Mumbai Urban Business Plan Policy Advisory Note

Attn: Dr. Songsu Choi, Task Team Leader, India: Mumbai Urban Business Plan
Policy Advisory Note: The Implications of Slum Upgrading and Tenure Security Sector
Impact within the Indian Government of Maharashtra (GoM) based on the GoM Housing
Department’s “Draft State Housing Policy, 01 November 2006”
Aashish K. Mishra, SASSD, Urban Development & Water Supply Unit, World Bank, New Delhi Office, amishra@worldbank.org
Internal Note for World Bank Task Team Circulation, 11 November 2006 Page 1 of 9
A) The Context of the Policy Advisory Note and Its Objective
The Government of Maharashtra (GoM) Housing Department’s “Draft State Housing Policy,
01 November 2006,” was drafted as a working document for GoM’s State-Wide Policy Reform
Agenda to highlight and address some important next-steps regarding the counterfactual “Land
and Housing Market Distortions.” The policy document was drafted by a Special Task Force
lead by Dr. D.K. Sankaran (GoM Chief Secretary); and vetted by the honorable Mr. Vilasrao
Deshkukh, GoM Chief Minister.
In the “Forward” of the document, GoM’s declares that the anticipated impact of the
recommended Land and Housing Market Sector Adjustment strategies should lead to “Housing
for All;” through shifting the housing supply stock from a deficit to surplus scenario; vis-à-vis
spurring the process of market-based liberalization based on Land- and Housing Market- Sector
Structural Adjustment strategies.
Furthermore, in the following “Preamble” of the document, there are three outcomes that are
articulated by the Task Force as the present marginal economic benefit that will be built upon to
achieve the GoM’s policy impact of “Housing for All;” and should be examined as the “baseline”
variables (based on GoM’s unstated underlying assumptions) regarding how the “GoM Housing
Department’s Draft State Housing Policy, 01 November 2006 (GoM DSHP)” will increase
the Net Financial & Economic Benefits and Welfare Gains in the Slum Upgrading and Tenure
Security Sector:
I) “Housing in urban areas assumes much greater significance, as it relates not only to basic shelter
needs but also provides a facility to the citizens to access services and be part of the development
process. Housing implies not only construction of bricks and mortar; it includes the supporting
infrastructure, access to transport and employment opportunities (Page 3, Paragraph 1, GoM
DSHP);”
II) “…(rural:urban migration) brings tremendous pressure on the cities to augment infrastructure,
provide shelters and livelihood to the incoming population. Maharashtra is the most progressive
State. The State Government has been pro-active in its pro-poor housing policies and
establishing institutions to meet these challenges (Page 3, Paragraph 2, GoM DSHP);” and finally,
III) “…(GoM’s) slum policy has provided secured tenure to urban poor; the policy of redevelopment of
dilapidated cess buildings has protected the tenurial rights of the occupants living there for
generations. Through this comprehensive policy document, the Government reaffirms its
commitment to promote, housing sector reforms and ensure affordable houses to Lower Income
Group (LIG) especially the Socially and Economically Weaker Sections (EWS) in urban and rural
areas (Page 3-4, Paragraph 2, GoM DSHP).”
Thus, based on these GoM’s perception of the existing marginal economic benefits of “baseline”
Slum Upgrading and Tenure Security programs in the State, the objective of this note is to

disseminate these underlying assumptions on current programs (the “counterfactual”); interpret
how this will impact the Slum Upgrading and Tenure reforms suggested in the DSHP; and
finally, provide recommendations of how the DSHP can be further refined.
B) Salient Features of the DSHP and Linkages to the Baseline
The objectives articulated in the DSHP that relate to changes in the Slum Upgrading and
Tenure Security Policies and Related Programs are to:
I) “Facilitate affordable housing in urban and rural areas, create adequate housing stock for Lower Income
Group (LIG), Economically Weaker Section (EWS) and shelters for the poorest of the poor on
ownership or rental basis (Page 4, Section 2, GoM DSHP);”
II) “Promote sustainable development of urban and rural growth centers and to promote employment
opportunities (Page 4, Section 2, GoM DSHP);”
III) “Pursue the target of cities without slums through equitable slum redevelopment and rehabilitation
strategy and shelters for the poor (Page 4, Section 2, GoM DSHP);”
IV) “Deregulate housing sector and encourage competition and public private partnerships in financing,
construction and maintenance of houses for Lower Income Groups (LIG) and Weaker Sections of the
society (Page 4, Section 2, GoM DSHP);” and finally,
V) “Promote rental housing through amendments in the Rent Control Act and incentives to different options
of rental housing for weaker sections (Page 5, Section 2, GoM DSHP).”
The highlighted sections of the DSHP’s objectives represent that if these the potential
interventions were implemented to correct all land and housing market distortions; then there
would be a down-ward shift of the relatively inelastic Baseline Supply Curve (Sslum baseline)of
Existing Housing Stock for Slum Upgradation and Tenure Security Programs to a more elastic
Project Supply Curve (Sslum project); thus a greater quantity of land & housing will be available,
greater demand for this land & housing and lower market-price equilibrium. Of course, this
assumes that all the objectives of the DSHP are met; thus creating an elastic supply and
demand for land and housing for slum upgrading and tenure programs.
However, there are some key phrases in the above-mentioned objectives that suggest that
perhaps a dramatic shift from the current base-line scenario will not occur due to ambiguity in
linkages with social safety net programs (i.e. “sustainable development of growth centers and
creation of employment opportunities) and also targeting of subsidies and incentives to the
poorest of the slum households, as part of slum upgrading process. Furthermore, the transfer
of tenure under slum upgrading projects is also ambiguous, as the stress in the objectives is on
rental housing and “incentives for different options for rental housing to the weaker sections.”
This leads to the specifics of the draft policy for slum interventions, which appears to be a
modified version of the Slum Rehabilitation Authority’s (SRA) SRD Scheme.

C) DSHP’s Specific Recommendations for “Liberalizing” Land & Housing Markets to
Provide Accessibility, Basic In-Situ or L.I.C. Development Infrastructure
Improvements and Tenure Transfer or Security to the Urban Poor
The salient features of the proposed slum upgrading and tenure security policy reforms under
the DSHP are the following:
Slum Upgrading and Tenure Security Program Modus Operandi – The General
Framework:
I) “Resettlement of slums located on infrastructure land and vital public projects [with SRA as the nodal
agency for all slum upgrading and resettlement projects – discussed later], (Page 12, Section 7.2,
GoM DSHP);”
II) “In-situ redevelopment of slums through a menu of options (Page 12, Section 7.2, GoM DSHP);”
III) “Incentivising redevelopment on cluster or township basis (Page 12, Section 7.2, GoM DSHP);”
IV) “Security of tenure to be the basis of all rehabilitation/redevelopment options. Government land after
redevelopment to cooperatives on occupancy or lease-hold basis (Page 12, Section 7.2, GoM DSHP);”
V) “The slum dwellers cooperative societies opting for redevelopment in partnership with accredited Non
Government Organizations (NGOs) should be permitted to raise finance for housing by land tenure as
collateral as a condition in the tenure (Page 12-13, Section 7.2, GoM DSHP);”
VI) “Redevelopment of Slums on the lands belonging to Public Authorities by the designated public authority
through transparent competitive bidding of the Development Rights. The surplus Floor Space Index
(FSI) if any, to be used for Low Income Group (LIG) housing. Premium received to be invested in
infrastructure through the mechanism of infrastructure fund (Page 13, Section 7.2, GoM DSHP);”
VII) “(Unlocking LIG- and MIG- rental housing potential through) Amendment to the Rent Control Act (RCA)
(Page 13, Section 7.2, GoM DSHP);”
VIII) “Incentivising Low Income Group (LIG) rental housing through higher Floor Space Index (FSI) and fiscal
incentives in Property Tax, cess and duties (Page 13, Section 7.2, GoM DSHP);”
IX) “Public-Private Partnership (PPP) to develop and maintain transit shelters through grant of Government
land at concessional rates, higher Floor Space Index (FSI) and supporting infrastructure (Page 13,
Section 7.2, GoM DSHP);”
X) “Improved transparency in identification of beneficiaries for all slum improvement and development
schemes (Page 13, Section 7.2, GoM DSHP);”
XI) “Credit Rating of Developers and Non Government Organizations (NGOs) through rating agencies like
CRISIL or ICRA (Page 13, Section 7.2, GoM DSHP);”

XII) “The State will introduce a third party audit of the Slum Rehabilitation/Redevelopment Scheme to ensure
greater transparency and accountability (Page 13, Section 7.2, GoM DSHP);” and finally,
XIII) “For slum areas above 40 hectares, rehabilitation of slum areas (will be undertaken) on a sustainable
basis through comprehensive approach on the lines of Dharavi Redevelopment Project to achieve
economic upliftment and empowerment of slum dwellers by upgrading health standards, income levels
and knowledge together with addressing employment environmental/socio-economic issues in an
integrated, holistic manner. This strategy envisages achievement of above objectives by
extending incentives in public-private partnership projects and Special Development Control
Regulations of Dharavi Model are proposed to be made applicable to such projects (Pages 13-14,
Section 7.3, GoM DSHP).”
Analysis of Item I) with Aspects of Items III), X) and XII)
It is subtle yet poignant that the first issue to be articulated in the DSHP’s Section 7.2 on
“Slums” dives straight into the “Resettlement of slums located on infrastructure land and vital
public lands.” There are two areas that can be flagged by this “first” agenda item. First, it
appears that resettlement of slums is the primary focus of GoM policy on slum improvement.
And also, the fact that the classification of the encroached lands is kept broad raises concerns
about the process of identifying which slum communities MUST be resettled.
During our numerous interactions with the MTSU and focus groups, discussions appeared to
reinforce consensus regarding the four classifications of encroached land when slums MUST be
resettled: a) Rights of Way, b) Flood Prone Areas such as Water Bodies; c) Vulnerable Areas
such as Sloppy Hills and Coastal Regulation Zones; and finally, d) ‘Reserved lands’ where
settlements were not permissible. Clearly, alternate sites would need to be identified and
reasonable compensation provided to these encroachments that posed a public threat – both to
the slum clusters and the public safety of the MMR. Furthermore, appropriate transit
accommodations, compensation to off-set welfare losses, dramatically improved basic service
access, quantity & quality should be provided; and also social safety nets including vocational
training and improved livelihood opportunities should be part and parcel of the slum
resettlement rehabilitation programs.
Moreover, cereus paribus, with the inclusion of encroachments resting on “infrastructure land”
as mandating involuntary resettlement, this is a case of forced settlement for the purpose
clearing land with significant property capital value gains potential; and thus there should be
arbitration with these communities and Government regarding economic welfare trade-offs (with
the slums forced to settle receiving greater welfare gains to off-set the significant welfare losses
that will result) and respectively equitable resettlement, rehabilitation and compensation
packages. But the Government should also minimize public welfare losses and opportunity
costs through identifying Middle Income Group (M.I.G.) Households that enjoyed de facto
subsidies for years; and an independent third party can clearly establish that this group had
more than sufficient paying capacity to rent or purchase a dwelling unit in a similar location, in
order to exclude this group from greater net welfare gains during resettlement.

Thus, the Task Force should consider an alternate model for resettlement that is not based on
the counterfactual SRA SRD Scheme Model. This group is being force to resettle, in order for
GoM to capture property capital value gains and undertake profitable infrastructure projects.
This could be a case where the resettlement colony is located near the encroached site; and
individual household tenure is provided through dwelling deeds at a subsidized market price and
contribution to Capital investments for trunk infrastructure.
Analysis of Item II) with Aspects of Items IV), V), VII), IX), X), XI), XII) and XIII)
The criterion for and process of It-Situ Slum Upgrading is also ambiguous in the document; but
the one clear message is that individual tenure transfer (ownership of individual upgraded
dwellings) does not appear to be an option in DSHP. The Cooperative or Township Model
appears to be the vehicle through which slum HHs are provided with upgraded shelter and trunk
infrastructure; and the transfer of “occupancy” or “leasehold” legal tenure status will be provided
to the Cooperatives or Townships upon fulfilling certain conditions. Also it is not clear if the
individual slum HHs in these upgraded Cooperatives or Townships will be provided with an
Occupancy Deed; and whether the SRD Scheme Model will be followed where the individual
HHs have an obligatory requirement to remain in the assigned dwelling unit for a fixed period of
time – which is ten years in the SRD Scheme.
An alternative approach could be a modified SRD Scheme with focus on PPP-solutions, a good
system of checks and balances to minimize the Mumbai developers-lobby, with greater cross-
subsidization of the township models and participation of the Project Affected Persons (PAP) in
the dissemination, design, implementation and M&E feedback mechanisms should be
embedded in these projects. Furthermore, instead of providing free 225 sq. ft. dwelling units to
slum HHs, Government should assist and possibly guarantee micro-credit facilities to the slum
HHs; and so they became individual “owners” or “share-holders” of their dwelling unit, with
individual dwelling units deeds that are transferable once the mortgage is repaid either their
completion of installation payments. Another option for transferability of dwelling units is that
slum HHs are allowed to find buyers for their units, once they fulfill certain “credit rating”
standards by the Cooperative or Township Society; and such good credit benchmarks could be
timely, consistent repayment of mortgage installments, Society fees, utility user charges,
conversion from the informal sector to the formal sector with employer’s certification letter, etc.
Other examples of how the counterfactual could be modified to provide more robust solutions
could include:
a) Slum Societies and its members partner with Civil Society for facilitation in the
"Redevelopment Process" vis-à-vis obtaining swift SRD Scheme Proposal
sanctioning; and then seeking Community Development Capacity-Building for Society
representatives to acquire the required skill-sets to manage the projects;
b) The slum HH stakeholders can opt for additional Carpet Area (i.e. Dharavi Model
where up to 750 sq. ft. can be purchased) in the current SRD Scheme Model. This
would entitle "Rehabilitated" HHs to obtain larger Dwelling Units, if they are “willing to
pay.” Also then a modified Occupancy Deed should be provided to these HHs where

they are share owners in the Cooperatives transferred or leasehold property; and
finally,
c) The Society will sell plots for Commercial development with adjustable-FSI only to
developers who will provide financing for enhancement of a modified SRD Scheme;
but only up to the break-even point for Capex and initial Opex to be sustainability
financed, after which the surplus finances, TDR and FSI incentives will be
redistributed to the Community for additional housing or common spaces.
D) Slum Upgrading and Tenure Security Program Modus Operandi – DSHP
Task Force’s Land Needs Assessment, Land Acquisition & Policy
Reforms Options Study
DSHP states that in order to pursue the its key objectives, a human settlement status study
of all the key urban and rural centers will be undertaken; and the resources required to identify
affordable housing options, would be mobilized. The study would identify regional and
district-wide housing deficit and future projections and would include study of the carrying
capacity in terms of land availability, infrastructure and employment potential. The land needs
assessment and options study will include the following:
I) “Assess and make provisions adequate land for Low Income Group (LIG)/Economically Weaker Section
(EWS) housing within and in proximity of cities, towns and rural areas (Page 6, Section 3.2, GoM
DSHP);”
II) “Inclusionary Zoning provisions for Low Income Group (LIG) housing in private layouts (Page 6, Section
3.2, GoM DSHP);”
III) “Ensure integrated and planned development of peri-urban areas to promote affordable housing (Page 6,
Section 3.2, GoM DSHP);”
IV) .”Efficient use of land through higher Floor Space Index (FSI) for Low Income Group (LIG) housing
V) “Disincentivising retention of vacant land in urban areas through capital value based property tax (Page
6, Section 3.2, GoM DSHP);”
VI) “Lands reserved for Public Housing and Housing for Dis-housed be developed through Public Private
Partnership or non-monetary incentives under the Development Control Regulation (DCR) (Page 6,
Section 3.2, GoM DSHP);”and also,
VII) “Property Capital Value Gains Index based on Transfer of Development Rights (for Low Income Group
(LIG)/ Middle Income Group (MIG) in identified zones in Metropolitan Region. (Page 6, Section 3.2,
GoM DSHP).”

This is an important study to understand how to create and implement an enabling framework
for Mixed Land Use in the Societies that could also provide out-right sale options of dwelling
units to M.I.G. housing, Upper M.I.G. Housing, best lay-out and placement of varying-FSI
residential and commercial within the Societies, in order to provide the maximum welfare gains
to the rehabilitated slum HHs including better social and recreational infrastructure for higher
living standards.
A word of caution regarding TDR -- if the DSHP Task Force intends to “liberalize” the land and
housing markets in Maharashtra; then use and manipulation of TDR is perpetuating an
artificially created distortion in the land and housing market. Rather, TDR should be re-
examined regarding how it can change property capital gains through ad-hoc measures that do
not really reflect the “real market value” of TDR and adjacent non-TDR developments. A
solution to TDR is switching to carpet-based property taxation where FSI is flexible and
adjustable for Mixed Land Use, within a good urban planning framework.
E) Slum Upgrading and Tenure Security Program Modus Operandi – Grant
Design, Targeting & Intergovernmental Transfers
I) “Availability of subsidized serviced Government Land for Low Income Group (LIG) housing and shelters
II) “Linking Employment Generation Schemes (EGS) to lower income housing construction in rural and 'C'
Class Municipal areas. Public private partnership for housing of migrant labours (Page 8, Section 3.3,
GoM DSHP);”
III) ”Committed State financial allocation for Centrally Sponsored Housing Schemes [probably JNNURM
Integrated Housing & Slum Development Programme (IHSDP)] for both rural and urban areas -
specially for Scheduled Caste (SC)/Scheduled Tribe (ST) and other socially and economically
challenged groups (Page 8, Section 3.3, GoM DSHP);”
IV) ”Enabling use of land as collateral security for mortgage finance. Soft loan/ interest subsidy for Low
Income Group (LIG) Housing through cooperative sector and other banks. Empowering cooperative
institutions for housing finance and construction (Page 8, Section 3.3, GoM DSHP);”
V) “Incentives for Low Income Group (LIG) housing (Page 9, Section 3.3, GoM DSHP);” and also,
VI) ”Cross-subsidized Low Income Group (LIG) construction by Maharashtra Housing & Area Development
Authority (MHADA)/ City and Industrial Development Corporation (CIDCO)/ Regional Planning Bodies
etc through Public Private Partnerships and creation of Real Estate Investment Fund by these
institutions for funding housing for weaker sections (Page 9, Section 3.3, GoM DSHP).”
The design, allocation criterion, transfer mechanisms, targeting and impact from GoI subsidies
does not have a great track record, with respect to distributive equity and expected outcomes

from these programs for urban shelter and infrastructure improvements for the urban poor. The
primary failure to target the intended beneficiaries stems from lack of baseline and periodically
updated data. Also political bargaining often results in diversion of subsidies to unintended
groups. And the previous GoI CSS such as VAMBAY, NSDP, ILCS, etc. were unaligned and
focused on utilization of funds of Capital Expenditures as the basis of achievements; rather than
trying to measure the impact of subsidies to the urban poor for improved basic services and
upgraded shelter.
However, with the onset of JNNURM, there are better measures for allocating and monitoring
funding through its focus on policy reforms to foster an enabling environment for market-based
solutions to land and housing issues related to the urban poor; and also capacity building and
institutional development of ULBs to provide improved infrastructure services to upgraded or
resettled slum HHs. The design of the program should ideally focus on item IV), which focuses
on providing incentives for PPP and the institutional lenders to support urban poverty programs
through partial collateralization and partial stakeholder dissemination and knowledge-sharing
that the urban poor have been and are willing to pay for shelter upgrading and service
improvements, if they are de-marginalized for the cities’ infrastructure and provided security of
tenure.
F) Slum Upgrading and Tenure Security Program Modus Operandi – The
Institutional Arrangements
I) “Urban Local Bodies (ULBs) supported by State agencies to be responsible for enabling infrastructure
development and Low Income Group (LIG) housing through Development Planning process and
creation of Ring Fenced Development Funds (Page 16, Section 11, GoM DSHP);” and,
II) “Slum Rehabilitation Authority (SRA) to be the planning authority and nodal agency for slum
redevelopment. (Page 16, Section 11, GoM DSHP).”
As mentioned earlier, if SRA is the implementing agency for the program and continues with the
SRD Scheme (the baseline scenario); it is unlikely that the DSHP will have significant welfare
gains for the resettled communities, given the robust empirical research that the World Bank
and other agencies have undertaken on welfare losses of the Bottom 10% of the Urban Poor
(ref: Urban Land Markets in India: Analytical Background Papers, December 2005).
G) Slum Upgrading and Tenure Security Program Modus Operandi –
DSHP’s Roadmap
I) “Setting up of a Housing Sector Regulatory Commission - 1 year (Page 18, GoM DSHP);”
II) “Human Settlement Status Report - 6 months (Page 18, GoM DSHP);”

III) “Policy Reforms - 1 year (Page 18, GoM DSHP);”
IV) “Construction of 500,000 Low Income Group (LIG) Houses in Urban Areas- 3 years (Page 18, GoM
DSHP);”
V) “Special Programme for Middle Income Group (MIG) Houses - 3 years (Page 18, GoM DSHP);”
VI) .”Construction of at least one transit shelter in each of Class I cities - 3 years (Page 18, GoM DSHP);”
VII) “Rehabilitation of 25 % eligible slum dwellers - 3 years (Page 18, GoM DSHP);” and finally,
VIII) “Concerned agencies (it would be SRA in the DSHP) to be responsible for the implementation of the
road map (for their sector, in this case Slum Upgrading and Tenure Security Protection) (Page 18,
GoM DSHP).”
It is extremely important that Items I) to III) are undertaken, at the earliest, before any
extrapolations can be made regarding the impact of the DSHP. Prima facie, Items IV), V), VI)
and VII) do not appear to be sufficient, given that 60% of Greater Mumbai lives in slums on
encroached land; and the DSHP indicates that the SRD Scheme approach will be undertaken to
rehabilitate the vast majority of the slum communities. Also the limited occupancy deed that will
be provided to Slum HHs, with a ten year moratorium on “sale” or “transfer” or their dwelling
units, is unlikely to provide significant welfare gains to these slum HHs unless comprehensive
compensation packages, significant improvements in basic education (and then accessibility for
higher education), primary health care, water supply, sanitation, sewerage, SWM and drainage
are provided; and also slum community participation, east access to micro-credit and social
safety nets are built into the resettlement process.

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