“Literature shows that the usage of land in India is sub-optimal. High minimums for standards, like setbacks, open spaces, and parking and low maximums for standards. like height, lead to wastage of productive land. Standards create an artificial scarcity of land, increase the cost of construction and inflate rents/prices. What and how much a user can build on a piece of land matters. Using land optimally allows the builder to increase output, generate more income, and create more jobs. It also has other payouts, most interestingly, reducing the welfare costs on workers by rationalising the distance between the place of work and stay,” says the study ‘State of Regulation: Building standards reforms for jobs and growth‘ by Prosperiti, an economic think tank.
“Reducing the opportunity cost of building standards can encourage livelihood-friendly land use, particularly in and around cities. Optimising industrial land use can supplement the various initiatives announced by the government to increase manufacturing activity in the country and aid in our urbanisation goals,” the study says.
Economic Survey 2023-24, while discussing India’s Micro, Small & Medium Enterprises (MSMEs), draws attention to the study. “Research shows that reimagining the level of regulations on the usage of factory space, like those relating to setbacks, will likely augment the manufacturing capacity, especially of the micro and small firms,” the survey says. It goes on to list four
Land lost to four building standards
Based on land lost to four building standards (i.e., ground coverage, setbacks, parking and floor area ratio), the study ranks states on building restrictiveness. Haryana overall is the least restrictive state for constructing a factory. Tamil Nadu and Telangana follow closely. Odisha, Bihar, and Delhi are the most restrictive states for factories of all sizes.1. Land lost due to ground coverage: The report shows that under the ground coverage regulations on factory plots, intended to control density and promote groundwater recharge, a factory building can cover no more than 40–60 per cent of the plot, depending on the State in which the factory conducts its operations. In comparison, in Hong Kong, a factory will not lose any proportion of the plot; in the Philippines, only 30 per cent of the plot.2. Land lost due to setbacks: State-level regulations limit the horizontal building expansion to minimise fire risk and ensure ventilation and light. The aforementioned report shows that regulations, however, do not account for modernisation in technology and manufacturing processes. For example, the use of fire-resistant materials and automatic fire-fighting equipment can effectively reduce hazards without locking up productive land. Moreover, natural light and ventilation may be counterproductive in certain industries like chemicals, pharmaceuticals, and electronics. Setbacks are particularly challenging for micro and small factories in certain States. The factories end up losing even 60–90 per cent of their land in certain States just to comply with these regulations. A mega factory in an Indian State loses ~2X more land to setbacks than one in the Philippines and ~5X more than the one in Singapore.
3. Land lost due to parking regulations: State governments enforce regulations mandating off-street parking to ease street congestion. However, research suggests that these mandates may actually contribute to more congestion. Parking requirements do not align with actual demand, leading factories to lose a significant amount of land. The report finds that the factories across India lose ~12–70 per cent of their land to meet parking minimums. A factory in India may have to provide at least double the number of car parking spaces compared to Hong Kong, the Philippines, or Singapore.
4. Land lost due to floor ratio: States regulate the floor area ratio (FAR) to restrict vertical expansion on designated land parcels, aiming to manage density, alleviate traffic congestion, and facilitate the provision of essential utilities such as water and electricity. However, such regulations may inadvertently contribute to urban sprawl, thereby exacerbating road congestion and escalating utility provisioning expenses. On average, factories across states are only allowed to create floor space up to 1.3 times the plot size. With a 1000 sqm plot, an office building in Mumbai can be built up to 5000 sqm, whereas in Japan, it can go up to 13,000 sqm and 15,000 sqm in Singapore and Hong Kong.
The Economic Survey says there is a need to examine and rationalise building regulations to augment manufacturing capacity. Better utilisation of land will bring the fixed cost of production per unit, thus incentivising the entrepreneur to hire more workers as well. Apart from studying international best practices, inter-state comparisons can help states identify best practices and adopt appropriate policies.