India has spent heavily on housing schemes, but are we building homes in the places where people actually need them? In this episode of How India’s Economy Works, Puja Mehra speaks to economist Dr. Vidya Mahambare, Union Bank Chair Professor of Economics and Director (Research and Fellow Programme In Management) at the Great Lakes Institute of Management in Chennai, about why India’s housing policy needs to be rethought as part of a broader strategy for employment and economic growth. Mahambare argues that homes need to be built closer to where jobs are being created, particularly in urban and semi-urban areas, rather than simply subsidising home ownership in rural areas.

The conversation also explores how housing can influence migration, manufacturing, regional development and women’s participation in the workforce. From industrial housing for large-scale manufacturing to safe working-women’s hostels, childcare located near schools and better public transport, Mahambare explains why housing is best understood as labour-market infrastructure, rather than simply a welfare measure.

Tune in for insights on India’s employment challenge, the housing-jobs mismatch, women’s workforce participation, migration, manufacturing and the policy changes needed to make India’s cities more productive.

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TRANSCRIPT

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Puja Mehra: Vidya, thank you so much for coming to this show.

Vidya Mahambare: Thank you Puja for having me.

Puja Mehra: I've been reading your writings about India's employment crisis and the impression I get is that to an extent at least resolving the housing policy might be a silver bullet to addressing the employment crisis as well. But I also feel that I may be overstating the importance of the housing policy and your analysis of it. So I thought I'd request you to help me and my listeners understand today what is this proposal you have on resolving India's housing policy so as to take care of the employment crisis.

Vidya Mahambare: Maybe let's start way back in 2016 where when we started the Pradhan Mantri Awas Yojana in the rural areas under which we give subsidy to people to build homes if they have a plot of land in their native place. So what has happened over the years is perhaps by now we would have built something like 30 million houses approximately and we have spent a lot of money. It's a very popular scheme.

You know it's nice. It feels good to have your own house and it feels like a gift. But the problem is that we are creating as a country housing stock where the jobs are not there.

So we know the jobs are there in urban areas, they are in cities, they are in semi-urban areas, they are in towns and that's where really we need to build housing stock because houses need to be, homes need to be, residences need to be nearer to where people can work. So when you build homes in rural areas, yes family has got a house but eventually one person needs to migrate. That typically tends to be, it can be within the same state or outside the state but essentially typically man will migrate.

So the family is now left behind in their old house but nonetheless we are still splitting the families that way. Man comes to urban area and again lives in very crowded situation, not a very good housing. You already have severe shortage of housing in urban areas.

And then it adds to another problem in the sense that on one side and this is a completely different sector now we are talking about which is agriculture. So we have a problem in agriculture for a very long time where we say that our farmland is very fragmented and you know majority of India's farmers are small and marginal farmers and that means we need really land consolidation to improve land productivity and you know more mechanisation and all that. So typically how that happens is small plots of land get sold and land becomes bigger and the people really, because small plots are not really sustainable, you know small farms are very very difficult to make them sustainable.

So then those people leave out and do get into productive jobs and the rural land gets consolidated, big farms. But now that you have built a house on your own plot of land, now it's very very difficult that you will sell the plot. That means now that you have the asset, so asset is also stuck there because you cannot take the asset with you when you migrate, and now the land is also stuck.

So that way I feel it becomes more of a block again for land consolidation in rural area is also a block for family to migrate. You know we have for the same scheme we have the urban yojan also, urban housing scheme. But under that scheme what happened if I understand correctly in the beginning government built with the help of the private players, large housing complexes where they thought the relatively poor will come and occupy.

But then they figured out that the take-up rates are very low because these homes where they have built those buildings and not the location wise are not really the places conducive for people to commute in outskirts of cities and things like that, plus the infrastructure maintenance is not good in those places. So that means you created now in urban areas also housing somewhere, stock, but that is underutilised or unutilized to a large extent. The main thing is there is always trade-off right, so if you are spending so much money every rupee comes because something else can be done.

So if you have to improve housing, the thing is then what is the best policy. So people need home, maybe they don't need to own all the time and in the original 2015 policy if I remember there was a thing of giving rental vouchers to the people wherever they want. So essentially subsidise your rents.

So perhaps if we can relook at that policy instead of subsidising people directly to build homes, subsidise them to rent it where they want to. Of course if you give only the rental vouchers you create increase in demand for housing right, so that we increase the rents again. So that means you have to incentivise the supply side as well that more housing gets built also.

So it is both demand and supply has to be there and then that means we need to look at what are our policies in terms of how we create more affordable supply. So if you see city like India and now they have revised in last few years, but FSI and all has been very tightly controlled until a few years ago. So essentially we need to relook at I feel the overall housing policy, the intentions may have been very good that every family should have a house, but where should we build the housing stock is the basic issue.

Puja Mehra: Vidya, will addressing the housing requirements in urban areas by the non-prosperous states help bridge their development gaps with the prosperous states. We increasingly see this discourse about the huge and deep gap between the northern and southern states because a lot of labour migrates from northern states to the southern states. Do you think if the northern states could supply more housing in urban areas where job opportunities are likely to be, then they could also catch up somewhat with the southern states on development and growth?

Vidya Mahambare: So the housing is only one factor and housing is required when there are jobs or at least when there is expectation of jobs that will come up. So then only people will migrate to take up the job and then they need a house. Then before that the question is essentially how do you create jobs?

That is the main question. When you have jobs, then only you require a house near to it. So the less prosperous states essentially have to think about the job creation first and what kind of jobs they want to create.

So for example, if you see now for a minute, if you go back to the prosperous states, prosperous states, the labour has got now, if you see people in twenties, more than half of them are in higher education. So automatically, as we said, they look for service sector jobs or if not service sector, they have to be like high end manufacturing kind of a thing, which is electronics and things like that, because, you know, there is a status involved in that. Status becomes very important once you get more educated.

Puja Mehra: Education levels have changed, their aspiration levels is what you're saying. They're not satisfied anymore with low end manufacturing jobs.

Vidya Mahambare: Correct. They are not satisfied with the low end manufacturing. One aspiration level rises.

Simply, you know, if you think of sector such as textile, these factories are quite noisy. There is a lot of heat. So it's not easy to work.

Right. So you automatically aspire to work in a better work environment, which you can get at least in something like electronics, because these factories are also AC kind of factory or in service sector. So in prosperous states, automatically the economy will move towards that.

Then if you come to the non-prosperous states, how should the industrial or the manufacturing, where will you have jobs? So typically, unfortunately, our non-prosperous states too early have gone into all sorts of services, low end services. Right.

So even Bihar economy and all is dominated by services, but that is a really low value at services. Compared to that, if they're able to do manufacturing, because education levels may be still, you know, relatively less and there are no other kind of jobs, people will still may be willing to work in the manufacturing sector. But only housing is not housing is afterwards, once you have the jobs.

So how do you create jobs means, you know, institutions have to be right. Right. What we talked about, all other things that are required for manufacturing.

You need infrastructure. For example, if you take UP, which is a landlocked state, you do not naturally have a port. So we are trying to do something about it via the rivers and so.

But then you have to be much more efficient in everything else. Right. Your cost of production has to be lower elsewhere to take on the extra transportation costs.

So how do you facilitate all other factors so that the manufacturing companies are willing to either relocate or willing to open in Northern Belt? That is the first question. And once they're beginning to happen, then you ensure that there is a sufficient housing that will come up where the jobs are.

It's all interlinked. I wouldn't say that, you know, just if we solve the housing or create the housing first and then jobs will come, that will not happen unless everything else is conducive for an entrepreneur.

Puja Mehra: I get it. So your argument more is that you'll get better bang for the buck on the housing subsidies that are spent if the location of where these housing is created is given greater thought.

Vidya Mahambare: Yes. So if we think about now how the housing policies may play a role for prosperous as well, but even non-prosperous days is, for example, if you take Foxconn, when they came to Tamil Nadu, one of their requirements was that they wanted to employ some 18 or 20,000 people. Now this generally has not happened in India.

You know, you are initially small and then you expat. That's normally the route. Now if an MNC is coming, who to start off itself, you know, wants to create or need a labour which is 18-20,000, now they need a housing for these people to stay.

Right. What happened in China, essentially, you know, massive industrial housing. Now how do you create that?

Because the company essentially says we are not going to take that fixed cost, right? Because it's a very high fixed cost for them. And if it doesn't work out, then, you know, their capital is stuck.

So that is also where the government can play a role. One can build this industrial housing such that it need not be company specific. Tomorrow that company goes, some other company can come there.

But you have built a large industrial housing. Such kind of support previously has not been. Previously Indian manufacturing companies, essentially, they have built their own hostels in their premises.

Okay. But increasingly, given that, because they used to own that land, right? It's most of the time in the beginning, it is like family owned manufacturing companies and so on.

And you had the land and you built. But now doing that is increasingly very, very expensive. So that becomes a big deterrent.

So if you want a massive scale of job creation in manufacturing and large companies who will create like not like few hundred jobs, but few thousand jobs at one time, then government will somewhere have to play a role in figuring out how to facilitate industrial. And that is true for the non-prosperous state as well. This problem will come up there as well, not only for the prosperous states.

Puja Mehra: In fact, we've seen this in the early decades of independence in the case of PSUs and white collar jobs. They did create housing stock, they created townships with schools, hospitals, etc. But I think increasingly, we find even in the case of private sector companies that own land, they are in fact monetising that land in various ways.

We know of examples where offices are shifting out of, say, the heart of Delhi to the outskirts because private companies want to monetise that more valuable land in all of these locations. Right. So therefore, that old formula won't apply anymore is what you're saying.

Correct. Yes. And I also read something very interesting in this regard.

You wrote about how better housing policies could help improve the participation of women in the labour force, which again leads to better economic growth.

Vidya Mahambare: See, now men and women, we have closed the gap in higher education, gender gap. So there is virtually very little gender gap in higher education. Same proportion of, especially in the prosperous states, same proportion of boys and girls, sometimes more girls are in higher education.

So they're getting educated. But once they get educated, when they look for a job, and typically, if you have a degree, you want to look for a job, which is generally in a service sector, right? So you want to work in an office kind of an environment, you're not looking for a job in manufacturing areas, means at least not in the labour intensive manufacturing in the sense that textile and those kind of things, because then you need not have taken degree.

Once you have taken degree, of course, your aspirations rise. And that means you want to migrate, even as a girl, you want to migrate to the city to take up some service sector job. Now if you see the statistics of migration in India, in fact, more women migrate than men in India, but more than 85% of migration happens for women purely because of marriage.

And then some of it is education, and less than 5% is to take up work. So the migration for employment is very less, because what happens is if you're away from the city, and because colleges are there now everywhere, you get educated. But the thing is parents, single women, we are talking mainly about the single women after they finish their degree, you still need your parental approval, in the sense that parents worry about safety, which is right.

So you want a place which is safe for your girl to go and reside and take up a job, which is really in very short supply. So we did a study in Tamil Nadu. So Tamil Nadu, I think 2023, they revamped this working women's hostel scheme.

How working women's hostels differ, now they are in Chennai, they are in Chichi, they are in 19 or 20 are full-fledged working, and there are several else in the pipeline they are building now. How they differ is compared to manufacturing hostels. Manufacturing hostel is specific generally to a company.

So all the workers of that company live in that manufacturing hostel. How working women's hostels operate is, essentially anyone over the age of 18 can rent the room in that working. That means you are living in an environment where there are other women who also are working in different areas, in different companies.

So your network is just that much more richer, and your information flow is that much more richer. Now why government involvement is important here, I'm not saying government should fully build or subsidise, you know, these hostels are largely self-sustainable on the operational basis. There is a grant that is given by the central and state government to build the building, but after that it is self-sustainable operationally.

But because there is a government involvement and some government kind of stamp, the parents are much more, you know, approving of their girls going in the cities and residing there. And we did around 60 interviews in the 5 Chennai hostels, and you could see very, very clearly many girls saying that we could not have come to Chennai if not for this specific hostel. Because we had seen private hostels and parents had seen this and that, but there was, you know, always some or the other issue.

So these hostels are very secure, they have biometrics, so even if there is a shift work, like even in IT, these women are, because they are, you know, educated, there even in IT there was one, you know, if I remember some AI scientist, that kind of a role as well, simply that they need a place to stay. So there is a shift work sometimes, and in the private hostels that is very difficult if you are doing shift work, entry, exit and all. Here they have enabled biometric and all that.

So you could very, very clearly see how many of them saying that we could migrate for work only because of, you know, these hostels. So that way when women get educated, when a, you know, man gets educated, it's easy to migrate, because, you know, there is not much of a worry, parents know that boy will be able to take care of himself or something. But for girls to migrate for work and take up employment, we really need very safe housing.

And you know, that is also a role that if government has to play some role somewhere, this can be one of the ways in which they are facilitated. So these things should not be seen, I feel, as welfare measures. You know, these hostels are really labour market infrastructure.

You are making the movement, mobility or improving the mobility of the girl to come to the city to participate in the labour market. It is not that you are subsidising the girl as a welfare measure, you are taking only whatever is the rent required for the operational running of the facility. Because typically these things are looked at as welfare.

So not as a welfare scheme, but simply enabling the labour market participation. For example, if you look at UP, you know, in every state, the higher education levels are rising. And in the absolute number, even in the proportion, suppose in UP it is still lesser, but absolute number still is large, absolute number of women, because of the size of the state population are in higher education.

But if you see, I think entire UP wide, I'm not sure, maybe there are just seven or eight working women's hostels. So it's virtually impossible, very, very difficult for a single educated woman to take up employment in any other city. So then the education simply becomes a vehicle of better marriage prospects.

We are more educated, your chances of getting married into a, you know, similarly educated family improves. That's about it. It doesn't lead to then, you know, the labour market participation, if you do not have these other enabling conditions.

Puja Mehra: We also simultaneously hear of how not many jobs are getting created. Do you think I would be overstating the importance of the role of a better improved revamped housing policy? If I said that itself would be a silver bullet to take care of the employment and growth problems, or there's a lot more that needs to be done besides this?

Vidya Mahambare: There is a lot more needs to be done besides this. This can be one part of the entire puzzle. So it is going to be only one enabling.

So for example, if an entrepreneur wants to, you know, set up a manufacturing or service, it is not that they require only labour. They require all other environment, which is conducing your, you know, your land, land acquisition, whatever environmental clearances, you need your safety, security, in general, you know, governance, other infrastructure, roads, ports. So, you know, that is all the basic stuff that needs to get sorted only.

So for example, if you think about why services took off and this debate we have had in India for like several years now, why services took off and manufacturing did not, it's not that manufacturing did not grow, manufacturing is also growing only by 6, 7, 8% just that it is going at the same rate at overall GDP. So the share remains constant. But why services grew like so much more faster?

One services in general, especially IT kind of a thing do not require much land. So that means land acquisition is easy. That means you do not require many licences as compared to manufacturing, environmental and all that, it's much easier process.

You do not require physical infrastructure as much as manufacturing requires. You do not require logistic, all other logistic support as much as manufacturing requires. And then there is a labour policy.

So there also labour means, we know it's not only like housing, you know, labour means how flexible the labour market is, how you can take on a payroll. And if you're, you know, rigid in the labour market, or cost of electricity for that matter. So everything adds up.

So it's not only housing, but housing is like one part which will improve on the labour side also their welfare, if they are moving to take up a job.

Puja Mehra: Vidya, you talked about how building dorms, dormitories will help bring more and more single women into the labour force. Of course, jobs will have to be created, but it will improve willingness of women and ability of women to enter the labour force. But what about married women with housing of the kind you're saying becoming available in the cities, if families don't get split, like you're saying they do right now, and married women also come to the cities, then they can also start working.

So that also will help improve women's participation in the labour force, right?

Vidya Mahambare: Yes, indeed. Right now, many women are stuck in rural areas, and they're working in farm or maybe increasingly in the dairy, so on and so forth. If there is a more urban affordable housing available for migrants, currently it's very little.

For example, even when we work with a textile factory in Tamil Nadu, a single woman comes, she cannot really get married and settle there. Essentially for marriage, she goes back again. Then maybe her husband travels again somewhere else, but she stays back in the village.

So if women are also able to come, if the entire family is able to come to the urban areas, as you said, the women also can take up jobs, right? So their labour force participation automatically, not automatically, again, we need some enabling conditions, but there's a chance that they can take up jobs. So then what are these enabling conditions?

So there tend to be two enabling conditions in urban areas where married women can take up jobs. One is about the childcare and second is about commuting, right? So childcare is in the sense that I'll tell you my own story.

So you know, my mother, she was in a village, after finishing the 10th standard, she had to stay back in the village for five years because there was no safe housing where her parents can send her in the urban area to study further. So eventually her brothers came to Mumbai and they bought a flat. And then after that, only all the sisters could one by one come from the village and get educated further.

Then once they got married, and then we were small, she was a teacher. So she was employed. We were small, so some childcare was required.

So how it worked was the childcare was literally our daycare centre was next to our school. So that means no transport was required. We could just go from the school to the daycare centre, whenever she finished work or my dad finished work, they will come and pick us up.

What policy we have in India is we have forced the large companies to build the creche facility on their premises. Now you know, those remain highly underutilised simply for the reason that first six months anyway your maternity leave in these large companies, right? And nowadays the children are going to the school, play school at the age of two years and so on and so forth.

So once they go to the school, even if it's a three hour school, the school is somewhere else. The mother is working somewhere else. It is very, very difficult to bring that kid just for two, three hours from that school to the workplace.

It simply doesn't make sense. So that means again, there is a problem. Many times women end up giving up their job there because the school is not full time.

So if you have a childcare which we build, which is very close to the school or it can be even in the school, you know, of course you have to pay to the school, but can be still in the school because there is a safety. So if we can figure out that mechanism, so that is one part. Women can come to the urban areas.

They can get employed if they have a facility for a proper childcare. Second, it is about commute. So when we did surveys, what we found that even at the skilled, high skilled women, we did a survey of high skilled men and women in working in IT sector.

Okay. We did it in three cities, Chennai, Mumbai and Bangalore. So what you find there is men essentially travel by their own vehicle, especially in city like Chennai.

It can be either a car or a two-wheeler. Okay. So Tamil Nadu has maybe close to like 80-85% of families who have a two-wheeler, but most of it is bikes, like motorbikes.

So, you know, most of the private vehicle stock in India is towards essentially men because traditionally men are the ones who have been working. So even in the high skilled industry, more men travel by own vehicle, which reduces their commuting time, which reduces their cost also. In high skilled, women are dependent on cabs.

So that increases their cost. And if you don't go by cabs, the women who are in slightly lesser skilled occupation, they cannot afford cabs, but then they are on the public transport, end-to-end connectivity, last mile connectivity is extremely difficult. So the commuting time is much more than men.

For the same kind of job, women end up nowadays travelling in the city like in a much longer time because access to private vehicle is not there. So how do we really sort out public transport very well so it becomes convenient, especially last mile connectivity we improve. These are the couple of other things which we'll need to do along with having the housing at the correct places, location, reducing the location mismatch between the housing.

So this is how it can tie it up.

Puja Mehra: Vidya, are you seeing some of these thoughts that you have getting also reflected in policy making, at least at the level of conversations, town planning, because it's also integrated, but are our policy makers also thinking along the lines that you were thinking or is it that their thinking is divorced from some of these very practical issues that you're talking about?

Vidya Mahambare: I wouldn't know about many other states, but I know where the state where I'm currently residing, they are thinking about these issues. But as it happens everywhere, we need to do some kind of pilots. Even if I'm suggesting these policies, we should not be directly getting into having a firm policy and implementing it unless we do some pilots.

So that is what currently we need to facilitate. If in some area we make childcare available nearer to the school, whether that makes a difference and what will be the take-up rates. So these are the things at least if the government's facilitated quickly, then we can take a call whether this makes sense or not.

Because many times, most of the bureaucracy and maybe perhaps most of the politicians' intentions are good. Very rarely we can say that deliberately people are policy making which doesn't work. So the intentions are good, but good intentions do not always lead to good outcomes.

Because what appears on the surface will work, which most of the time appeals to our emotions and we don't think through it. We don't think through all the trade-offs. So it appears nice that everyone should have a house and so we should give some subsidy, but then where should we give subsidy?

That's why these pilots are important to figure out whether there is an impact of that policy. Then we can blow up that policy.

Puja Mehra: Thank you Vidya. Thank you so much.

Vidya Mahambare: Thank you so much Puja. Thank you.