Atanu Dey On India's Development

Land Development

When I first moved to the US, I was struck by the phenomenon of shopping malls located far away from the city, about an hour along some highway. Land, it occurred to me, was cheap outside the city and what they did was to build these huge malls that were in some sense islands of urban activities in the middle of rural areas.

Because of the cheap land on which the mall was built, the rents that businesses paid to locate themselves there were low. Because lots of businesses located at the mall, every business found it worthwhile to locate there. Because of the presence of so many businesses at one location, people found it worthwhile to visit even if they had to drive an hour or two. They could catch a movie, buy stuff, grab dinner, hang out and watch people, and just have a good time. Malls looked like well-planned micro-cities where people worked and did stuff but nobody actually lived there. Malls were made possible because people had cars to drive to them.

Malls come in different sizes in the US. There is the Great Mall of America, for instance, along interstate 880 in the SF Bay Area, occupying a few hundred acres. Then you have the humongous mall in Nevada occupying thousands of acres better known as Las Vegas. The general pattern is straightforward. Some developer buys a large tract of land, gets into agreements with a few “anchor” stores such as JC Penny or Macys, builds the mall, and the rest of the stores and other service providers such as fast food restaurants and movie theaters follow dutifully. In the case of Las Vegas, the anchor stores are the casinos and hotels. It is important to recognize that malls, large and small, are micro-cities whose economy is entirely service based, not based on manufacturing or agricultural production. But there is absolutely no reason that you cannot use the same micro-city model and blow it up to the size of a city and base the economy of the city a combination of manufacturing and services.

The basic model is simple. First, acquire a sufficiently large piece of cheap land. Second, make improvements on it such as adding utilities, roads and buildings. Third, get a few big commercial interests to locate themselves on this land. Finally, sell or rent subdivisions of the “improved” land to whoever wants it at such a price that you internalize the positive externalities you created by improving the land and coordinating the co-location of numerous businesses on the property. The profits made by the developer accounts for only a small fraction of the total wealth created by the process.

The same process can be followed for creating the designer cities that India needs by the hundreds. Briefly, a sufficiently large, perhaps 10 kilometer square, cheap land is acquired by a “developer.” The developer could be a public-private consortium. The developer then persuades some “anchor tenants” sufficiently large to give credibility to the later arrivals that this will be a going concern. Improvements on the land are begun and as the work proceeds stage by stage, smaller bits are sold off to interested parties to pay for the on-going improvements on the land.

In the next bit, let’s explore this a bit more with a hypothetical example.

[This is part six of a ten-part series. Part 7 is "Pune DeCi." You will find the entire series and previous posts on the subject in the category "Cities and Urbanization." ]

  • http://www.cse.iitb.ac.in/~soumen/ Soumen Chakrabarti

    With peak oil in our rear-view mirrors, the mall model is doomed. Some like Jim Kunstler blare this non-stop until even believers get sick and tired, but it’s all true. Indians would be very dumb to try to follow the mall model, factory-farms with 2% of the population into agriculture, etc., but it won’t be surprising at all if they do. Those that the gods would destroy they first curse with excessive fecundity and resulting foul water, air and food, so they cannot see they are obviously hurtling toward a cliff.

  • http://valluvar.blogspot.com shiv

    “First, acquire a sufficiently large piece of cheap land.”

    The problem begins right here. Obviously the “developer” will want land close to current population centers that are more likely than not to be agricultural. Cheap is always relative.Remember Nandigram ?

  • http://kumarsbol.blogspot.com/ Kumar N

    Dear All,

    Instead of a comment, I want to share a true story:

    Ibrahimpatnam used to be a sleepy little mandal headquarters some 35 km from Hyderabad,India.

    At first, there was a residential school and college, 3 km from this small town.And then, a private engineering college came up. In the next 5 years, 4 more engineering colleges came up in the vicinity.

    The residential school is owned by a trust, and is located on a huge tract of farm land – around 300 acres.The school with student hostels, classrooms, staff quarters, play grounds, open air and indoor theaters, occupies around 70 acres of land. The rest of the land is farmed by locals, the produce feeds the entire campus, and the surplus is sold in the nearby market.

    Recently, Reliance Fresh approached the trust, to buy part of the land, to setup their warehouses including cold storage facilities. They want to use the facility to serve their stores in the twin cities of Hyderabad and Secunderabad.

    The establishment of the school, and the engineering colleges, started the growth process in Ibrahimpatnam and its surroundings. But the moment Reliance started its operations, it has acted as a catalyst, and within the last one year, there has been amazing growth in the overall modernization of Ibrahimpatnam.Right from a cellular tower, to proliferation of shops and hotels, clinics and internet connectivity, the town is fast becoming a nice area to live.

    What the educational institutions started, got accelerated by Reliance Fresh – the anchor customer for the area (providing well-paying jobs to around 2000 people). Locals can get a job near their homes and are seeing good money for the first time.

    Some thing similar, on a much larger scale has happened in Guttala Begumpet-Madhapur-Kondapur areas on the outskirts of Hyderabad between 1997-2003. In a span of 5-6 years, these sleepy hamlets got transformed into Cyberabad. A similar transformation is likely to happen in Maheswaram mandal (Hyderabad) and Devanahalli (Bangalore) when the proposed international airports come up by 2009.

    The lessons are obvious.Development happens when jobs get created. And jobs get created when business ventures are set up using cheap land available an hour’s drive from any major city. And when the model matures across the country, the maximum distance between one city and another won’t be more than one hour of journey by road/rail.

    We need to understand how such development has taken place, and replicate the same wherever feasible. Nandigram is more a case of ineffective communication and an implementation method that was people unfriendly.

  • http://www.lifeandsomething.blogspot.com Gaurav

    Shiv,

    “The problem begins right here. Obviously the “developer” will want land close to current population centers”

    I dont see any problem with that

    “that are more likely than not to be agricultural.”

    Again I dont see any problem with that

    “Remember Nandigram ?”

    Nandigram to best of my knowledge has to do with “forcible” acquisition of land by “state”. Now I am at loss to understand how that particular incident ties with this post.

    I especially find your quoting Nandigram amusing since you are fond of state intervention.In mood for self goals.

  • http://www.lifeandsomething.blogspot.com Gaurav

    Soumen,

    7 for rhetoric, 0 for substance.

  • Pingback: » by: Kumar N

  • http://randomriff.blogspot.com Anand

    Yep, have to agree with the fact that there are increasing number of examples of the type Kumar has given above. Another case in point is the town of Bidadi, on Mysore Road about 25 km from Bangalore. This is not exactly rural, in the sense that Toyota and Coca Cola are already present and have been around for some years there now. It also helps that Bidadi is located bang on the swanky 4-lane road connecting Mysore and Bangalore, and is also connected by rail. Still, a large part of the economy right there is based on agriculture.

    And we can see there the beginnings of growth and development based on services industry mushrooming there, including entertainment. There is already the Wonder La water theme park (one of the biggest in the country), and the Eagleton golf course and a bunch of resorts, trekking spots etc in the area. The Innovative guys are also coming up with a development there which consists of a Film City, a bunch of theme restaurants and a series of high end retail stores. Of course there are talks of a Knowledge Park coming up in the area as well, and one might well see the IT/ITES guys expanding in that area. So yep, it’s happening – being led by a few players who got together to get stuff started, and the rest are following suit.