Worker Housing | Unlocking Labour-intensive Manufacturing in India
Authors:
- Piyush Doshi – Operating Partner
- Rahul Ahluwalia – Founding Director
- Nitya Srinath – Associate
Creating good jobs is India’s biggest challenge; labour-intensive manufacturing is key to solving it
Employment-intensive manufacturing will need to be export-oriented
We need to therefore improve our manufacturing competitiveness through large-scale clusters and urbanisation, which requires migration
for instance, in China 150 Million workers
migrated to cities and contributed to
2 decades of growth
between 1980 and 2009
6 Million inter-state migrants
employed in manufacturing. Intra-state migrants are estimated to be much higher
50% workers are migrants
in manufacturing clusters like Tirupur
Only 1%
Of female respondents migrated from their hometown in search of better employment opportunities as per NSSO survey in 2020
While ~50%
Of their male counterparts migrated in search of better jobs
Availability of housing close to factories will help labour mobility, and thereby reap greater returns for manufacturing through:
Safety
When housing is provided close to or on the premises of the workplace, it minimises the need for long commutes through potentially unsafe areas.
Formal accommodation
reasonable living conditions as opposed to slums.
Ready access to workers
When large industries factories are set up, the easiest and fastest way for companies to access large catchment of labour is by creating housing for them near factories.
Increased productivity of workers
Workers who do not need to worry about long commutes or unstable living situations are likely to be more focused and productive.
Low absenteeism
Reasonable living conditions as opposed to slums would improve worker’s health and nutrition, which would have knock on effects on reducing absenteeism
Stabilisation of the workforce
With stable accommodation, companies can maintain a consistent workforce which helps in maintaining quality control and operational efficiency.
Countries across the world have enabled migration through worker accommodation
Source: The Impact of Export-oriented Manufacturing on the Welfare Entitlements of Chinese Women Workers, Textile Factories, Tuberculosis and the quality of life in Industrializing Japan, Hanoi Times
Regulatory bottlenecks play a large role in holding back market responses in our country. They fall into 3 categories
Inflexible zoning regulations prevent housing from being established near factories, even when land is available, unless it's zoned residential. This creates difficulties for industries that want to create their own worker housing units and prevents industrial land from being used for shared worker housing. Kolar in Karnataka is an exception, allowing residential buildings across zones.
Illiberal building bye-laws and approval processes further restrict land usage, locking land in suboptimal uses where it could house substantially more people. Unlike global hubs like Japan, where FAR' and GCR are higher with minimal setbacks, Indian industrial zones have low FAR (as low as 1) and GCR (as low as 30%). Parking mandates also consume unnecessary land since most industrial workers don't own cars. Our analysis shows that due to these regulations, Gujarat's land requirement for large-scale worker housing is nearly 4 times greater than Telangana's. Implementing land-optimise reforms could house up to 6 times more workers on the same land without reducing individual space. Further, delays in government approval processes due to bureaucratic hurdles lead to additional costs for private developers. This should be changed to a system of third-party certification, insurance, and self-certification by chartered architects.
Operating costs further drive up costs as currently most formal sector hostels are often caught in a legal grey area, with regulations varying by state. In some cases, these accommodations are forced to function as hotels, resulting in significantly higher water, electricity, property taxes, and GST costs — up to five times more than residential rates. By classifying group housing as residential, it would help reduce these costs and make accommodation more accessible and affordable for workers.
Monthly housing costs for workers can reduce ~50% in semi urban areas and ~25% in industrial areas through friendlier regulations.
However, building formal worker housing requires high capital costs even after regulatory reforms
Differences in cost of constructing formal vs informal housing for workers
Source: Author’s conceptualisation
Note: We have assumed a large-scale dormitory to accommodate 60,000 workers taking the Foxconn worker dormitory in Tamil Nadu as our benchmark.
Our recommendations therefore cover both regulatory and financial support for worker housing
| Sl no. | Reform category | Recommendations | Government body responsible for making the change |
|---|---|---|---|
Regulatory Reforms | |||
| 1 | Zoning regulations | Mixed land zoning should be implemented to allow for construction of worker housing in all zones without any restrictions. | State / city level department that govern the use of land across India |
| 2 | Building bye-laws | Worker housing should be set up based on residential building bye-laws. These regulations can be further liberalised to bring down land costs. Government prior approvals for construction should be changed to a system of third-party certification, insurance | State / city level department that govern building regulations across India |
| 3 | Operating regulations | Worker housing should be exempted from paying GST and residential rates must be charged for property tax, electricity, and water tariffs to bring down operating costs. | Ministry of Finance (Department of Revenue) |
Financial support from the government | |||
| 4 | Rental housing scheme | The government can create a pool fund rental housing scheme to subsidise setting up worker housing. These funds can be disbursed through interest subvention, soft loans, capital subsidy, tax reliefs, etc. | Ministry of Housing and Urban Affairs |
| 5 | Rental housing vouchers | Rental vouchers can be issued to workers which can be exchanged in lieu of rent to subsidise housing and enable access. | Ministry of Housing and Urban Affairs / Ministry of Labour and Employment |
| 6 | Indirect methods of subsidising worker housing | Other indirect methods of subsidising the cost of construction worker housing can be implemented, for instance, infrastructure status can be provided for worker housing to reduce the developer's cost of borrowing. | Relevant ministries at the central level |