Mumbai – the pride of corporate India, cynosure of all eyes- from eight to eighty, gateway to India. The more one uses adjectives and phrases to describe this city, the less it becomes. Perhaps no other city in South Asia (excepting Bangalore, but to a limited extent) has received so much attention in the recent years- be it related to growth and development, international financial center, real estate, lifestyle, people- the list is endless. The situation has reached to such a level, that the authorities have declared a host of plans to transform this city to Shanghai – the powerhouse of the Chinese economy, trying to cash in on the frenzy of the people. The latest addition to this wave of frenzy is the Dharavi redevelopment project, transformation of Asia’s largest slum. All the projects appear very glamorous and envious on paper, but when it comes to actualization, they fail terribly. The Bandra-Worli sea link bears testimony to this fact. However, the most overriding issue that has been stressing the residents and the authorities of this island city for many years is that of affordable accommodation. The problem has accentuated further in the recent years with the burgeoning population, coming from different parts of the country and settling here. Archaic rules, rigidity of the affected parties to the problem, lack of proper vision, inability to execute the projects efficiently have accentuated the problem leading to extensive slumisation of the city. The main bone of contention between the authorities, the developers and the owners have been the granting of the FSI/TDR for redevelopment of large parts of the island city that includes the areas of the closed industrial areas, run down mansions, encroached lands etc. Till recently, the state government granted a maximum FSI of 1.33 for the island city and 1 for the suburbs which when compared to other cities in the world is very low and hence unreasonable. Also, the TDR clause is of little use to solve the problem of convenient accommodation because one can encash this the TDR rights only northwards of the site where it is created, very far away from CBD of the island city. Consequent to repeat persuasions from the affected parties, the government is now considering the option of granting of FSI of 6 for the redevelopment of the old parts of the city and to do away with the TDR. Many have welcomed this move. But there are a lot of things that need to be resolved before this consideration is given consent.

It is to be noted that such a consideration involves the redevelopment of more than 16,000 old buildings, all of which are located in the prime areas of the city. And this is where, lack of proper incentives can defeat the purpose of redevelopment. It should be clear that land in prime areas like south and central Mumbai is highly fungible and there are a lot of alternative uses of land in these parts of the city due to better infrastructure and also because of its elitist label. The benchmark rate that is quoted for residential projects range from Rs. 15000/ square feet in central Mumbai to Rs 65000/ square feet in south Mumbai. Hence there is every temptation on the part of the builders to develop only those projects that will fetch highest returns. Similar conditions apply to the financers of the projects. This fear is affirmed by the track record of previous developmental projects in the city. It is such a situation where operation of the free market forces will only exacerbate the crisis that is looming large. The benefits of redevelopment can be successfully exploited by well conceived package of fiscal incentives that can be given to all the affected parties accompanied by the drafting of a well conceived master plan of the city for the next 25-30 years that visualizes the type of growth in term of sectoral composition of employment, the demographic composition of the city, migratory nature of the working population, zones of commercial and office development, needs of utilities and social services like health care facilities, educational institutions, community centers, shopping centers, modes of communication etc. All these are essential because it will give a fair idea about the alternative uses of the land that are socially desirable (greatest benefit for the greatest number of people) and how to put the land to all such uses, what proportion of residential units should be developed as rented units, what shall be the area of residential units depending on the perceived demand etc. To prevent the development of luxury projects on sites where redevelopment project has been given a nod with a higher FSI, the state can propose to impose tax in a non-linear fashion after a cut-off rate whereby the tax rates will rise in a steeper way than rise in the price of the project along with imposition of other taxes at the local level on similar lines, analogous to the non linear pricing method used in various utilities like electricity. In a similar fashion, fiscal concessions can be given to the financial institutions for encouraging them to invest them in such redevelopment projects. As a matter of fact, lot of discussion has taken place for the setting up of REITS in India. Redevelopment projects like the ones conceived for Mumbai can provide a huge opportunity to these entities to invest their money and earn a reasonable return in terms of rents as there is a high demand for rented residential units of different types due to a large mobile working population in the tertiary sector and the numbers are only going to rise. However, there lies a catch in the development of rented units also. There will be a natural inclination to develop rented units that will fetch very high rents, well beyond the reach of most of the people. Hence, appropriate fiscal incentives needs to be built up in case of rented units similar to the one discussed above. However, the provision of affordable and convenient accommodation is not all that is essential for developing Mumbai into an international class city. Development of efficient modes of public transportation is essential for the successful functioning of the city.

Currently, public modes of transport consist of suburban rail services and the bus transport maintained by the municipal corporation apart from personal modes of transport. The public modes of transport are punctual but not at all reliable and efficient. Compared to the fast growing number of commuters, the rolling stock of public modes of transport has grown very little. The rakes of the suburban rail services have outlived their utility, and in spite of running services at short intervals, the pressure is only increasing with more northward expansion of the city on all the three lines. As a matter of fact, every year on an average, 3000 to 3500 deaths are reported officially on the suburban services, most of which occur as a result of traveling on overcrowded trains. Recently, the railway authorities has started phasing out the old rates with state of the art rakes but the pace is very disappointing and by the time the entire process is completed, it will be of very little use. Coming to the status of road transport, it is much worse. The lengths of the roads have increased only little and there is very little scope of further expansion. The public mode of transport, maintained by BEST is pretty over stretched. Long queues of people anxiously waiting to reach their destinations during the peak times are increasingly becoming common sight at all the major junctions. In response, the personal modes and quasi-personal modes of transport are becoming preferred means of commuting for over short to medium distances. As a matter of fact, about 500 new vehicles are registered everyday at the three RTO offices in the city and most of them are used for personalized modes of transport. This coupled with the very little expansion of the roads has increased the pressure on them leading to their excessive wear and tear which becomes terrible during the incessant monsoons. Heavily under priced fuels has also contributed to the rapid rise in the use of personalized modes of transport. This has led to increased congestion on the roads during the peak time, which in turn has further reduced the efficacy of the road transport. Adding to the problem is abnormally low parking charges in the CBD of the island city. This aberration needs a correction. The government has recently announced the beginning of the Eastern Freeway Project and The Metro Railway Projects to be completed in different phases. However, apart from huge costs involved, these projects have also long gestation periods and entails hardships for the people due to road blockades, diversions etc. Given, the urgency of the situation, it is high time that the government should reconsider some of their policies, at least with respect to the regeneration of the metropolitan centers like Mumbai. For a long time, subsidized gasoline has fuelled the preference for the personalized transport. To counter this trend, it is necessary that in the Tier-I cities like Mumbai, henceforth all sort of subsidies on gasoline and diesel should be discontinued immediately to reflect their actual economic cost. Concomitantly, the existing road transportation should be thoroughly upgraded and extended. The existing fleet of buses should be increased and more special bus services like AC Bus services should be introduced in more routes recovering their full operating cost. To decongest the roads, especially in the older parts of the city, decongestion charges in terms of higher parking charges taking into account the flow of vehicles at different times on working days needs to be implemented. This will also in turn reduce the burden on the roads, which in turn will reduce the cost of maintenance and reduce both air and sound pollution to a significant extent.

Historically, unlike some other metropolitan centers of the country the CBD has been basically located in the south Mumbai rather than being centrally located or dispersed in multiple locations. As a result, the pressure on the transport network has been unidirectional rather than distributed in multiple directions. It is true that BKC is being developed as an answer to that problem, but unfortunately it is used more as a golden goose of the government rather than a site of relocation of the establishments from the town. The government needs to understand this and shed its inflexibility while allocating the land. Instead of auctioning off the lands at astronomical rates to the developers and washing hands off the problem, the government should set up public-private partnerships with the developers whereby the government leases the land to the developers at a much reduced rates from the current levels, gives them a higher FSI than what is being granted at present, and shares the proceeds from the rents and sale of commercial and office space with the respective developers. The desired outcome can be guided in this case through appropriate structuring of fiscal incentives that discourages the development of excessively lavish spaces. The development of further office clusters should not be restricted to BKC only but other areas in the western and the eastern suburbs needs to be considered and developed so that they are within the comfortable reach of the residential clusters where the working population will be putting up. This will definitely help to cut down on the commuting time to a great extent and will also lessen the burden on the existing and to be developed communication infrastructure.

Few years after the independence, the government anticipated the pressure on the island city and felt the urgent need to find solution to the problem and instituted a committee for the same, which suggested the development of a new urban settlement, and as a result Navi Mumbai came up. Unfortunately, till date the potential of this satellite township has remained largely unexploited. Whatever has been utilized has been either insufficient or undesirable. The development of huge tracts of land into Navi Mumbai cannot be undone in any way; the cost is sunk. In this context, the potential of this township needs to be reassessed in the present perspective and master plan for the utilization of the same needs to be drafted. Shifting of the wholesale perishable goods market near Vashi, proposed international airport near Panvel, developments of Seawoods and Belapur as KPO/BPO hubs are good gestures in that direction but should not end there. Other infrastructural needs in terms of rail and road connectivity with other parts of the country, public transport, trans-harbor link, social services, residential clusters need to be developed. Recently, a lot of newsprint has been used discussing the opening up of the eastern sea front for real estate development. Developers are pressuring the government to be decisive in their favor. The columnists seem to have entirely ignored the unutilized potential of Navi Mumbai lying there ready, marginal costs of whose development will be much lower besides avoiding other contentious issues like ecological imbalance, citizen activism, legal hurdles and other objections besides a huge gestation period to develop the basic infrastructure; it is not shortage of land that is coming into the way of city’s development but it is lack of vision and political will, inflexibility on the part of the affected parties that is making the transformation difficult. The less the designated think tank talks about the opening up of the eastern front, the better it is.

Financing Environmental Compliance and Sustainable Shelter for All.

The genesis of environmental awareness and financial aspects related to it can be traced back to the disclosing of the findings by the scientific community in Europe and North America regarding the adverse effects of rapid economic growth on the surrounding environment in terms of rising temperatures, rapidly changing climatic cycles, fast disappearing flora and fauna, melting ice caps in the polar regions with the imminent threat of drowning of a large number of cities near the shoreline somewhat at least thirty to thirty five years ago. With the advent of the emerging economies of the East, this threat is deeply entrenched in the heart of the global community than what it was even twenty years ago. Increased demonstrations, lobbying and constant vigilance on behalf of environmental activists has forced the world leaders to take a call and meet for discussing the issues and to find a solution to them. The one that took place in Kyoto in 1997 deserves a special mention as it is for the first time that an official commitment was made by most of the industrialized countries to reduce the greenhouse gas (GHG) emissions in quantitative terms (5% lower than 1990 emissions levels) by 2012. And the most important instrument that was envisaged to accomplish this objective was innovative financial products that are marketable either on one to one basis or among the general public for example in the stock markets some of which are certified emission reductions (CERs), carbon credits etc.

A question that is bound to pop up in the minds of the professionals related to the housing industry that what they have to do with the happenings that have been outlined in the last paragraph. There is only one answer to such an important question. The fact is that they have perhaps a very important (if not the most) job upon which to burn their fingers through which they can contribute their bit in reversing environmental degradation and ensure sustainable shelter for all.

Of all the greenhouse gas emissions by different sectors in the industrialized countries at least 15-20% is accounted for by the housing industry directly and an underestimated share indirectly in terms of energy consumed by the users of these housing units. Unfortunately, till date very few path-breaking initiatives have been undertaken in this sector. However, the urgency of the situation demands more serious and immediate attention.

The issue assumes special significance for an emerging economy like India, which is on the upside of the growth momentum. With structural shifts in the economy, growing rapidly, increasing disposable incomes with changing lifestyles has lead to a huge increase in demand of housing units. Currently, the housing shortage in the country, based on conservative estimates is around 30-35 million units with a majority of them being concentrated in the urban areas, and that too mostly in the middle and low income segments. The current level of housing shortage if adequately addressed will lead to huge draw down of exhaustible resources like fuels, limestone, various minerals which will also lead to environmental pollution. It will also lead to tremendous increase in demand for energy in terms of electricity for the dwelling units. As much of India’s material prosperity is dependent on monsoon-dependent agricultural sector, undesirable disturbance of the climatic cycle can play spoilsport with India’s economic, early signals of which has already been emitted in terms of changing rainfall and temperature patterns. If the environmental degradation continues unabated, it will lead to wiping away of a large number of cities including India’s financial hub of Mumbai. But one cannot override one’s rights to enjoy shelter facilities. The question then is how to balance all these priorities?

The situation can be best described by taking up the case of Mumbai. It is the largest urban agglomeration in South Asia and one of the largest in the world. It is unique in itself because it is the only urban center in the world that encloses a national park with diverse flora and fauna within its boundaries and has mangrove forests dotting its coastline. With a population of more than 15 million stuffed into a thin strip of land by the sea makes it one of the most densely populated regions of the world. This translates into a huge demand for housing units. Apart form this, the financial sector is expanding fast which is further adding to the city space. The Indian government has ambitious plans of transforming Mumbai into a world-class global financial center (GFC). This will attract talent of various levels to Mumbai in the years to come and will further add to the housing problem.

Considering the present problem, legal and regulatory issues apart, lack of innovative financial interventions have precipitated developments that are environmentally least desirable from Mumbai’s and hence India’s point of view. Lack of space has driven up the prices both for owned as well as rental housing units, well beyond the reach of a large section of the population. That has forced the population to turn to those areas that are environmentally fragile and vital for the sustenance of the city and its economy. The great deluge that the city suffered almost three years back is a grim reminder that what prices we will have to pay if we blatantly ignore and brush the environmental issues under the carpet of which housing forms an integral part.

Perhaps, the most sensitive of all the housing related issues are housing the vulnerable sections of the society. This because of the fact that these sections of the society are denied decent accommodation and are forced to dwell in hazardous zones which concerns the question of sustainability and the sheer magnitude of the problem has implications for the socio-economic-political stability that also concerns the question of equality. And as these dwelling units also double up as units of employment it is all the more important to take up the cause on an urgent basis and solve the same taking care of all the priorities.

There is no doubt that though the problems that we are facing currently are similar to the ones that the other nations are facing, it an issue that concerns us more and it is only us that will have to find solutions to the same. This will entail exploring the hitherto unexplored and unventured area of finance, which is environmental finance. The field of environmental finance, part of both environmental economics and the conservation movement, exploits various financial instruments (most notably land trusts) to protect biodiversity. The concept has picked up in the post Kyoto scenario.

How to go about it?

Before the field of environmental finance can be successfully utilized to cater to the needs of sustainable shelter, it is essential to examine the technical aspects of the housing industry the finer details of which can be exploited to improvise the desired financial products. Here a brief exercise of the same will be done.

The first and perhaps the most important part of any housing project is the land involved. In a place like Mumbai, land forms more than 70% of the total cost of any housing project. From the environmental point of view, this forms the foundation of ensuring environmental soundness of the project. This is an area which involves more of an ethical on the part of the housing finance companies supported by well entrenched legal and regulatory apparatus not to finance any new or redevelopment housing projects in environmentally fragile lands. Incentives to the project developers in terms of heavy penalties or blacklisting by the financial players will go a long way in discouraging exploitation of such lands. The second important part that concerns the housing industry is the building materials. One of the most important raw materials in the housing industry is fossil fuel that is used in the operating of various construction equipments, and also in the transportation and manufacturing of building materials. As the rate of creation of housing units is only going to increase in the coming years, the use of fossil fuels will increase by leaps and bounds. Apart from exhaustion of resources and draw down on our forex it will also add to the pollution and greenhouse gas emissions. To tackle this problem a host of innovative financial products can be launched. Environmental funds modeled on the lines of mutual funds can be created to finance jatropha plantations by project developers that cater to the energy demands of the housing industry. It will also help to sequestrate a large amount of carbon to the ground that can be traded in the stock market in the form of carbon credits for which a ready market is already available from the industrial entities of the developed countries who are under various commitments to reduce their GHG emissions but are unable to do so because of cost disadvantage. At present, when the government is opening up pension funds for market based management, it is a god send opportunity for the housing finance industry to tap such huge resources for ventures like these that are less susceptible to market volatility and will fetch stable and good returns.

As far as other building materials are concerned, surprisingly there has been no big change in the type of materials used in the construction of buildings. Most of these materials are not GHG compliant in the sense that these materials fail to prevent the leakage of heat both from insides and outside the building that leads to rise in the usage of electricity indirectly leading to more GHG emissions. Also lack of smart planning to optimize the use of energy is also there. Moreover, the manufacture of these materials also involves a lot of pollution driven processes. In the recent past, as a result of environmental consciousness, innovations have been taking place in building materials. However, adoption of those technologies has not been forthcoming in India, main reason being that they are not financially remunerative. Here the housing finance players can play a very important part. It can set up funds for funding those projects that use environmentally friendly building materials by providing incentives to the project developers in the form of rate discounts and fees exemption on different counts of smart planning and use of building materials. The financial players can help to make the usage of environmentally building materials a norm by charging a premium from those who don’t comply. Moreover, the GHG emissions that are abated can be packaged in the form of tradable securities that can be traded in the market that will help the financiers to recover a large amount of subsidy that they give out in the form of incentives through a contract with the respective builders.

Next we turn to the most complex issue of housing the not so affluent sections of the society. This assumes special importance at the backdrop of the state government’s announcement to develop Dharavi, the largest slum concentration in Asia into a multi-utility hub in the center of Mumbai and is in the process of short-listing the project developers for the same. The main question that is now doing the rounds of the policy circles is to how to finance the redevelopment project that will provide well laid out housing units for all the project affected people because of the fact that many of them are not financially well off to finance their dwelling units. Given the present fiscal scenario, it is not prudent on the part of the government to bear the entire burden of financing the housing units. And it is also too wishful to that any individual or any private entity will do a marvelous charitable gesture. This is where the financial tools of CERs and credit leveraging like securitization can be successfully utilized to raise resources for the redevelopment projects, the technicalities of which can be briefly discussed here.

As part of the commitment made under the Kyoto protocol, the industrialized nations are bound to reduce their emissions to pre 1990 levels by 2012. Now both USA and Australia joining the commitment platform, the demand for all those GHG credits will only increase. But as the supply of such credits is minuscule compared to the demand, there is a tremendous scope to exploit this opportunity in the form of Clean Development Mechanism (CDM) projects. According to the guidelines of CDM projects, a project developer plans a project that involves reduction of GHG emissions or sequestration of carbon over and above than what is achieved under business as usual (BAU) scenarios. The plan for the proposed CDM project is then submitted to the national CDM board to review the technical and commercial soundness of the plan. Once it is cleared by the national board it is sent to the CDM board of the concerned industrialized country for their ratification. They make the necessary technical inspection calculating the redeemable CERs that can be obtained from the project, the legal and the accounting credibility of the project and once the projects fulfills all the criteria it is financed entirely subject to periodic reviews for compliance.

The prospective project developers in the Dharavi redevelopment project can take advantage of this above-mentioned elegant mechanism by setting up manufacturing units for GHG compliant building materials that involves almost zero pollution that can then be leveraged to attract finance for the units. This will be able to part finance the redevelopment project. Another part of the redevelopment project can be financed by selling carbon credits that can be in the form of energy saved in terms of reduced GHG emissions that will be deliverable once the housing units are occupied and also in terms of carbon sequestration that will be achieved by beautification projects that will come in the vacant lands. As this multi-utility hub will come up, the energy usage will increase by manifolds. A large part of the energy that needs to be supplied can be generated by tapping renewable and environmentally sound sources like solar, wind and biomass (from solid waste generated at the multi-utility hub). Such projects can be financed by means of capital leveraging instruments like securitization whereby the assets created are taken off the balance sheets of the financiers and broken down into small packets and sold to the investors through a SPV. The payments to the investors can be made from the amount received as utility payments and payments for carbon credits. The capital thus raised can then be used to realize the cost of the project and finance future projects.

Conclusion:

The above paragraphs discuss some of the innovative financial tools that can be used to provide shelter for all that are sustainable and at the same time protects the biodiversity. But to avail of such tools, there is an urgent requirement of trained specialists who will be able to review and assess such projects along with proper legal support. Active civil-society participation is also required in terms of reviewing the activities of those related to the housing industry and makes them accountable by means of social reporting applauding and encouraging the conformists and making it hard for the non-conformists to remain indifferent to the issues. Only then will we be able to able to effectively address the issues of sustainability and shelter for all without compromising on anyone of them