Build workers’ homes closer to factories to make manufacturing more productive and competitive: Niti Aayog

New Delhi: Niti Aayog, the union government’s policy think tank, has called for building workers’ homes closer to factories by amending existing industrial zoning laws, with the aim of increasing the productivity of Indian labour and making the manufacturing sector more competitive.

The government will launch a scheme to provide housing to industrial workers, called the Site Adjacent Factory Employee (SAFE) accommodation scheme, after union finance minister Nirmala Sitharaman spoke about such a scheme in her budget speech in July, Niti Aayog said in a report.

“Rental housing with dormitory-type accommodation for industrial workers will be facilitated in public-private partnership (PPP) mode with viability gap funding (VGF) support and commitment from anchor industries,” the finance minister had said in her speech.

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Niti Aayog said it proposed the SAFE accommodation scheme after consulting with several union government entities such as the ministries and departments of finance, textiles, housing and urban affairs, and electronics and information technology, as well the state governments of Andhra Pradesh, Tamil Nadu, Gujarat, Karnataka and Uttar Pradesh. Industry leaders from textiles, automobiles, leather, food processing, and electronics also contributed to the consultation, it said. The scheme will be launched as a pilot in ‘champion states’ under the aegis of the ministry of housing and urban affairs, Niti Aayog added.

Govt could subsidise rent 

It said building infrastructure for this is possible only if investors get lucrative returns, which would require workers to pay about ₹4,000 a month for an 80-sq-ft space. This, however, would work out to around 30% of a worker’s monthly salary, making it unaffordable, the think tank added. Direct government support could reduce the cost of these spaces by about 25%, it added, cutting the monthly rent for workers to about ₹3,000.

“While this amount is within the affordability range of most workers formally employed at or above minimum wages, consultations with employers also indicate a willingness to share a portion of the workers’ rental costs,” Niti Aayog said.

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It said these would be long-term, dormitory-style accommodations exclusively for industrial workers, located near their workplaces. They would be exempt from the goods and services tax (GST), it said, and called on the appropriate authorities to make this exemption. They would not require environmental clearances (ECs), Niti Aayog said, as the environment ministry has issued a draft notification exempting projects such as industrial sheds, schools, colleges, and educational hostels from seeking ECs.

Viability gap funding

Developers can get viability gap funding of up to 30% of the project cost – excluding land – from the union government, Niti Aayog said. The department of economic affairs will provide 20% of the funds, and the sponsoring nodal ministry will provide 10%, using the same model as the ‘financial support to public private partnerships in infrastructure’ scheme, it added. 

States will have to reform zoning and building regulations to claim this viability gap funding, Niti Aayog said. “Mixed land use zoning should be permitted in industrial areas to allow unrestricted construction of SAFE accommodation. Alternatively, SAFE accommodations can be designated as permitted land use within industrial zones,” the Niti Aayog report said.

Viability gap funding is a financial grant or loan that helps make a project commercially viable when it’s economically desirable but not financially feasible. The goal is to fill the gap between the project’s actual costs and its potential revenues.

Five-floor minimum

The think tank also called for the floor area ratio (FAR) to be liberalised to allow the height of buildings to be determined by cost-efficiency considerations, and said the structures should have at least five floors.

The SAFE accommodation scheme will be crucial to job creation as India looks to become a developed economy by 2047, Niti Aayog said. It projected that the manufacturing sector would create about 120 million jobs by 2033.

Assuming one in every five workers in 2033 would prefer affordable formal accommodation if available, the government will need to create about 25 million such units for manufacturing workers, Niti Aayog said.

“… structural changes in India can lead to rapid economic growth with the movement of large amount of population from low-productivity agriculture to high-productivity industrial jobs,” the report added.

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Niti Aayog noted that worker housing was complementary to investments in education and training, which permanently improve workers’ performance and productivity, and reduce absenteeism. 

It noted that poor living conditions exacerbate workers’ health issues, as overcrowded and unsanitary environments increase the prevalence of infectious diseases and chronic illnesses, the think tank noted. Substandard housing coupled with long commutes results in fatigue, lowering workers’ productivity and increasing absenteeism, said Niti Aayog.