Mumbai’s Economics – 3 Key Proposals to Change the City

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Fascinated. That’s the feeling an economist experiences when looking at the vista of Mumbai’s west side from the 30th floor. In the back, next to the two pointy towers, is one family’s skyscraper, the Ambani family tower. At ground floor level, thousands of slum residents share land next to the swanky (and securely guarded) St Regis hotel. This is Mumbai in 2016: strong, persistent spatial inequalities. Mumbai (most residents still call it Bombay) has the whole range of economic statuses. Shoppers line up to buy the latest mid-range fashion in the northern suburbs of Santa Cruz. Upper income families browse brands the upscale Phoenix and Palladium malls. And all buy fruits, vegetables, meat, and day-to-day clothing from street shops. Travelling through the city either using its famous suburban train or by car (Uber does well) is never-ending fascination at the cohabitation of upward of 22 million different personal lives.

Talking to residents, I noted three recurring economic topics.

  • Land use efficiency

Large slum areas next to premium, high value, land built up with gleaming skyscrapers. Abandoned multimillion dollar value land in the center of town. The evidence on inefficient land use is obvious for all to see, but a more important task is to understand its causes.

In interviews with contacts, the most cited reason for such inefficient land use was litigation delays. Litigation over property rights typically involves two or more parties. And lawsuits do not come to a conclusion within reasonable time frames. The Indian court system is clogged up — the Chief Justice of India requires action; and such issue has dire consequences for urban land use patterns.

A large swath of land that could be profitably redeveloped is the area of the mills “midtown” (called Lower Parel). There again, there are long standing property rights lawsuits.

Proposal #1: Speed up lawsuits on property rights.

  • The political accountability of commissioners

Another major concern is investment in infrastructure. The situation is not as challenging as in cities such as Bangalore, whose economic activity would greatly benefit from an FDR-style investment in roads and highways: a few kilometers can take hours to drive, the metro’s planned 43km has seen only 8km built up to now.

That doesn’t mean that there are no major infrastructure needs in Mumbai. Benign monsoon rain can lead to traffic paralysis for days. Part of the solution is the increase the length of terms and the accountability of officials in charge of urban planning policies. Contacts mentioned that the elected mayor is not in charge of urban development, the commissioner is. And the commissioner is not elected, but appointed by the state of Maharashtra. Looks like a change in the political economy of urban management is required.

Proposal #2: Make elected mayors accountable for urban planning and development.

  • Liquidity constraints and redevelopment

Rental costs per square foot in Mumbai can easily reach London or Paris costs. Families typically own inherited real estate that can be worth hundreds of thousands of dollars; but neither redevelop or sell their property. The quality of the housing stock can explain why households do not move — the alternatives may not be better –, but it does not explain why they do not redevelop the land or invest in upgrading their unit. Part of the explanation can lie in liquidity constraints: if upgrading can repay itself quite quickly, the added value cannot be easily captured by the owners. There seems to be plenty of room for redevelopment/upgrading loans.

Proposal #3: Offer government guaranteed loans repaid on increased equity.

2 thoughts on “Mumbai’s Economics – 3 Key Proposals to Change the City

    • Yes and this has been widely documented in World Bank Urbanization reviews, Glaeser’s book the Triumph of the City. It applies to most large Indian cities. I won’t repeat or relay what can be very easily found elsewhere as you point out.

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