India: Slums and Sourcing

While catching up on my reading over lunch on Friday, I had the chance to open the print version of The Wall Street Journal for the first time in weeks. I spent my time reading a cover story that highlighted the social, cultural, and business challenges of clearing the slum areas surrounding the Bombay airport to make way for renovation and expansion. The article reminded me of a trip to India that I took a few years back. Those who have been to Bombay (Mumbai) know that the airport of the country's business capital is more third world than first (being greeted by a lack of climate control and bug zappers on arrival is perhaps the first indication of what you're headed into). But the shanty towns and slums surrounding the airport is far more off-putting than the lowly status of the terminals' interior.

According to the article, it turns out that these slums are occupied by workers who pay no rent and have no title to the land. Despite this, the great majority of residents have free electricity and access to running water (but garbage collection essentially amounts to tossing refuse into the dirt streets or river). And many slum dwellers are employed by the state or city, and have access to free healthcare, among other perks (who would have known!). And some, it turns out, have even built second floors for their shanties, and decorated them with luxury flooring! The following description of a slum dweller that works as a public servant at the airport -- yet pays no rent -- says it all: "As a public-sector employee, she gets free lunch, allowances for Hindu festival days, unlimited free medical care and a $15 monthly stipend for bus fare to work. The changes enabled her to add a bedroom upstairs ... white marble flooring downstairs and a bathing area out back. A color television with a DVD player recently replaced her old black-and-white. She watches DVDs and Hindi soap operas on cable TV over the roar of planes taking off. She has to wait in line to use the nearby public toilet; private toilets are rare in the slums. There is no garbage pickup. "We just toss it there," she says pointing to the fetid river near her home, which has been slowed to a trickle by millions of plastic bags."

As I read the article and reflected on my own visual impressions of the Bombay airport, I thought to myself that this is clearly an example of a welfare state gone wild. Indeed, the only reason the slum continues to exist is because politicians depend on the votes of slum dwellers to win elections (who in turn dole out free perks and let the dwellers continue to squat for free, even though they have no right to the land). According to the article, "slum-dwellers constitute half of Mumbai's 12 million citizens, and they are faithful voters. That makes them an important bloc for local politicians, most of whom promise to fight efforts to relocate them." In my book, this will have to change if India is to make a better impression on the world stage.

In the spirit of progress and providing outsiders with a better first impression of India -- not to mention helping the country aesthetically catch up with China -- perhaps a simple poll tax would work charms here (even if it's only temporary). Seriously, I'm not sure what the exact solution is, but given how far China's urban development has come in comparison, there's simply no excuse for India to make such a horrible first impression to outsiders visiting or sourcing from the world's largest democracy.

Fortunately, for India, the mix of stable government, a history of democracy, and a common law foundation that provides for intellectual property protection -- not to mention rising manufacturing quality and inexpensive labor -- have helped many companies to overcome the aesthetic hell that is the area around the Bombay airport. According a recent Reuter's article, Wal-Mart continues to accelerate its procurement from the region. The article quotes Mike Duke, Wal-Mart's Vice Chairman, as stating that, "India is already our fastest growing market for direct importing, or exporting to other countries ... The growth of the market here is very significant." According to the article, "The Bentonville, Arkansas-based group plans to buy $630 million worth of apparel, home furnishings, textiles, shoes and jewelry directly from Indian factories in 2006, up 40 percent from last year "Wal-Mart also buys products worth $1.2 billion indirectly from the country." And Wal-Mart will continue to invest heavily in its Indian procurement operations, and expects growth in the "35 percent" range in the "next couple of years".

Given the economics of Indian sourcing, this investment makes sense. But regardless of how successful they are, Wal-Mart executives might have second thoughts about their investment until the self-perpetuating slum welfare state around the Bombay airport is gone -- once and for all. For the better or the worse, China would have brought in the bulldozers long ago ...

Jason Busch

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