Rationalizing Private Investment in Slum Redevelopment: A Cost/Benefit Framework for Local Government

By Anonymous

In the Dharavi case, we discussed ethical dilemmas that arise when local governments incentivize private investment in large-scale slum redevelopments at the risk of displacing residents; namely, how do you avoid widespread social disruptions while improving quality of life; or unlocking value in this commercial area for the “public good”? With no first hand experience in Dharavi and limited knowledge of its political and financial dimensions, it is difficult to answer. Yet, in drawing upon a basic “cost/benefit” framework, I would recommend that stakeholders on all sides keep two critical facts in mind about the role of local government.

First, thriving cities require baseline conditions that promote a high quality of life and level of economic vitality, such as sanitation. This has been a longstanding area of service provision for local governments globally, making Mumbai’s case largely uncharacteristic.  Existing conditions in Dharavi, however, represented some of the major public health risks and economic impacts emanating from slums across the city, given that “only 17% of residents in Mumbai slums had access to household toilets” (Iyer et al 2011). From the social perspective, this situation has enormous costs, such as susceptibility to disease, other public health concerns, low quality of life, and barriers to economic and social mobility. From the economic perspective, this creates opportunity costs in the form of lost productivity spent from hours waiting in line for a small number of public toilets, avoided private investment, and driving away prospective tourists and businesses due to highly insanitary conditions. Elevating Mumbai to “world city” status required its local government to address these challenges not just in Dharavi, but in slums citywide; as well as to raise the resources to do so. Private investment therefore represented an opportunity to create long-term public value through redevelopment in the form of subsidized housing, improved sanitation, and (eventually) tax revenue to reinvest in the city more broadly.

Second, sanitation challenges in Dharavi and other Mumbai slums simply could not be addressed without adequate resources. With over 700,000 residents in a commercially attractive location, Dharavi was an “entrepreneurial slum” that likely imposed untenable economic costs on Mumbai’s local government, in terms of informal business activity and previously mentioned impacts depriving it the ability to provide sanitation services citywide. The informal (i.e. “untaxed”) enterprises in Dharavi alone “were estimated to produce goods worth about $600 million annually”, “more than the output of several newly established economic zones” (Iyer et al 2011). This value, if recaptured in the form of taxes and formal businesses, could go a long way towards paying for necessary “quality of life” improvements in slums across the city, such as sanitation. With the right approach, private investment could perhaps be communicated as a necessary catalyst for value-creation that addresses the self-interests of slum residents, even if Dharavi residents were to flee to other slums that were to eventually improve. Other issues aside, reframing the debate in terms of citywide costs versus benefits could provide an understandable context for the local government to act.