The Hindu Business Line : ‘Eco-rating’ as a social leveller

For ensuring quality neighbourhoods we need ‘eco-rating’. If the taxable value of a real-estate project equals the cost divided by the eco-rating, no developer would risk having a slum along the compound wall, says P.V. INDIRESAN.

Those who notice the stark difference between the two worlds are shocked by it; many turn a blind eye, unconcerned. It is time the gap was narrowed.

The IT Department at the Centre proposes to develop 43 integrated townships to halt the haphazard growth of major IT centres in the country. That is good news. On the other hand, the ever increasing rich-poor disparity in our new townships has become so glaring that it has become international news.

The New York Times (June, 8, 2008) describes the prevailing style of Indian urban development as “Inside gate, India’s good life; outside the servants’ slums.” Inside the gates there is every conceivable amenity — gardens, prestigious school, modern health clinic, round-the-clock water and power supply as well as security from guards armed with surveillance cameras.

Outside, along the compound wall, the slums have “neither enough water nor electricity for the population. There is no sewage treatment plant . . . during repeated visits in recent months a government-financed childhood nutrition centre was closed. The nearest government hospital was empty.” Even the security guards who protect residents live in such sub-human conditions.

No dearth of resources

Foreigners notice the stark difference between the two worlds and are shocked by it; our own people turn a blind eye to it and are unconcerned. The extremely successful, wealthy people inside the gate have neither the qualities of the heart nor of the mind to realise that they would not have needed all those security guards or elaborate security arrangements if they had let the poor live in their midst and share their amenities.

Hence, I return to my previous article about the Finance Minister’s dream of making India 85 per cent urban. Is he reconciled to the present fashion of new townships, or does he want to include the poor in his ‘dream’? Further, if he truly wants “inclusive development” would he like to do anything about it?

Better urban design depends on three factors: technology, finance and governance. There is no mystery about urban technology. So many fine cities are there around the world that we have a variety of good models to choose from. Some people offer the excuse that the situation in India is different, that our natural resources are insufficient, we are over populated. They are factually incorrect.

Our population density is less than that of England, Holland, Germany or even Mauritius, countries that do not have slums the way we have.

Except in some parts of Rajasthan and Gujarat, we are blessed with abundant rainfall. Social activists such as Anna Sahib Shinde, Rajinder Singh and Ramakrishnan, an alumnus of IIT Madras, have demonstrated techniques of rainwater harvesting.

Among others, Exnora of Madras and Dr C. Srinivasan of Vellore have developed cost-effective methods of waste recycling. We have any number of private hospitals and schools that cater to the very poor and offer excellent services.

Flawed implementation

Thus, our physical resources are well above average. We have our own examples of inclusive development too. Our handicap lies in the way we have organised our urban development: we have kept building space in short supply even though uncultivable land is available in plenty. We have created such an artificial shortage of building space that land prices in India are higher than in the US where per capita incomes are 30 times higher.

These are flaws in implementation. Businessmen do boast of their exercises in Corporate Social Responsibility — charity at about 0.5 per cent of profits. In truth, CSR occurs only when employees and their service providers are not denied bare human necessities. As matters stand, there is next to no hope of our employers discharging that responsibility.

As Gunnar Myrdal pointed out at the dawn of our Independence, our legislature is hard; it enacts draconian laws. On the other hand, our government is soft; it will not implement them. So, there is little hope that the government will do the needful.

That leaves finance — tax and credit management — as the last hope for a better future. That is why the Finance Minister’s interest in urban expansion is important. A really keen Finance Minister, who enjoys enough freedom of action, can transform the future course of urban development.

Through the ages and in all countries, taxes have had a powerful psychological effect on people — far in excess of the burden or relief they induce. In history, there are any number of instances of how taxation radically altered urban design.

Tool of transformation

In the Seventeenth Century, Britain introduced the Window Tax by which tax payable depended on the number of windows with the result, the poor bricked up their windows and the rich built large ostentatious windows as a show of opulence.

In Amsterdam, house tax depended on the width of the house. Even now, there is a multi-storey house in Amsterdam which is only one door wide, six storeys high and about 50-60 ft deep. It remains a tourist attraction.

For better or for worse, tax laws do influence both architecture and town planning. Then, can we devise a tax system that will promote inclusive housing, better civic amenities for all and safer neighbourhoods too? The temptation will be to tax the rich and use the proceeds to subsidise the poor. That has never worked satisfactorily; we need a new technique.

In this connection, most people overlook the fact that the objective is to ensure good neighbourhoods. Therefore, whatever control is exercised it should relate to the quality of the neighbourhood and not merely to the way the rich build their own houses.

Why not Eco-Rating?

Credit rating is well known and a widely accepted measure in business finance. For ensuring quality neighbourhoods we need a similar measure, ‘eco-rating’. Consider a scheme where (a) neighbourhoods are evaluated for the quality of their ecology through objective and transparent norms and (b) taxes and interest rates in any community depend on its eco-rating.

Then, if the taxable value of a real-estate project equals cost divided by the eco-rating, no developer will risk having a slum along the compound wall.

The Finance Minister can go further and make it the rule that tax on all businesses will depend on the eco-rating of the neighbourhoods where their employees reside.

In addition, the principle of priority sector lending may be extended and banks may be asked to charge special rates for businesses and dwellings in eco-friendly neighbourhoods. To be precise, lending rates may be linked to eco-rating apart from credit rating.

How the eco-rating should be designed is a matter of detail. As for myself, I would check what kind of neighbourhood in which employees reside, what level of comfort they have in the matter of water/power supply, waste disposal, skill development, healthcare and travel to work.

Both Mr Parekh, Chairman of HDFC, and the Confederation of Real Estate Developers Association, want an independent regulator to replace the prevailing bureaucratic system for eco-clearance of housing projects. An eco-rating agency will be better: Regulatory agencies are monopolies; they are run by bureaucrats and judges.

They are dictatorial; they say ‘accept or else.’ Eco-rating is done by specially qualified professionals; they provide a graded response, greater flexibility.

The industry will be better off with self-regulation by eco-rating agencies than with state-imposed regulators.

(To be continued)

(The author is a former Director, IIT Madras. E-mail: indiresan@gmail.com)

This is the 228th in the Vision 2020 series. The last article appeared on June 9.

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