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The Indian Express, 22nd Oct 2003

A map to save the metro, but...

YOGI AGGARWAL

Ever since Mumbai began its slow decline in the mid-70s, a number of plans have been formulated to save the city from further decay. One of the first such was the Ajit Kelkar Committee, set up under the managing director of the Taj group of hotels in 1982, around the time the textile strike was at its height and the textile industry was in terminal decline. The Kelkar Committee saw a future for Bombay as a service city and sought a plan to bring that about by shifting industry into the hinterland.

Now, more than two decades later, a number of business leaders have begun to float similar proposals. Earlier this year the Indian Merchantís Chamber (IMC) invited leading political parties to seminars where their visions for Mumbai were presented and discussed. Also leading corporate leaders, under the aegis of Bombay First, invited the multinational consultants McKinsey & Co to prepare a blueprint for the rejuvenation of the city. While the IMC effort was necessary to reveal the perspectives of the political formations that matter, the McKinsey report is more systematic in its proposals.

These proposals have drawn on long discussions with the bureaucratic establishment in Maharashtra and incorporated several of their ideas. The plan requires huge government investments over 10 years in transport infrastructure, notably a Rs 6,600 crore trans-harbour road and rail link from Sewri to Nhava Sheva on the mainland, and housing on a massive scale for slum dwellers. A plan to build 800,000 flats for slum families (of a total of an estimated 1.3 million such families) envisages recovering construction costs by user charges of between Rs 750 and Rs 1,500 a month and even encouraging the hire purchase of such flats. It is not clear whether builders involved in the projects would get a bonus like transfer of development rights (TDR) which they could use elsewhere. The Rs 16,000 crore or so for the project is to be raised by the government through loans or municipal bonds. While the expenditure would be recovered over around 20 years, the interest cost on the bonds or loans would also have to be met.

The McKinsey plan involves a total expenditure by government of some Rs 50,000 crore, of which Rs 15,000 crore would have to be raised by increasing property taxes, converting leasehold government land to freehold by collecting a fee from leasees and other such means. Some Rs 30,000 crore would be raised by loans or municipal bonds. This would add to the Rs 87,000 crore debt burden of the Maharashtra government and the crucial question is whether the state would be able to service the debt. The authors of the McKinsey report believe that such resource mobilisation is entirely possible. They think the massive amounts put into infrastructure and housing, along with private sector investment of around Rs 150,000 crore in housing, malls, offices, services and manufacturing, would push up Mumbaiís annual GDP growth rate from a low of 2.4 per cent to which it has fallen recently to around eight to 10 per cent.

The higher growth rate would once again make Mumbai a growth engine for the Indian economy and the increased property and other taxes would generate enough revenue for the government to meet its debt obligations. An upward revision of property taxes to over one per cent annually of a propertyís market value are at the centre of the revenue raising measures proposed. At the same time there would be a sharp fall in stamp duty and the gradual elimination of octroi.

There are alternatives that are not considered. Sites-and-services and slum improvement programmes have virtually vanished from official agendas though they improve the lives of slum dwellers at a much lower cost with minimal input from outside agencies. The report also provides for increasing the floor space index to high levels for development of large blocks. These would be highly profitable opportunities for large builders. Land is also to be released by allowing construction on salt pans and coastal regulatory zones.
Unfortunately, the Mckinsey report itself lacks transparency about its sources of data and the economic basis on which it has reached its conclusions. The authors are cagey about revealing any information other than what appears in the publicity brochure. Since the study was done free of cost for Bombay First, they say they have proprietorial ownership of the data on which their conclusions are based. There is, therefore, no way of critically examining their assumptions or arguments. Unless they are willing to accept such transparency, the McKinsey report will have to be treated with some degree of scepticism.
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© 2003: Indian Express Newspapers (Bombay) Ltd.