In the heart of Gurgaon’s Kapashera slum, Sanjay, a 28-year-old garment worker, shares a tiny ten-by-ten-foot room with four others. Like many of his neighbours, he endures the daily grind of life in a compound that houses dozens of similar units, each crammed with workers like him.

With only one toilet shared by 20 people, basic hygiene becomes a challenge, and limited water access often means waiting in long lines or relying on illegal, contaminated sources. Outside, the narrow alleys are lined with stagnant water from clogged canals, adding to the stench and the health hazards.

Health factor

For Sanjay, who moved here to chase better opportunities in the garment factories of Gurgaon, even access to basic services became unattainable. Such living conditions exacerbate health issues among workers, increasing infectious diseases and chronic illnesses due to overcrowding and unsanitary environments.

Additionally, substandard housing coupled with long commutes results in fatigue, lowering worker productivity and elevating absenteeism. They are especially unsuitable for women for whom safe and secure housing is typically critical to migrate.

Recognising the importance of this, Finance Minister Nirmala Sitharaman, in her 2024-25 Budget speech, discussed facilitating higher participation of women in the workforce through setting up of working women hostels in collaboration with industry.

Cheap housing

Even when one looks at the Chinese experience in developing millions of low-skill jobs in labour-intensive manufacturing, an often overlooked point is that employers and governments provided cheap housing for workers, many of whom were migrant women. In fact, about 80 per cent of the 30 million assembly-line workers in China’s Special Economic Zones were migrant women!.

However, creating formal accommodation incurs much higher costs than informal accommodation, making already low margin manufacturing projects unviable. Several attempts to set up worker housing in India have failed to achieve scale due to regulatory and financial bottlenecks.

Zoning norms

For instance, zoning regulations may prevent housing from being established near factories. Builders and manufacturing companies may have unused land, but since it’s not in a residential zone, they can’t build worker housing there.

For instance, in Telangana, while industries can be established in both, “Multiple Use Zone” and “Work Centre Use Zone,” residential use is allowed only in the “Multiple Use Zone.”

In Tamil Nadu, only working women’s hostels are classified as “residential” and permitted in residential zones without restrictions, while other hostels are “commercial” and allowed in residential areas with conditions. Out of labour-intensive hubs studied, only Kolar (Karnataka) allows for the construction of worker accommodation/hostels in all zones without any restrictions.

Conservative building bye-laws around floor area ratio (FAR), ground coverage ratio (GCR), setbacks and parking requirements further restrict land usage, locking land in suboptimal uses that could house more people.

Reforms needed

In all major States, industrial housing has no separate category, meaning residential bye-laws cater to families instead of individuals. Our analysis suggests reforms could house 6x more workers on the same land without reducing personal space.

Therefore, regulations should be liberalised to the maximum extent possible, specifying only the minimum setbacks for fire safety and parking requirements based on bus or bicycle capacity for workers, allowing the remaining land for building use.

Even improvements to the same level as other States would be useful — Gujarat’s land requirements for large scale worker housing is nearly three times greater than Telangana.

Legal vacuum

Operating regulations in India also increase costs. Formal hostels currently operate in a legal vacuum with interpretations left open to States. In some cases, they must run as commercial entities, paying higher rates for water, electricity, and property taxes.

Reforming operating regulations by charging residential rates for worker hostels can significantly reduce costs.

Our estimates suggest that monthly lease rentals for workers can reduce 50 per cent in urban areas and 30 per cent in industrial areas through more friendly regulations. However, this is just part of the solution.

Building worker housing requires high capital costs even after regulatory reforms. The risk is higher because of co-ordination problems — an industrial hub will not form because one private player puts up large scale worker housing, even if that housing is a necessary condition, making it unattractive for private players.

Govt support

Many private developers thus opt out of building worker housing, focusing instead on housing for white-collar professionals, and student accommodations. The government can provide financial support through rental housing schemes or pooled funds to subsidize worker housing costs for industrial hubs, using mechanisms such as challenge based viability gap funding.

The government aims to increase the manufacturing sector’s GDP contribution to 25 per cent while achieving an annual GDP growth rate of 9.4 per cent to realise its Viksit Bharat goals.

Our analysis suggests that we need to create a total of 120 million jobs in the manufacturing sector to reach this target. This can only be accomplished by facilitating large scale creation of affordable worker housing through a combination of regulatory reforms coupled with the provision of targeted incentives to the private sector.

This is one of the most critical breakthroughs that India needs to solve its immediate employment crisis and generate the jobs required to reach its Viksit Bharat goals.

Doshi is Operating Partner; Srinath is Senior Programme Associate, Foundation for Economic Development

Published on January 29, 2025