NITI Aayog urges reforms to ease worker housing near industrial hubs

Union Finance Minister Nirmala Sitharaman in her July Budget had announced plans to establish rental housing with dormitory-type accommodation for industrial workers in public-private partnership (PPP) mode with viability gap funding (VGF). The success of large-scale manufacturing in India depends critically on the presence of big industrial clusters, and the ability of manufacturers to capitalise on economies of scale and depend on a labour force that exceeds local supply. This induces migration to meet the labour demand and necessitates housing supply to meet subsequent demand. However, the current state of industrial workers’ housing in India is largely managed informally, with limited availability and poor living conditions. Unsurprisingly, this prevents workers, particularly women, from migrating in search of better employment opportunities. Shortage of workers’ accommodation near industrial hubs is, therefore, a major bottleneck driving workforce attrition, affecting productivity, and undermining growth in the manufacturing sector. In this regard, a new report released by the NITI Aayog has highlighted the urgent need for policy and regulatory reforms to integrate workers’ accommodation seamlessly into industrial planning. 

Private-sector initiatives in this area are often hampered by regulatory hurdles. Inflexible zoning regulations, illiberal building laws and approval processes, and high operating costs restrict land usage near industrial clusters, resulting in suboptimal usage of land. For instance, both the floor area ratio (FAR) and ground coverage ratio (GCR) are quite low in the country compared to those in developed countries, limiting both vertical and horizontal expansion, respectively. High setbacks, which mandate minimum distances from property lines, roads, and adjacent buildings, lead to wastage of space. Industrial housing faces additional challenges, including mandatory parking requirements, which are unnecessary because most industrial workers do not own vehicles. Further, several studies show economic constraints in developing industrial housing would remain even in the absence of regulatory obstacles. The market rent for workers in unauthorised colonies and informal housing is relatively low. Hence, the private sector’s willingness to invest in this sector remains substantially lower on average. 

To truly unleash the potential of India’s manufacturing sector, there is a need to think of dense, large-scale housing for workers as infrastructure, involving both private and government investment. The report suggests that government support in the sector should come in the form of VGF to bring down the cost of construction, and give tax relief and interest subvention to subsidise market interest rates to reduce the cost of borrowing for builders. There is also a need to relax FAR and GCR norms such that building height and size can be decided on the basis of cost-efficiency considerations. At a time when India aims to create jobs through employment-intensive manufacturing, it is crucial to prioritise the well-being of industrial workers by ensuring safe working conditions, adequate wages, health care access, and proper regulations to prevent exploitation. In this regard, large-scale industrial development relies on adequate housing for large catchments of labour, which local towns or villages around the clusters alone cannot provide.