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Worker Housing | Unlocking Labour-intensive Manufacturing in India

Authors:

  • Piyush Doshi – Operating Partner
  • Rahul Ahluwalia – Founding Director
  • Nitya Srinath – Associate
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Scroll down for the key information and data points on worker housing in India
ED Worker Housing Report_ Nov 22-pdf

Creating good jobs is India’s biggest challenge; labour-intensive manufacturing is key to solving it

As shown in the figure, compared to competing economies, we are employing very few workers in manufacturing.
Currently, 46% of India’s workforce is engaged in agriculture, which contributes only 18% to GDP. Manufacturing and services jobs are between 3 to 6 times as productive!

Employment-intensive manufacturing will need to be export-oriented

On a per capita basis, India’s domestic market is relatively small compared to global markets. While the OECD has a population comparable to India, its GDP is ~18 times larger!
By tapping into these larger, more lucrative markets, Indianmanufacturers can scale their operations, increase production efficiency, and drive economic growth.

We need to therefore improve our manufacturing competitiveness through large-scale clusters and urbanisation, which requires migration

Migration reallocates labour from low productivity sectors to high productivity sectors has a positive impact on growth,
for instance, in China 150 Million workers

for instance, in China 150 Million workers

migrated to cities and contributed to

2 decades of growth

2 decades of growth

between 1980 and 2009

Manufacturing is highly dependent on migrants who are the primary source for low cost low skilled labour
6 Million inter-state migrants

6 Million inter-state migrants

employed in manufacturing. Intra-state migrants are estimated to be much higher

50% workers are migrants

50% workers are migrants

in manufacturing clusters like Tirupur

Very few women are migrating in search of better opportunities (often located in remote areas)
Only 1%

Only 1%

Of female respondents migrated from their hometown in search of better employment opportunities as per NSSO survey in 2020

While ~50%

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:

Benefits for workers
Safety

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

Formal accommodation

reasonable living conditions as opposed to slums.

Benefits for industry
Ready access to workers

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

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

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

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

In China, 80% of the assembly line workers were women, with accommodation a part of their employment contract.<sup>24</sup>
In China, 80% of the assembly line workers were women, with accommodation a part of their employment contract.24
In Japan, textile industries housed female labour force from faraway villages in dormitory accommodation.<sup>25</sup>
In Japan, textile industries housed female labour force from faraway villages in dormitory accommodation.25
In Vietnam, the government has committed to build 1 million housing units for low- and middle-income households and for workers in industrial parks.<sup>26</sup>
In Vietnam, the government has committed to build 1 million housing units for low- and middle-income households and for workers in industrial parks.26
In Singapore, 43 dormitories have been built to house 200,000 migrant workers from the construction and manufacturing sectors.<sup>27</sup>
In Singapore, 43 dormitories have been built to house 200,000 migrant workers from the construction and manufacturing sectors.27

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

Currently, worker housing in India is managed informally, with industrial clusters making no provision for it. As a result, when industrial areas are close to urban centres, slums and informal housing typically develop.
Several attempts at setting up large scale worker housing in India have failed due to regulatory and cost bottlenecks.

Regulatory bottlenecks play a large role in holding back market responses in our country. They fall into 3 categories

Inflexible zoning regulations

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.

1
Illiberal building bye-laws and approval processes

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.

2
Operating costs

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.

3

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

graph4

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.

Total monthly cost per worker in large scale formal housing after regulatory reforms would be ~ Rs. 2,500–3,200. However, studies show that the market rent for workers in unauthorised colonies and informal housing is 4 times lower!
To enable large-scale worker housing development, greater private sector participation should be encouraged, while ensuring that monthly rents remain affordable for workers.
The government can create a pool fund or rental housing scheme to subsidise the construction cost of worker housing. Alternatively,rental vouchers can be issued to workers which can be exchanged in lieu of rent.

Our recommendations therefore cover both regulatory and financial support for worker housing

Sl no.Reform categoryRecommendationsGovernment body responsible for making the change

Regulatory Reforms

1Zoning regulationsMixed 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
2Building bye-lawsWorker 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, insuranceState / city level department that govern building regulations across India
3Operating regulationsWorker 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

4Rental housing schemeThe 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
5Rental housing vouchersRental 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
6Indirect methods of subsidising worker housingOther 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