Economic Dynamics and Job Creations

Even though it is the employment generating capacity of Mumbai that keeps attracting migrants to this city, the bulk of new jobs that have been created in the recent years have mostly been in the unorganised service sector, reveals available data. The formal sector employment has, on the contrary, been virtually stagnant. The total employment in the formal sector that was about 11 lakhs in 1971, increased to 12.7 lakhs in 1981, but has since declined to 11.8 lakhs in 1991 and further to 11.5 lakhs in 1998. This decline in the formal sector employment, which is concentrated primarily in the private sector, indicates the decay of manufacturing industries in the city.

Unfortunately, the growth of formal sector jobs in the services sector has not been adequate to fill the void created by the decline in manufacturing jobs. It is obvious that employment growth has been generated in the unorganised sector. Some estimates based on the Census data as well as the formal sector employment data tend to suggest that the informal sector employment in Mumbai could have been increased by about 33% during 1961-71, by 44% during 1971-81 and 42% during 1981-1991. The share of the informal sector employment in total employment of the city has increased steadily from 50% in 1971 to 66% in 1991. The share might have gone up even more during the nineties, with a further dip in the formal sector employment level.

What then is the present overall employment scenario for Mumbai? Evidently, there are rising employment opportunities in the informal sector accompanied by falling jobs in the formal sector. According to the census estimates, the number of main workers in the city increased at an average annual rate of 2.7 % during the sixties and the seventies. However, the growth rate has slackened to 1.8 % in the eighties. Though the 2001 census data on the number of workers are yet to be released, the growth rate in the nineties is unlikely to be any different. This is because of the relatively low population growth and contracting employment opportunities in the formal sector.

Employment in Formal Sector ('000)   Public Private Total 1961 330 552 882 1971 473 638 1,111 1981 645 629 1,274 1991 718 463 1,182 1998 709 436 1,145 Source: Socio-Economic Review of Greater Bombay

The replacement of manufacturing jobs by the service sector employment has been a gradual process. In 1981, the industrial sector accounted for 44 % of the jobs while the services sector accounted for 54 per cent. By 1991, the share of the industrial sector in employment declined to 39 %, while that of the services sector increased to 60 per cent. This transition during the eighties has much to do with the closure of the textile mills, followed by the prolonged strike of textile workers. Subsequently, there was also a large-scale relocation of engineering, chemicals and pharmaceutical industries.

This gradual 'de-industrialization' of Mumbai has been caused by a number of factors;

* the industrial policy of the government, encouraging setting up and expansion of industries in backward areas;
* bias against the organized sector in the government's taxation and other policies;
* relatively high cost of inputs like electricity, water and transport;
* the growing militancy of labour; and
* high property prices in the city.

Consequently, the services sector has come to occupy a place of pride, contributing a lion's share of 64% to the city's net domestic product. Mumbai's domestic product at current prices is estimated at Rs 580 bn in 2000-01, which represents over one-fourth of that of Maharashtra. Further, the city's per capita income is about twice that of Maharashtra and about three times the average for the country.

Such high purchasing power of the city offers an obvious attraction for the marketers. According to the Business Intelligence Unit (BIU) study, Mumbai has the highest purchasing power among all the major cities of India. Interestingly, about 52 % of the city's purchasing power originates from households with annual income above rupees 112 thousand. More than 34 % of the city's households come into this income bracket -once again, a proportion higher than all other major cities in the country.

However, Mumbai's proportion of households earning less than Rs. 37,500 per annum is also quite high at over 18 %, according to the same survey. This proportion is close to that of Delhi and Kolkata, although the proportion of households earning rupees 112 thousand or more in these cities is far lower compared to that of Mumbai. Thus, Mumbai seems to have a more skewed distribution of income than these cities.

Distortions in the Real Estate Market

Quite apart from the other parameters of cost of living, such as cost of utilities, transport and labour, the major challenge of sustaining the competitiveness of businesses in Mumbai lies in the distortion of property markets. The high property prices are a consequence of various factors: (i) the adverse land-man ratio, (ii) geographical limitations on expansion of the city, (iii) distortionary legislations like ULCRA and Rent Control Act, (iv) a strong pull of the parallel economy (black money), and so on.

Mumbai is one of the costliest cities in the world in terms of real estate prices. A recent Richard Ellis Global Rent Review (2000) found Mumbai to be the eighth most expensive city in the world. If one were to benchmark the land prices against the city's level of development, then Mumbai beats even such advanced cities like London and Tokyo. This phenomenon is captured by the "real" measure of land prices, wherein the land price is expressed as a ratio of per capita income. According to the McKinsey Global Institute estimates, Mumbai's real land price works out to over twelve times that of Tokyo.

As mentioned earlier, there are various land regulations, which have stalled flexibility in the pattern of land usage. These land use regulations, together with the restrictions on closure of sick industrial enterprises, have led to major distortions. As a result, the changing economic structure of Mumbai is not adequately reflected in the distribution of land use pattern.

Absurdly high premium on land prices has undoubtedly influenced all key social and economic parameters of Mumbai. It has become one of the primary motivating factors for criminal activities and a defining factor in social relationships. Mumbai's citizens, while deciding on their residential locations, often attempt to resolve the harsh trade-off between real estate cost and the hardship involved in commuting long distances. High land prices have also led to the problem of slums in the city. According to the latest population census, almost 50% of Mumbai's population (or about 58 lakhs) lives in slums.

Very often, the rate of return on land becomes an important parameter for judging economic viability of businesses. Therefore, not only residences but also offices in Mumbai are organized in a much more stringent manner than in the other cities. In its current phase of development, the decay of 'space demanding' manufacturing activities has been rapid. Since Mumbai's citizens attempt to convert some part of the premium on land into a premium on time, the time saving services have also seen a faster growth. Surely, price realizations have been quite attractive for such services.

High property prices have also encouraged a population shift from the southern wards of the city to the suburbs and beyond. This process has been quite rapid. In 1961, the island city accounted for over two-thirds of the city's population. But by 2001, only 28% of the population was residing in the island city and the balance 72 % in the suburbs.

It was especially during the early nineties that the property prices in Mumbai skyrocketed, and in no small measure, thanks to the speculation of the investors. In a span of just five years starting from the early nineties, the property prices at Nariman Point for commercial hubs have nearly quadrupled. The real estate market has, however, cooled down since 1997.

The overall economic slowdown, the potential releases of excess land (through the announced schemes of slum redevelopment, textile mills restructuring, development of salt pan lands, etc.) and the investors' exit from the market have facilitated a downward movement of property rates in Mumbai in the last few years. This is bringing back some sanity to the land valuations, though the process may not be complete as yet.

Outlook for Real Estate Prices

There is an obvious and inextricable linkage between real estate prices and the city's economic development; faster the pace of development, higher will be the property prices. In turn, this may lead to extending the city's geographical limits. The development of urban clusters normally happens through the exploitation of 'external economies' i.e. the logistical as well as the demand-generating benefits accruing through the operation of various economic activities in close vicinity to each other. Such external economies encourage competitiveness in newer activities, which might continue even after the competitiveness in the pioneering activities dies out. This pattern has now become irresistible in case of Mumbai, which is rapidly emerging as the centre of financial services, information technology and entertainment services.

It is necessary to emphasize that unlike relocation of manufacturing activities, it is much easier to relocate the services sector activities, especially with the new technology overpowering the significance of geographical distances. In future, this threat of relocation of Mumbai's niche activities could perhaps act as a major barrier for the escalation of real estate prices. It is imperative that the property rates are not allowed to rise beyond a certain limit, otherwise Mumbai would lose out its financial and IT activities to the other locations.

Apart from this fundamental factor, real estate prices would also be pushed down if the proposed liberalisation of land regulations indeed happens. Thus, the real estate prices in Mumbai may not rise much in future, certainly not like the way they surged in early nineties. That should offer a major relief for the social life of Mumbai.

Challenges of Urban Infrastructure

In the process of economic development of a city, the level of infrastructure is perhaps the most critical factor that determines the quality, quantity and prices of urban goods and services. Thus, while comprehending and solving the problems of urban management, for example the maintenance of civic infrastructure, a holistic approach becomes imperative with the participation of all stakeholders. In cities like Mumbai, the civic authorities are under pressure to improve and expand civic amenities and their service delivery in the midst of constrained financial capacity.

Mumbai is already experiencing tremendous pressure on infrastructure services such as water supply, sewerage, housing, transportation and solid waste management. In particular, transportation infrastructure is under severe strain because of the continuously rising commuting distances and the inflow of migrants into the city. The roadways and railways already take considerable load of transportation. On an average, BEST buses carry about 4.2 mn passengers every day in about 3,400 services, while the Central and Western Railways acting as arteries of the city carry about 13.5 mn passengers a day in about 2000 services. The Central Railways, as compared to the Western Railways, has more number of services and also transports larger number of passengers everyday.

Besides the passenger transport load, the problems faced by Mumbai's transportation include - congested roads, traffic jams at several important junctions, increasing pollution levels and increase in the time spent to commute. The efforts in the recent past have attempted to tackle the problem of road congestion by building new overbridges and widening highways, wherever space permits. While this has somewhat eased the movement of private vehicles, investments in public transport, particularly in rail transport, have not been easy to come by, except some improvements in operations.

Surely, urban transportation requires enormous stimulus of large projects only through enhancing infrastructure by undertaking large projects, providing rapid mass transport, rather than improve traffic flow, such as Mumbai Urban Transport Project (MUTP) and the sky bus project. It is understood that the MUTP is under advanced stage of appraisal with the World Bank, which involves the bank as one of the important financier of the project that has an approximate investment of $450 mn. Similarly, the sky bus transport project for Mumbai is being executed soon. In addition, an expansion of the institutional base in the administration, financing and maintenance of roadways and railways need to supplement investments in new infrastructure creation; while also the de-concentration of commercial activities that reduces long frequent travels.

The urban authorities need to address the challenges of infrastructure management not only through efforts to improve the state of civic finances but also by forging public-private partnerships. Moreover, the recent budget provisions offer an opportunity to them to expand their service delivery capacity and finances through administrative and fiscal reforms, institutional transformation and use of money market instruments like term bonds.

The celebration of the 150th anniversary of Indian Railways, recently, is undoubtedly an important landmark. The city obviously holds the historical legacy of the first train having been flagged off between Bombay and Thane in 1853. This ushered in the transport revolution and changed the socio-economic profile of the city. To use the cliché, the suburban railways in Mumbai are now at crossroads seeking to resolve the dilemma of improving and expanding transport capacity against improving upon finances.

(This article has been prepared with substantive inputs from Bombay first).