Abheek Barua: A revival strategy for Mumbai

Its revival as an urban centre lies in taking the population pressure off the main city by creating an alternative economic centre

Life gets evermore surreal in this city. Two buildings have collapsed over the last fortnight in the heart of the city, killing more than 10 people. One had been certified as being perfectly safe by civic authorities some days before its implosion.

To be fair, the authorities had warned of the precarious conditions of the other building but residents did not bother to vacate. The price per square feet of floor space in these neighbourhoods (dotted with buildings of similar vintage and decrepitude) is apparently between Rs 2,500 and Rs 3,500, a price that up-market localities in Delhi or Bangalore would fetch.

These disasters come in the wake of the deluge of July 26 and its aftermath. The devastation that the tsunami-like waves that flooded the northern suburbs had started, rat droppings carried forward.

Hospitals were spilling over with leptospirosis patients, a disease the transmitted from rats to humans as they came into contact with rat faeces, wading through the flooded streets in the dark.

Mumbaikars also discovered for the first time that the sewer that runs through the northern precincts of the city and envelopes its surroundings in an asphyxiating miasma is actually a small river, rather lyrically named Mithi.

The mucking up of the Mithi was apparently responsible for keeping the waters from flowing back into the sea. In the middle of all this, the most significant one of the key ministers announced that he was keen on selling off the race course, the last surviving lung of this consumptive metropolis.

Some positive things have come out of this theatre of the absurd. For one, the aspiration of turning Mumbai into Shanghai or Singapore has at least temporarily been put on hold. There seems to be a realisation at least among some sections of the city's bureaucratic and political establishment that the best that Mumbai can hope to achieve is simply to be a better version of itself.

This reality check was long overdue. Mumbai's problems are significantly different from those of Shanghai or Singapore. It has the baggage of a large pool of low-skilled workers in the textile sector who are currently unemployed or earn their keep in the unorganised sector. It also faces the problem of relentless migration from as far as Bihar or even Bangladesh.

Singapore has historically never had this kind of population pressure and China's draconian "labour responsibility system" makes sure that the flow of migrants into its cities is tightly controlled. Since they do not share Mumbai's basic problem they cannot provide solutions or templates for revival.

The key to Mumbai's revival as an urban centre lies in taking this population pressure off the main city by creating an alternative centre of economic activity. This has to be close enough to the city but outside the catchment area of the municipal corporation whose resources are stretched to the limit. Given that the bulk of the population is low skilled, this will have to be a hub where fairly low-end manufacturing jobs are available in plenty.

Two things can potentially come out of this revival plan. First, a fraction of city dwellers might find it attractive to relocate this new centre and abdicate their claims to the city's resources.

Second, this could lead to a decline in the supply of labour to the city's large unorganised sector and wages could go up in the medium. As wages go up, the sector could take on a formal shape and workers could start contributing to the city's economy.

This rise in average wage level in the city is a pre-condition for the development of a municipal bond market since it means the ability to shell out user charges for new facilities. Thus, instead of getting worked up about the centre's apathy to the city, they could just float bonds in the market that could be serviced at least partly.

Is this possible or is it just a fantasy of an economist who needs to meet his column's deadline? There are a couple of reasons why I feel that this model might become operational in the not-too-distant future. First, the new Special Economic Zones (SEZs) Act should give a fillip to the large special zone that is planned at Dronagiri near Mumbai.

Preliminary information suggests that its employment potential is huge and it could just be the magnet for manufacturing jobs that I discussed. Second, from what state government officials tell me, some of the far-flung Western suburbs are collectively emerging as a hub for the small-scale jewellery manufacturing sector that has traditionally been located in the overcrowded downtown area.

This is again extremely labour intensive. Finally, if the rural employment guarantee programme is implemented with some degree of success in some states, the pressure of migrants might decrease.

The "regional financial hub" model that has been discussed copiously can at best be an adjunct to this basic strategy of relocation through manufacturing. Financial sector employment may be far more remunerative than other sectors but the employment potential is limited.

A study by the think tank, the National Council of Applied Economic Research (NCAER) on the economic impact of financial service in the Mumbai Metropolitan region found that both in terms of income and employment multipliers, the banking and financial services sector came in at numbers 21 and 20 in their list of 23 sectors. Thus, a revival strategy focused essentially on the financial sector is unlikely to work.

Of course, any strategy to revive the city hinges ultimately on the political will to get things done. This has been in short supply for a while. One can only hope that this will change before we move further back into the dark ages.

The author is chief economist, ABN Amro. The views are personal. He can be contacted at abheek.barua@in.abnamro.com