The Urban Planner

Urbanisation in the Indian context (as well as the global milieu) is a much scrutinised phenomenon, particularly when analysing the dangers of population explosion — an inevitable and unwelcome byproduct of the process. While Mumbai’s imposing slums serve as a microcosm for viewing the banalities of city planning, it is rare to find opinions that claim Dharavi as a “mature (urban) formation” or a “lower-middle class industrial district”; something that Jeb Brugmann establishes. It is certainly more than a change of perspective that allows this. As an expert on sustainable community and urban development, Brugmann has travelled the length and breadth of numerous cities across the developing and developed world alike when theorising on the various forms of urbanism that exist. His new book Welcome To The Urban Revolution (HarperCollins 2009) discusses the potential for transformation, cities hold in influencing almost every realm of human existence. The author talks to Aayush Soni on the key aspects which have contributed in revolutionising India's urban life, the need to look for beneficial FDI, a relook at the mortgage finance system and India's SEZ policy and why Mumbai needs a dedicated government.

People in India have started aping the West in terms of the way we live. The EMI/mortgage system, for instance, is an example. Do you think that we are strong enough economically to be able to ape the West?
The critical thing about the consumer finance system is that the value of the collateral must be fully understood. Secondly, the balance sheet of the borrower must be fully understood. Let me elaborate on these two points.

What happened in the US is that they stopped caring about the true, underlying value of the collateral and used financial risk management to understand other giant bundle of mortgages rather than using the traditional system of mortgage financing where a local bank truly understands the local market and what real value lies in that market. And this was being done at a time when local property markets were changing rapidly in a way that no one was really studying it.

For instance, when you shift in building the kind of residencies that you have in say, Delhi, to an entirely different residential life in Gurgaon, the value of the asset (collateral) is not only determined by the base property cost but also by operational and maintenance cost which have changed dramatically. So, a young person living in Gurgaon would also require owning an automobile which changes the cost structure. And that is exactly what's happening in the United States.

They are building these suburbs called 'starter mansions' which have central vacuuming, central air conditioning, etc., so their maintenance and operational costs are going way up. Plus, they are far away from employment so the mobility costs are going up. And in all of this, the banking system is not re-calculating the balance sheet and profit and loss account.

So, in essence, banks are just looking at the base cost of the property rather than looking at the cost of living in that property as well. Basically, they (banks) are looking at it as just one part as opposed to looking at it as a sum of all parts. They're not looking at the eco-system that borrowers have to manage. And the same question needs to be asked of Gurgaon.

But do you think India can sustain this sort of livelihood?
The first thing that needs to be asked is whether India's financing system is even calculating the total cost? Does it determine whether the borrower actually has the means to support the loan? The second issue is India's growth trajectory such that there will be a demographic that has that level of affluence to support such a cost structure. I don't think India knows that yet. To me it seems that the young, rising, middle-class India's consumer profile is not very clear. Are these people going to be savers like their parents? Or are they going to be flagrant, irresponsible spenders?

And how long do you think it will take to get a clear-cut consumer profile? Are we looking at a specific time-period?
I think it has to be watched through a few business cycles. We have just seen the first business cycle of this demographic. There was some sort of exuberance and it just amazes me as to how the industry and finance system got caught into it. People went to the US, understood the mortgage system there and just planted it over here. Now, there's a downturn and let's see what happens when we come out of it. Consumer preferences may change. In the mean time, it's not that people shouldn't invest and innovate with new products. But they need to do so within a deeper degree of diligence and not just assume that some standardised risk management models will apply to every circumstance. And the American system shows that even an extremely mature mortgage finance system is vulnerable to collapse.

In the past few years both Delhi and Bombay have seen such drastic changes in their demographic and geographic identities as a result of small-town/rural-to-urban migration. Do you think these two mega cities should have dedicated and empowered governments of their own?
Delhi does have one but its powers are curtailed. I am not sure what's needed to make them (Delhi and Bombay) effective states in the context of federal India. My guess is that it's a political non-starter. But I would argue that mega-cities or any growing city for that matter needs to have a form of government where fiscal and regulatory powers are there in order to shape the development of the city and manage it better in a manner which serves the different population groups in the area. It should also have executive powers which would make it accountable to the electorate. So de-centralisation is critical. There is no way that the central government in India can do the kind of innovation it wants to.