tabarrok on Gurgaon, our paper was on how there’s a private provisioning of a lot of typical public and quasi-public goods. But the reason for that private provisioning was that Gurgaon was not classified as an urban settlement for the longest time, so it didn’t meet the requirements in the 2001 census.

By the time we reached the 2011 census, population of Gurgaon had grown like 1200 percent. It had exploded. Gurgaon had a whole bunch of Fortune 500 companies, but it didn’t have a municipal government. So I’ve literally seen what you’re talking about happen in the outskirts of Delhi, where I grew up.

Now, how does this impact policy? Aside from the fact that they get misclassified and there is no urban local government, are there other implications of this kind of misclassification?

TANDEL: One other important implication is that most of our development schemes are organized around rural and urban lines. We have a separate ministry also for rural development and a separate ministry for housing and urban affairs.

We have the NREGA, which is the National Rural Employment Guarantee Scheme for rural unemployment for rural areas, and no such equivalent scheme for urban areas. So there is a fear sometimes amongst rural citizens that they will lose out on these development schemes and programs, which are obviously because we consider India to be predominantly rural. Most of the schemes are diverted to rural areas, and the funds are diverted to rural areas. So there’s a real sense of fear of losing out on these if you were to convert to urban areas.

The second one is, of course, that there are different taxes. You pay more taxes in urban areas as opposed to rural areas. So citizens fear that they may end up have to paying more taxes if they were in urban areas, which therefore leads to some resistance from local populations, at times, from being recognized as an urban settlement.

RAJAGOPALAN: I imagine there’s also some resistance from the political class because the fiscal outlays for rural areas are so much larger than those for urban areas that I imagine even at the MP-MLA-state-level cabinet ministers, union-level cabinet minister, there must be some kind of resistance because the rural ministries are just granted so much more money than the urban ministries. So, it’s bi-directional—all sides resist this push towards becoming more urban.

Urban Policy in Mega Cities

Now, on the push towards becoming more urban, you’ve done a lot of work on Mumbai, right? One of the things that’s really interesting about the research on Mumbai is, that is not just any urban area. It’s this mega city. And in a mega city like Mumbai, which has a certain land constraint because of the water bodies surrounding it, also, the land policies have been so bad that you have, I guess, somewhere between 40 percent to 50 percent of Mumbai living in slums, and so on and so forth.

How does urban policy change for a mega city like that?

TANDEL: There are certain challenges for a city that is governed at a scale that it is. The first is that you need to provide enough housing because you are going to be seeing a lot of people moving to the city in search of jobs, in search of opportunities, who require adequate, affordable housing, who require basic services, such as water sanitation and so on.

We find, therefore, the policies that the local government has to undertake have to be keeping in mind the challenges of adequately provisioning for a very, very large number of people and especially a large workforce. So you need to also make sure that your transit systems—that is, the transport networks that connect your residential areas to the central business districts—are efficient, and they allow for people to move from their homes to their offices and back fairly quickly.

So there is a need for an integrated planning of housing and transport that needs to happen. Unfortunately, for most mega cities, including Mumbai, this is one of the biggest failures. And, as you mentioned, having 40 percent of your population living in slums is a pretty big sign of the failure happening.

RAJAGOPALAN: I know that Mumbai is making great strides when it comes to mass transit. It already has the local train system. It has introduced a Metro system, which is developing quite well from what I understand. But the other half of the problem that you just talked about is increasing housing supply. So one is, just the number of homes need to increase, right?

What are some of the barriers to increasing the housing supply in Mumbai? Because I always think of Mumbai as this exceptionally vibrant market, that any consumer demand is immediately met with supply, but that just doesn’t seem to be the case for housing. So what are the barriers?

TANDEL: One key barrier is the way we have designed our land use planning rules. There is a concept called the Floor Space Index, which determines how much a builder can build up on a given piece of land. The lower the FSI or the Floor Space Index, the lesser is the ability to build. And we have a very, very low free limit on FSI. You can purchase FSI from the corporation. In fact, that’s the way the corporation makes most of its money, but it so happens that the limit on free FSI is extremely low.

And that has led to housing being . . . Most people are paying for housing in informal settlements because what is built is captured by the upper middle and the middle classes and the higher classes, so you’re seeing prices skyrocket because there is demand. And you’re then seeing a large section of the lower-income classes being priced out. In fact, it’s gotten so that even middle-class families cannot afford to buy back their own homes if they were to do that today.

RAJAGOPALAN: What is interesting about what you said initially on the integrated transportation and housing policy system—I read a beautiful chapter in Tim Harford’s book, which talks about how the elevator is also a mass transit system when it comes to skyscrapers. If the Mumbai authorities decided to increase FSI, and as Alex [Tabarrok] says, “reclaim land from the sky,” then you have a different mass transit system, which is not dug deep into the ground like the Metro, but which is an elevator.

Delays in Housing Construction in Mumbai

I had the opportunity to hear you give a wonderful paper a few months ago at the Carnegie Endowment in Washington, D.C., where you also talk about delays in real estate construction as a major problem in increasing the housing supply in Mumbai. What are the causes of some of this kind of delay?

TANDEL: This is actually a paper that I’m working on as a coauthored piece with Alex and Shamika Ravi and Sahil Gandhi, and what we are looking at is the second part of frictions and supplies. The first is the policies like FSI, which don’t allow housing to be built. Then there are regulatory delays or approval delays, which means that whatever’s being built gets slowed down drastically. And then, there is litigations, which are another cause of major frictions in housing supply.

In Mumbai, you have about 30 percent of the upcoming buildings in the city that are under litigation, so it’s not a trivial problem. What we tried to investigate in our study was to understand, how much does litigation affect delays in project completion? What we find is that projects which have litigation, on average, take 20 percent longer to complete.

As it is, buildings take about seven years to complete in Mumbai on average, which is extremely high. It’s normally about two to three years, and we’re already an outlier. Then, if you have a project under litigation, you will be adding 20 percent longer to it. That means an escalation in the cost because you have borrowed in order to build, so you end up servicing the interest for longer, which ends up affecting house prices, and hence affordability in general, and hence the responsiveness of the market as a whole.

RAJAGOPALAN: You know, in India, we all experience it on a daily basis. No one would blink if you told them the real estate project got tied up because of litigation delay. It’s the reality of most people who live in big cities. But how does one go about measuring it?

TANDEL: We were fortunate to find a great dataset that was put out by the Real Estate Regulatory Authority in Maharashtra, which is the main authority that’s been set up to address some of these issues of lack of transparency and delays in the housing sector. The data include every single project that is currently upcoming or is under some stage of construction. So basically, anything that’s not finished is registered with the authority.

And we also have a whole bunch of data on each of these properties, including things like whether or not it’s under litigation, including what’s the start date of the project, what’s the proposed completion date of the project, which gives you the estimated completion time of the project. We’re able to have more details on developers themselves, whether or not they have had previous experience, whether or not the building is a slum rehabilitation project or not.

So, there’s a number of attributes that allow us to control for other factors that affect completion times. If you’re saying the project sizes typically affect completion times, we are able to control for that because we know the size of the building. We have the data on that, and that allows us to then isolate, to some extent, the impact of litigation on project completion times.

RAJAGOPALAN: And that litigation alone delays projects so much. So this is not overall delay; you just measure the litigation delay.

TANDEL: Yes.

RAJAGOPALAN: That’s quite extraordinary.

Mumbai and the COVID-19 Pandemic

Now, you’ve also done some other work on Mumbai. Most recently, I’ve been following a lot of your work during the COVID pandemic, the work that you’ve done with some of the people at IDFC Institute, where you’re a scholar, and also some of the people working at various universities abroad. Can you talk about what the pressing problems in Mumbai specifically, given that Mumbai has the largest slum that exists in the world, also a very large proportion of the people living in slums. It also had one of the most severe lockdowns that we have seen anywhere in the world, and so on and so forth.

What’s your general take on how urban areas in developing countries should deal with the pandemic?

TANDEL: I think everyone has probably read about the serosurvey results in Mumbai that were done recently. Again, IDFC Institute was involved, and then there were investigators from various other institutions. The finding was that the prevalence in slums is much higher than prevalence in non-slum areas.

In a sense, it should not be surprising to those of us who’ve lived in a city like Mumbai because there is a massive problem in terms of the infrastructure, water availability, sanitation. There’s the issue of lack of social distancing because of crowded conditions and also indoor crowding within slums.

These concerns have been around for a while now, and I think it unfortunately took a pandemic for people to realize how grave they can be. I’m not sure whether this would prompt some administrative action to address some of these issues in terms of access to basic infrastructure, but we are certainly finding that access to basic infrastructure is an important factor in understanding where the hot spots emerged and where the outbreaks emerged.

RAJAGOPALAN: This is a really dire situation. You’re not talking about 10 people using a restroom. You’re talking about 400 to 500 people relying on single restroom, washing-water facilities in slums like Dharavi, right? Even by normal pandemic standards, the Mumbai situation is particularly dire in a way that it has no easy fix to resolve the problem, right?

TANDEL: Absolutely. Even in terms of access to water, it’s not uncommon for people to use public taps and not have indoor water connections. So access to water is bad. And for women also, having a public toilet is one thing, but having a functioning public toilet is a very different thing. So if you look at that measure, then the number of toilets accessible to women are actually reduced.

There’s additional problems of children and women usually using the toilets together, about women accessing them only in certain times of the day, which then means that you are, again, effectively not able to crowd. So there’s these additional problems in gendered access to infrastructure that’s likely to cause a problem.

Will Lockdowns Help Mumbai’s Pandemic Problems?

RAJAGOPALAN: So how does one deal with a pandemic situation in these conditions? Aside from saying something like, “We already have 52 percent seroprevalence. Let’s just develop herd immunity and get on with it.” I know that’s been the attitude of a lot of people, but what are some of the ways these problems can be dealt with? Is it a lockdown? Is it other forms of interventions?

TANDEL: I am not sure about the efficacy of a lockdown in slums, again, because of the unlikely situation that people will be able to safely socially distance. What I think would be more effective is to try and have these tried-and-tested ways of prevention, of mask wearing, of . . .

I know hand washing is difficult, but there have been NGOs closely working with slum dwellers, developing solutions in terms of having buckets of bleached water and having them at accessible points so that people can use those instead of relying on typical soap and water that the rest of us do. I think enforcing these norms more strictly may end up being more effective. Of course, this is a short-term solution. In the long term, we need to do something about not having enough public toilets in the city.

RAJAGOPALAN: You also wrote about the inefficacy of the nationwide lockdown and how this needs to be a little bit more local. How would you think about designing a lockdown-esque intervention? Not the kind that the Indian government did, but some kind of a social distancing, reducing super-spreader events intervention for a country as large and diverse as India?

TANDEL: Yeah, this is actually a work that I was involved with, which was led by Anup Malani from University of Chicago and Jonathan Gruber. Both of them have been leading a large effort on responding to the various challenges that the pandemic has thrown up in India. This includes thinking about vaccination strategies, and this also includes thinking about having granular lockdown policies. Which means that, instead of locking everything down for a set period of time, how do we calibrate government responses to respond to certain key indicators that they may track?

This means that if the government is trying to track the reproductive rate, it just goes after that indicator. And the minute that indicator is above a certain threshold in those local areas, you try and have certain interventions there in order to stop it. If it’s slightly above your threshold, then you can try more benign interventions. But if it’s extremely high, and if it’s likely to become a major hot spot, that’s when you decide to completely lock down and enforce a lockdown.

RAJAGOPALAN: Yeah, and this paper won one of our Emergent Ventures [COVID-19] prizes that they give out at Mercatus, right?

TANDEL: Yes.

RAJAGOPALAN: What I really like about it is, it has two things that are wonderful: one is, it’s decentralized in the sense that it’s a highly local response, and two, it’s an actual response. It’s a response to a given situation as opposed to a one-size-fits-all diktat that just pops from above. Because when the lockdown happened in India, I recently learned that 12 of the states in India had zero COVID cases, but a nationwide lockdown was still announced.

The policy you suggest, which you’ve done, of course, with the whole team led by Anup Malani and all the coauthors, I think addresses, or at least solves, that problem in some way.

Current and Future Research

What is some of the research that you’re working on now and some of your future projects?

TANDEL: At the moment, I’m building on the work that we did with the litigation and real estate project completion. We’re also trying to understand whether the permissions processes and whether time to completion changes based on certain political economy factors. This is again being done with Sahil and Alex. And we’re trying to look at whether there is any local political-developer nexus that could explain why some development takes much shorter completion times compared to other comparatively large or small development.

The other work that I’m doing is work that I started when I was doing my postdoc at Columbia, which was to put together a dataset using the fifth and sixth economic census of all the firms at the subdistrict level. Most of the work on the economic geography and location decisions of farms in India tends to happen at the district level.

What I’m trying to investigate is things like, is there evidence of clustering or specialization of industries within the firm? What does the productivity of these clusters look like? What could explain this clustering? Is it the available infrastructure in the neighborhood? Is it densities of population themselves? Is it certain urban indicators that are explaining clustering?

Again, thanks to COVID, there was a little bit of a delay in me actually getting to writing this paper up, but that’s what I’m hoping to get back to doing soon.

RAJAGOPALAN: You’re actually quite different from some of the other scholars we are speaking with in the series, in the sense that you’re quite a few years out of your PhD, though you recently completed your postdoc. You have many, many years of experience working in policy, writing policy papers and reports, working with government institutions like NITI Ayog at the present moment working on COVID.

What’s the difference between policy research and academic research, other than, say, a publication outlet? And does policy research change the kind of academic work that you do?

TANDEL: I would say the big difference is the time horizons. Normally, policy research ends up responding to certain demands from the government, and therefore, the time that is needed to produce your research ends up being much shorter—unless, of course, you are working in a place where you have the luxury to take up some medium-term research questions. So, the timelines are different.

The other main difference, I would think, is the type of questions that you would ask if you were a policy researcher as opposed to an academic researcher. The academic research is oriented more towards your peers and more towards your own field, so you are trying to understand the big questions there. And really, the concern is not as much whether or not this is actually relevant to answering some of the questions that the government or policymakers may be grappling with.

As a policy researcher in the same field, you would pick different kinds of questions, and you try to also communicate your research slightly differently. You would try to also write for the public, make presentations to the government, and so on. And that’s, I guess, something that you don’t end up doing or having the need to do if you’re doing your academic research.

RAJAGOPALAN: Do you ask different academic questions because you worked in policies so long, or it’s just like different hats? And as you said, you’re speaking to different audiences, so you just write different papers, even on similar themes.

TANDEL: I’d like to say that most of my questions are policy-oriented questions, so they’re either examining the impact of a policy or they’re trying to come up with some policy recommendations through better measurement of stuff, like the litigation paper did.

My sense is that the paper, like the economic geography paper that I want to do, is also going to have some policy-recommendation component in terms of infrastructure investment and so on. So maybe, since my inclination was to do policy-relevant research, I ended up in a think tank right after my PhD.

RAJAGOPALAN: And the most important question during the pandemic, which is, what have you been binge-watching during the COVID pandemic?

TANDEL: I am currently watching Queen’s Gambit on Netflix. I don’t like to binge-watch, so I am taking it slow, and I have reached the middle of it, and I am really enjoying it so far.

RAJAGOPALAN: Thank you so much for taking time and speaking with us today. It was great chatting with you.

TANDEL: Thank you so much. It was a pleasure.

RAJAGOPALAN: Thanks for listening to Ideas of India. If you enjoy this podcast, please help us grow by sharing it with like-minded friends. You can connect with me on Twitter @srajagopalan. Our next episode concludes our special young scholar series with Kunal Mangal, a PhD candidate in public policy at Harvard University where we discuss his research on labor markets in developing countries, especially India.

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