Driving to Green Buildings - BuildingGreen.com

The Transportation Energy Intensity of Buildings

Since the late 1990s, Portland’s Pearl District has been transformed from a largely abandoned industrial area into a bustling mixed-use neighborhood. Local developers actively promote alternative forms of transportation, evident in the giant neon “Go By Streetcar” sign atop this multi-use complex.

As the world’s first LEED Platinum building, the Chesapeake Bay Foundation’s Philip Merrill Environmental Center is loaded with green features: photovoltaic panels, rainwater harvesting, composting toilets, and bamboo flooring, to mention just a few. However, moving the organization’s staff of around 100 into the new building meant that many employees who had been able to walk to work in the older downtown facility now have to drive roughly ten miles (16 km) to get there. To their credit, the organization spent two years looking for a downtown building to house their growing staff, and they tried to mitigate the increased use of cars in the new building with bicycle and kayak racks, showers, and loaner vehicles for non-automobile commuters, among other strategies. The fact remains, however, that the additional energy use from more employees driving to work may well exceed the energy savings realized by the green building.

Designers and builders expend significant effort to ensure that our buildings use as little energy as possible. This is a good thing—and very obvious to anyone who has been involved with green building for any length of time. What is not so obvious is that many buildings are responsible for much more energy use getting people to and from those buildings. That’s right—for an average office building in the United States, calculations done by Environmental Building News (EBN) show that commuting by office workers accounts for 30% more energy than the building itself uses. For an average new office building built to code, transportation accounts for more than twice as much energy use as building operation.

This article takes a look at the “transportation energy intensity” of buildings and the influence of location and various land-use features on this measure of energy use. While the focus will be primarily on energy (and the associated environmental impacts of energy use, such as pollution), we will see that measures to reduce transportation energy use can have very significant ancillary benefits relating to water runoff, urban heat island mitigation, and habitat protection, while creating more vibrant, livable communities.

Transportation Energy Intensity as a Building Performance Metric
“Transportation energy intensity” is a metric that has long been used to measure such things as how efficiently freight is transported. We’re proposing it here as a metric of building performance. The transportation energy intensity of a building is the amount of energy associated with getting people to and from that building, whether they are commuters, shoppers, vendors, or homeowners. The transportation energy intensity of buildings has a lot to do with location. An urban office building that workers can reach by public transit or a hardware store in a dense town center will likely have a significantly lower transportation energy intensity than a suburban office park or a retail establishment in a suburban strip mall.

Comparing Transportation and Operating Energy Use for an Office Building
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In the table, we compare the transportation energy intensity of an average commercial office building with the building operation energy intensity of such a building. We use average figures for commute distance, fuel economy, work days per year, gross square footage per employee, and commuting transportation mode to calculate the average transportation energy use per square foot of building floor area. For that average building, the transportation energy use exceeds the building energy use by 30%. When compared with a new, more energy-efficient building built to ASHRAE 90.1-2004 energy code, the transportation energy use exceeds the building energy use by nearly 140%. (Note that this analysis examines only site energy; if it compared primary energy or source energy, the differences would be smaller—largely due to the significant electricity use in commercial buildings and the inefficiency of electricity generation.)

We will see in this article that about eight factors, largely controlled by planners, designers, developers, and regulators, dramatically affect the transportation energy intensity of buildings. While far from a comprehensive treatise on the topic, this article introduces these issues and makes the case that, first, we need to pay far more attention to location and land-use planning as a part of green development, and, second, that this is an area deserving a great deal more research attention.

Environmental Impacts of Automobile Travel
Transportation Share of U.S. Criteria Air Pollutant Emissions (2002)
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Transportation energy use and the environmental impacts associated with that energy use are huge. In 2006, transportation in the U.S. consumed 28.5 quads of energy (84 trillion kWh), or 28.5% of total national energy use, according to the Energy Information Administration of the U.S. Department of Energy. Both the total energy and the percentage of transportation energy use have been rising in recent years, while industrial energy use (currently the largest share at 32.1%) has been dropping. The transportation share of carbon dioxide emissions is slightly greater at 32.9% (2005 data) and higher than that of industrial, commercial, and residential sectors, with the share rising slightly since 1990.

Environmental impacts of transportation are not limited to energy and greenhouse gas emissions. The table below shows transportation’s share of certain criteria pollutants.

In addition to these direct emissions from transportation, there are many other environmental impacts associated with the infrastructure needed to support transportation and with development patterns. Our roadways create impervious surfaces that result in significant pollutant runoff into waterways—in fact, non-point source water pollution from stormwater runoff is now the nation’s leading source of water pollution to estuaries and the third largest to lakes. Highways fragment ecosystems and wildlife habitat. Paved areas, including roadways and parking lots, absorb solar energy, contributing to localized heat islands that exacerbate smog and increase air-conditioning requirements in urbanized areas. And stormwater runoff from these surfaces creates thermal pollution that makes many waterways unsuitable for trout and other cold-water fish.

Land development is occurring at a far higher rate than population growth, resulting in sprawl. In the nation’s 34 metropolitan areas with populations greater than one million people, between 1950 and 1990 the population increased 92.4%, according to the U.S. Environmental Protection Agency (EPA) report Our Built and Natural Environments: A Technical Review of the Interactions Between Land Use, Transportation, and Environmental Quality, while the urbanized land area grew by 245%, or 2.65 times the population growth rate. In Atlanta, the developed land area grew almost tenfold during this period, while the population grew a little over threefold.

As our urban and suburban areas spread out, vehicle travel increases. Transportation planners use vehicle miles traveled (VMT) to measure automobile use. In the U.S., VMT per household has increased from 12,400 miles (20,000 km) per year in 1969 to 21,200 miles (34,000 km) per year in 2001, a 70% increase. During the same period, VMT for commuting to work increased from 4,180 miles to 5,720 miles (6,730 km to 9,200 km), or 37%.

Reducing the Transportation Energy Intensity of Buildings
While most measures to reduce building energy use relate just to that particular building, most measures to reduce the transportation energy use of buildings relate to the broader land-use context. They help to achieve what is often called transit-oriented development (TOD) or smart growth. (The terms new urbanism and neo-traditional development are also used, though with slightly different connotations.) Among the goals of these development paradigms are communities, towns, or urban areas that are pedestrian-friendly and accessible with minimal use of the automobile.

Features used to achieve this sort of development are typically beyond the control of building designers and, to some extent, even building owners. Location is critical. “The transportation performance of buildings is all about location,” says Doug Farr, AIA, of Chicago, author of the forthcoming book Sustainable Urbanism: Urban Design With Nature (John Wiley & Sons, 2008).

We’ll now explore eight key factors that can reduce the transportation energy intensity of buildings, primarily by reducing VMT. Transportation and land-use planners often talk about the “D-factors,” including density, distance to transit, diversity of uses, and design of streetscapes; we’ll look at these and others.

Density
Density vs. Vehicle Travel for U.S.
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Per capita vehicle travel tends to decrease with increases in density.

Most experts put density at or near the top of the list of measures for reducing vehicle use. Hank Dittmar, executive director of the Prince’s Foundation for the Built Environment and chair of the Congress for the New Urbanism, points to density as the first priority in achieving location efficiency. Research he conducted with the Natural Resources Defense Council (NRDC) and the Center for Neighborhood Technology (CNT) in the 1990s “showed a fairly dramatic reduction in VMT as you moved from seven to 10–12 units to the acre,” he told EBN. The reduction curve begins to flatten out at 40–50 units per acre; the benefits of mixed use remain, Dittmar explains, but the residents of those units may still have to travel for work and other trips throughout the region, which density does not affect. This correlation between density and VMT is shown in the graph above.

Reid Ewing, Ph.D, a widely published author on transportation planning and traffic calming and director of the National Center for Smart Growth Research at the University of Maryland, says that in the most compact, densely populated places like Chicago, VMT can be as much as 90% less than in sprawling suburbs. Among the innovative strategies for encouraging density are density transfer mechanisms, which enable planners to manage development rights by trading them from environmentally sensitive areas to areas that can be developed. This mechanism is being used in Montgomery County, Maryland; Sarasota, Florida; and Chapel Hill, North Carolina.

Transit availability and access
Everyone agrees that the availability of rail and bus transit is a key requirement for getting people out of cars. Distance to transit addresses how far someone must walk to get to a bus stop, light rail or trolley stop, or train station. “The first problem is that it isn’t there for most people,” says Dittmar. When public transit isn’t available, or convenient, or comfortable enough to be used, some companies are taking it upon themselves to satisfy the need. Information technology giant Google maintains a fleet of alternative-fuel buses that it uses to shuttle employees from many locations throughout the San Francisco Bay area to its office park; the company encourages ridership by offering such amenities as comfortable seats and wireless access.

To be effective, transit stops have to be close to where people live. “Generally speaking,” according to John Thomas, Ph.D., of the Development, Community & Environment Division at EPA, “one-quarter to one-half-mile range is the distance people will walk to transit.” People can be expected to walk further to reach rail transit stops compared with bus stops, but rarely will people walk more than a half-mile.

While transit is the key word in transit-oriented development, it’s really more about walking. “I think of transit as connecting walkable districts,” says Ellen Greenberg, a coauthor of The New Transit Town (Island Press, 2004) and the past director of policy and research at the Congress for the New Urbanism. “Everyone winds up being a pedestrian somewhere in the travel day,” she told EBN. Even people who commute by car walk to and from their cars, she points out, “but transit riders are on foot a bigger part of their day, so transit-oriented developments have, by their very nature, a bigger component of the walking trips than conventional development.”

In a discussion of transit, it’s worth noting that some forms of transit are no more energy efficient than private automobile commuting (see chart below). On a Btu per passenger-mile basis, buses actually use more energy per passenger mile than cars, assuming average occupancy of both, while all forms of rail use less and vanpools use a lot less. The number of passengers makes a huge difference in the energy intensity (Btu per passenger mile). For example, by increasing the assumed ridership of a transit bus to 40 people, the energy intensity drops to less than 1,000 Btu per passenger mile. Note that even though buses with average ridership may use more energy per passenger mile than cars, bus transit is still beneficial as a public service, because it can make urban areas more walkable.

Mixed uses and access to services
The Energy Intensity of Different Forms of Travel
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Diversity has to do with the mix of residential, commercial, and retail land uses and whether key services can be met within easy walking distance of residences and workplaces. In the LEED for New Construction rating system, one of the considerations for awarding a credit is whether a residential area is within a half-mile of at least ten out of 22 listed services, including banks, convenience grocery stores, daycare, restaurants, pharmacies, laundry, schools, libraries, and parks. Farr calls this area a “pedestrian shed”—a play on the term “watershed”—referring to a surrounding area in which everyday needs can be met on foot.

This diversity also affects the success of transit. “It’s very important for people who ride transit to be able to accomplish multiple things on foot once they arrive at their destination,” notes Greenberg. “You need to have a mix of uses to satisfy people’s needs,” she told EBN.

In addition to having a diversity of services and land-use types in a community, it is beneficial to have a diversity of housing to serve all socioeconomic groups. According to Ewing’s book Best Development Practices (American Planning Association, 1996), “promoting affordable housing serves transportation as well as social purposes.” He notes that low-skill-level workers tend to be concentrated in cities, while low-skill-level jobs are concentrated in wealthier suburbs. This mismatch results in a lot of commuting by those who have the hardest time affording it.

Parking management
For transit-oriented development to succeed, many experts call for good parking management. Todd Litman, executive director of the Victoria Transport Policy Institute, calls parking management the top priority in reducing VMT. “Once you build generous parking,” Litman told EBN, “you have very little incentive to provide alternatives.” Brett Van Akkeren, a smart growth analyst at EPA, told EBN that in suburbs there are nine parking spots for every car.

Greenberg agrees, saying that the first priority “is definitely constrained or expensive parking supply. It has been shown that expensive parking acts as a deterrent to commuters.” In the book Parking Management Best Practices (Planners Press, 2006) and in a summary paper, “Parking Management: Strategies, Evaluation and Planning” (Victoria Transport Policy Institute), Litman lays out more than 20 strategies that can be used alone or in combination to reduce parking by 20% to 40%.

As with many of these strategies for encouraging transit-oriented development, parking affects more than just VMT. “Not only will more parking encourage more driving,” says John Holtzclaw, a widely published transportation researcher in San Francisco and chair of the transportation committee for the Sierra Club, “but curb cuts along sidewalks make walking less interesting and less safe and make buildings less interesting.” Surface parking also takes up a lot of space, forcing pedestrians to walk further to get where they want to go. Where you do have parking, suggests Holtzclaw, “have it underground. Don’t take up the first two floors with parking; that just deadens the neighborhood.”

Walkability, traffic calming, and site design
As noted earlier, walkability is key to the success of transit-oriented development. “Walkability and public transit go hand-in-hand,” argues Holtzclaw. He suggests that planners place themselves as pedestrians: “Think about how it feels to walk. Are there places to walk to? How are the streets laid out? Are there sidewalks on both sides of the street? Is the traffic calmed? Are the buildings close to the sidewalk, or do you have to walk through a parking lot to get inside?”

Hank Dittmar notes that while transit is a key aspect of smart growth and transit-oriented development, not all communities are there yet. For communities without transit, measures can be taken to prepare for a transit future. “They ought to be getting those neighborhoods ready,” he said. “At the core must be a connected, strong network that works for pedestrians.”

Traffic calming is another aspect of walkable communities. “By slowing traffic, you create a nicer pedestrian environment,” notes Reid Ewing, whose book Traffic Calming: State of the Practice (Institute of Traffic Engineers, 1999) remains the authority on the topic. “Also, when you slow down traffic, you make trips shorter, which reduces VMT,” he told EBN. (For more on traffic calming, see EBN Vol. 12, No. 3.)

Along with traffic calming, it helps to create streetscapes that are comfortable, safe, relaxing, and enjoyable to spend time in. Good lighting, park benches, outdoor tables at cafés, shade tree plantings, pedestrian courts that are closed off to automobiles, and public wireless access can all help to create vibrant, pedestrian-friendly outdoor spaces where people will be glad to walk a few blocks from a transit stop to get to their workplaces, and glad to walk to a restaurant for lunch, thus helping to reduce VMT.

Connectivity
Connectivity is about designing—or redesigning—communities so that pedestrian connections are better. It can mean breaking up “super-blocks” into smaller, more walkable blocks, and replacing connector streets and cul-de-sacs with a network of interconnected streets that spread out traffic flow, slow down vehicles, and make walking more pleasant.

“The smaller the block dimension, the more people will walk,” notes Farr. Ewing agrees that limiting block size favors pedestrians. “You ever walk on a super block? They’re endless,” he says. “With small blocks, it’s much easier to walk.” To evaluate the connectivity of a community, Ewing created a “connectivity index,” which is determined by dividing the number of roadway links (street segments between intersections) by the number of roadway nodes (intersections). The higher the connectivity index, the greater the route choices and the better the pedestrian access. Using this formula, a minimum connectivity index of 1.4 is considered necessary for a walkable community.

Connectivity can also be achieved for pedestrians by creating pathways that cut between cul-de-sacs or that bisect long blocks. Such connections don’t spread out vehicle traffic, but they improve walkability. Providing appropriate lighting and attractive landscaping along those pathways can increase usage.

Bicycle accessibility
In Copenhagen, Denmark, more than 30% of workers commute by bicycle. Since the 1970s, planners, traffic engineers, and politicians have worked hard to keep road infrastructures from growing, which has reduced VMT by 10%.

While a much smaller percentage of Americans bicycle than walk, bicycle access is an important strategy in achieving the kind of communities envisioned with transit-oriented development. While walking is limited to sidewalks and pedestrian pathways, a significant portion of bicycling occurs on roadways, where it competes with motor vehicles.

There are areas in Europe, particularly The Netherlands, Denmark, and Sweden, where bicycling accounts for up to 40% of all trips, and in the U.S., bicycling is widely used on many campuses and in a some urban areas. A big limitation to greater bicycle usage in the U.S. appears to be that our streets and communities are not bicycle friendly. According to the 2004 publication Getting to Smart Growth II by the Smart Growth Network, a 2003 poll by the American League of Bicyclists found that over half of the respondents would like to bike more often, and three-quarters of them would increase their biking with safer bike paths and other amenities.

The most important strategies for increasing bicycle use relate to where people bike: bicycling lanes and designated bicycle paths and trails. But some bicycle-access measures relate more to buildings. Covered bicycle storage allows people to bike to work and not worry about their bicycles getting wet. Changing and shower facilities at workplaces are essential for bicycling to be realistic as a commuting option.

Improved efficiency of transportation options
The strategies addressed here focus primarily on land-use and transportation planning issues. The transportation energy intensity of buildings can also be reduced by making our motorized means of transportation more energy efficient. Natural-gas-fueled and hybrid diesel-electric buses are increasingly appearing in cities around North America, offering both improvements in fuel economy and reductions in pollution emissions. New, more efficient light-rail and heavy-rail train cars are improving the energy efficiency of rail travel; most of those serving as commuter transit are now electric, so they have very low emissions (at the place of use).

Checklist:
Select Strategies for Achieving Transportation-Efficient Communities
With both bus and rail transit, the best way to improve the energy efficiency of operation is to increase ridership. While a packed train, subway, or bus may be somewhat less pleasant for riders, it’s far better from the standpoint of energy use and pollution emissions per passenger-mile.

With private automobiles, the same arguments apply—for both energy efficiency and ridership. Hybrids and biodiesel-burning cars are generally better than conventional gasoline-powered cars, but even the lowest fuel-economy SUV carrying four carpool riders to work will use less energy and emit less pollution per passenger-mile than a hybrid Prius carrying only a driver.

Developing Building-Specific Metrics for Transportation Efficiency
One reason that location efficiency or transit-oriented development isn’t more front-and-center in the design community is that it’s too easy to consider it someone else’s problem. The common sentiment is that it’s a land-use issue that’s beyond the scope of a particular building project. Specific metrics that measure the transportation energy intensity of a building would help change that perception. “What’s needed is to develop a set of adjustment factors that a planner or designer could apply that indicate the reduction of vehicle travel,” Litman told EBN. From these, one could calculate the reduction in energy consumption associated with those factors, he suggests.

Portland planners predicted in 2001 that the new streetcars would serve about 3,500 riders a week, but 9,000 people now ride them daily. Over half of the city’s development in the last decade has occurred within one block of the streetcar route, and property values within a block of the route are 35–40% higher than those just two blocks away.

For example, if one could define the baseline transportation energy intensity for a building type and attach a number to that, it should be possible to modify that value by a series of adjustment factors—much as is done with energy performance ratings of buildings. These adjustment factors would be based on the measures covered in this article: distance to transit, presence of bicycle pathways, traffic calming, etc. In such adjustment factors would be implicit weightings: distance to transit might be worth more than existence of bicycle racks, but both could be applied numerically.

One could argue that the transportation energy use of a building is too dependent on occupant behavior to warrant this sort of treatment (that even if the building is located right next to a light-rail station, there is nothing to stop workers from driving to work anyway). This is a reasonable concern that needs to be addressed, but the same concern exists with building energy use—albeit to a lesser degree. We are learning that the modeled energy use of buildings often varies considerably from the actual energy use—because doors are left open, workers use electric resistance heaters at their workstations and leave their computers on 24/7, or the facility managers use more air conditioning than predicted. Despite the reality that user behavior influences the actual transportation energy intensity of a building, such modeled transportation energy intensity would provide a good means of comparing one building to another in terms of expected performance.

Such metrics could be used in energy and environmental rating approaches for buildings, from Energy Star to LEED—permitting such certification programs to become more performance-based. Clearly, there would be a lot of details to work out, but the opportunities for providing metrics that help us reduce the environmental impacts of buildings are huge.

Final Thoughts
Conventional wisdom has it that the U.S. population is expected to increase by forty million people over the next two decades, 80% of whom will settle in developments like this car-dependant Denver suburb. More and more communities are recognizing that transit-oriented development offers a better option, particularly among an aging population.

The green building movement is making tremendous strides at improving the environmental performance of buildings. Pushed by building codes and pulled by voluntary programs like LEED, buildings are getting better and better. But, as this article shows, if we want to continue reducing the ecological footprint of buildings, we need to focus much more actively on the transportation impacts that are associated with our buildings. With average new code-compliant office buildings “using” twice as much energy getting occupants to and from the buildings as the buildings themselves use for heating, cooling, lighting, and other energy needs, the green building community needs to focus greater attention on the transportation dependency of our buildings.

Farr takes these ideas one step further: “It’s unconscionable to do any new development that’s auto-dependent,” he told EBN, suggesting that the architects’ oath should address these location issues in some way. “I think you should lose your license for laying out sprawl,” he said, only half in jest.

Increasingly, a key driver of such changes is likely to be demographics. According to Sam Zimmerman-Bergman at Reconnecting America, a national organization providing resources on transit-oriented development, by 2030 there will be “demand for 10 million more housing units for people who want to live near transit.” When you add in such factors as a possible increase in transportation fuel cost, demand could be even greater.

“What we’re talking about is a fundamental paradigm shift,” according to Todd Litman of the Victoria Transport Policy Institute. The benefits of reduced VMT would extend well beyond energy savings. “If we get people to drive less through building location and building management strategies,” says Litman, “there’s a huge range of benefits beyond energy conservation and pollution reduction. Until we develop a more holistic model that takes [these added benefits] into account, we’ll undervalue transit demand management.”

It’s time for the green building community to embrace the transportation energy intensity of our buildings much more directly. Where we build should be given greater attention, and our tools for evaluating building performance should include metrics that relate to transportation.

– Alex Wilson with Rachel Navaro

For more information:
Congress for the New Urbanism
Chicago, Illinois
312-551-7300
www.cnu.org

Reid Ewing
National Center for Smart Growth
University of Maryland
College Park, Maryland
301-405-6788
www.smartgrowth.umd.edu

Reconnecting America
(and the Center for Transit-Oriented Development)
Oakland, California
510-268-8602
www.reconnectingamerica.org

Smart Growth Network
International City/County Management Association
Washington, D.C.
202-962-3623
www.smartgrowth.org

Todd Litman
Victoria Transport Policy Institute
Victoria, British Columbia, Canada
250-360-1560
www.vtpi.org

Avoid currency devaluation - The Hindu BusinessLine

Avoid currency devaluation: "Avoid currency devaluation

Prabhat Kumar

COME uncertain times and exporters organisations start lobbying for devaluation of the rupee to enhance India s competitiveness in exports. The usual justification advanced by them is the fall in the real effective exchange rate REER , that is, fall in value of the rupee versus the dollar. However, it is well-known that countries do not gain by way of devaluation of currencies in the long run. At best, exporters gain on the foreign exchange holdings stashed in the banks or on amounts yet to be repatri ated. Any other expected gain is neutralised by reduction in the prices of export goods and/or by the rise in prices of inputs used in such goods.

Notwithstanding threat of an economic slowdown, especially in the export sector, there is a strong case for defending the rupee. Recently, the greenback that has had a bull-run rising to 120 per cent of its real value in trade-weighted average terms, is coming down against the euro and other major currencies. Euro has gained over 10 per cent against the dollar this year. The rupee is tied strongly to the dollar and, thus, has depreciated too.

The recent slump in India s exports is purely on account of the sluggish US economy and consequential impact on other economies. Exports plummeted not just in India, but also in South-East Asia. Countries"

Real Estate in Chennai - a ground level view

This program is a very well composed one depicting the ground level issues concerning real estate in Chennai. Speculators and builders exploiting the speculation market for short term gains seem to be the consensus for the 'land-rush' seen in the city today. The ground level reality is that Chennai indeed all Indian metros, and soon the second tier cities, are becoming an elitist one-dimensional society due to the non-affordability of housing in the traditional urban areas. The builders' version of affordability is suburbanization. Where is all this headed? When 75% of the population is sidelined from mainstream development, what is the effect of such a phenomenon on the urban fabric and the country's economy?

Leaving aside a discussion on inflation or global gasoline prices or sustainability of this speculation driven economy or opportunity for the marginalized population, what other factor of this kind of development is detrimental to sustainable development? This is not Fabian socialism or Marxist communism, rather it is urban economics and urban sociology. For an urban area to thrive, diversity in its mix in every form from people to occupations to buildings to open space to recreation and entertainment to cultural development and spiritual development is essential. A city thrives on the choices it provides, and when the choices cease to exist, it dies a natural death. Today, Ranganathan St may be a thriving locality and South Usman Rd may be a place thats forever crowded. But, how one-dimensional are these areas? What kind of choices do they provide for someone living or visiting or working in these areas?

Already, how many people use Mambalam as a transit area for connecting to the rest of the city? That factor alone was responsible for the genesis of these markets and the phenomenal growth achieved by these markets. Does that primary function exist today? In such a scenario, how long would it take for this market's attractiveness to start dwindling if a similar shopping paradise with better facilities opened elsewhere? The customer base and the economic model of these markets have changed so dramatically, what do these markets have now that will continue to attract more customers to the area?

While India typically does not have a tradition of brands and organized retail, is the current pull of Ranganthan St and South Usman Rd as a market, despite the competition in the rest of the city, due to the brand image of these areas or the brand image of the retail stores in the area? If it is the former, what is the business district of Ranganathan St and Usman Rd doing to enhance the customer experience and sustain its economic base? If its the latter, all that would take for the area to collapse is for these brands to open in different locations. What does the collapse of this business area mean to the economy of the city?

The attractiveness of not only this business district, but any business district to the majority of people that engage in its economy is the informal, unorganized activity that thrives on the shadows of the big businesses. The Indian economy relies heavily on this informal organization to provide a livelihood to scores of people who do not have the education and hence the opportunity to be part of the organized economy. Such districts provide choices for people to earn a livelihood and thrive on the diversity of the economic base, in turn providing plenty of choices for the customers. When such districts collapse, it is normally due to marginalization of the less economically viable choices and glorification of the high-return ones. This is the phenomenon that is plaguing Indian cities today, and will eventually result in the death of the urban fabric. Having a city that can only be afforded by the rich is a nice concept, but in reality, it is not a sustainable model. This value chasing 'land-rush' will only result in continuous sprawl and more marginalization rather than sustainable development.

Marketing to Rural India: Making the Ends Meet - India Knowledge @ Wharton

Published: March 08, 2007 in India Knowledge@Wharton

On one side are the fast-moving consumer goods (FMCG) and the consumer durables companies. On the other are consumers in rural India, potentially the largest segment of the market. Finally, the two are coming together.

The fact that this has not happened in the past is not for want of trying. In Mumbai and New Delhi corner offices, executives have long recognized that to build real sales volumes they will have to reach outside the big cities. In several categories, rural India already accounts for the lion's share. According to MART, a New Delhi-based research organization that offers rural solutions to the corporate world, rural India buys 46% of all soft drinks sold, 49% of motorcycles and 59% of cigarettes. This trend is not limited just to utilitarian products: 11% of rural women use lipstick.

Other numbers are equally revealing. According to the National Council of Applied Economic Research (NCAER), an independent, non-profit research institution, rural households form 71.7% of the total households in the country. Spending in this segment is growing rapidly and consumption patterns are closing in on those of urban India. Jagmohan Singh Raju, a professor of marketing at Wharton, says: "No consumer goods company today can afford to forget that the rural market is a very big part of the Indian consumer market. You can't build a presence for a brand in India unless you have a strategy for reaching the villages."

Several European multinational firms -- and a few U.S. firms -- have been making inroads into rural India for years. Companies such as Unilever, Phillips and Nestle have long been known to India's rustic dukaandaars, or merchants. Among U.S. firms, companies such as Colgate and Gillette have made considerable headway. According to Raju, marketing to rural customers often involves building categories by persuading them to try and adopt products they may not have used before. "A company like Colgate has to build toothpaste as a category, which means convincing people to change to toothpaste instead of using neem twigs to clean their teeth, which was the traditional practice," he says. "This is difficult to do and requires patience and investment by companies. It's not like getting someone to switch brands."

Companies that have figured this out are doing better in the villages than in the cities. Soft drinks giant Coca-Cola is growing at 37% in rural markets, compared with 24% in urban areas. According to Hansa Research, a market research firm that has published a Guide to Indian Markets 2006, the penetration of consumer durables has risen sharply in India's villages between 2000 and 2005. In color TVs, sales are up 200%; in motorcycles, 77%. In absolute numbers, however, the penetration is still low. Coke, for instance, reaches barely 25% of the rural market. This means the upside potential is huge for companies that develop effective rural marketing strategies.

According to NCAER, the low penetration rates can be attributed to three major factors: low income levels, inadequate infrastructure facilities and different lifestyles. But income levels are going up, infrastructure is improving and lifestyles are changing. Almost a third of the rural population now uses shampoo compared with 13% in 2000, according to Hansa Research.

FMCG and consumer durables companies have in the past tried tinkering with all the four 'P's -- product, pricing, promotion and place-- of the marketing mix. Hindustan Lever -- which is in the process of changing its name to Hindustan Unilever to reflect the fact that it is the Indian subsidiary of the Dutch conglomerate -- is among India's largest FMCG companies. It has been highly successful in marketing in rural India and has been a pioneer in reaching out to the smallest of villages with innovative products such as single-use packets of shampoo that sell for a penny. (The rural consumer uses shampoo on rare occasions; she does not want to invest in a bottle.) Independent agencies run media vans that show movies in distant villages. They have live promotions and demonstrations during breaks.

The area where innovation has moved to center stage is in the fourth P -- place (or distribution). Infrastructure has always been the bugbear of the Indian marketer. Distribution channels can make or break a company's rural marketing efforts. To sell in villages, products must be priced low, profit margins must be kept to the minimum and the marketing message must be kept simple.

Empowering Women Consumers

Hindustan Lever, whose 2006 revenues were $2.8 billion, has been learning these lessons for nearly a decade. The company's Project Shakti (its name means "strength") was born out of this realization, and it has become a case study for business schools and evolved beyond its original goals. "The objectives of Project Shakti are to create income-generating capabilities for underprivileged rural women by providing a small-scale enterprise opportunity, and to improve rural living standards with greater awareness of health and hygiene," says Dalip Sehgal, executive director of the Shakti initiative.

Hindustan Lever's drive into rural India was prompted in part by growing competition. When the Indian economy opened up in early 1990s, multinationals such as Procter & Gamble stepped up their activities, forcing Hindustan Lever to seek higher revenues and growth by reaching into villages with 1,000 or fewer residents. Launched in 2001, Project Shakti was an important part of this strategy. It involved working with rural self-help groups (SHGs) to educate rural women, while also making them part of the company's marketing network. "Women from SHGs become Shakti entrepreneurs -- direct-to-home distributors [of Hindustan Lever products] in rural markets," says Sehgal. "This micro-enterprise offers low risks and high returns. The products distributed include a range of mass-market items especially relevant to rural consumers," such as soap, toothpaste, shampoo and detergent.

The Shakti website features a video profile of Rojamma, a young woman from the state of Andhra Pradesh in Southern India, as an example of a typical Shakti distributor. A mother of two who was left to fend for herself and two daughters after her husband abandoned the family, Rojamma initially made ends meet by working in her parents' fields. She then joined the Shakti project and became a distributor of Hindustan Lever products, speaking in village after village to impoverished and often illiterate women about the need to bathe their children and wash their clothes regularly and also selling them soap and detergent. The commission Rojamma earned on her sales helped provide for her family. "Today she is a proud entrepreneur and enjoys not only the money she earns from the project but also the respect of society," says Sehgal. "The lives of thousands of women have changed because of Shakti."

A typical Shakti distributor sells products worth Rs 10,000-15,000 (around $250) a month, which provides an income of Rs 700-1,000 (around $25) a month on a sustainable basis. While this may not seem to be a high income, it makes an enormous difference to women who live in remote villages in dire poverty. In many cases, earnings from Shakti help them double their household income. Much of the additional income goes to educating children, and also to purchasing consumer durables such as television sets, which further expands the rural market for such products. Some Shakti distributors -- whom the company calls "entrepreneurs" -- invest the extra money in buying vehicles such as motor scooters that allow them to go into more villages.

Indeed, with help from Shakti distributors, Hindustan Lever has been able to reach rural consumers in thousands of remote Indian villages. According to media reports, Shakti distributors now account for 15% of the company's sales in rural India. Meanwhile, the potential for growth is enormous, since studies have shown that just 15% of Indian consumers use products such as shampoo. According to Wharton's Raju, there are behavioural reasons why rural consumers represent a sound bet for companies that are willing to invest in reaching them. "Affluent consumers demonstrate that they have 'arrived' by buying bigger houses or cars. People at lower income levels do so by buying premium brands. This means brand loyalty is very high among less affluent consumers. That is why the rural market is critical for companies. The first-mover advantage is significant."

The Shakti model was piloted in 50 villages of the Nalgonda district in Andhra Pradesh. It has now spread to more than a dozen states, creating 26,000 women distributors covering 80,000 villages. By 2010, the goal is to recruit 100,000 Shakti distributors covering 500,000 of India's more than 600,000 villages. "This initiative has been extremely successful," says Ajay Gupta, CEO of www.ruralnaukri.com, a job site for the rural market.

In addition to the distribution network, the Shakti project includes Shakti Vani (or voice), a social awareness program, and iShakti, a community portal. "Desktop computers are set up in the homes of Shakti entrepreneurs," says a Hindustan Lever spokesperson. "These computers are equipped with software developed by Unilever through which users can access content in categories including education, employment, agriculture, health and entertainment. They can also ask questions on any of these subjects and have them answered by experts."

iShakti is in its early days; it was launched in November 2004. The Vani project, however, is operational in more than 20,000 villages in states like Madhya Pradesh, Karnataka, Chattisgarh and Andhra Pradesh. Hindustan Lever has also tied up with partners such as Tata Consultancy Services, India's largest software firm, which is actively involved with the iShakti portal, and ICICI, a financial services institution that is involved with providing micro-credit loans. With the network now in place, other companies want to hop on to the Shakti bandwagon. One service that is likely to be added soon is insurance.

ITC's eChoupal Initiative

Another innovator in rural distribution -- the $3.6 billion, Calcutta-based tobacco-to-hotels conglomerate ITC -- has also been trying to build a platform that others can use. At a recent seminar on rural marketing, ITC chairman Y.C. Deveshwar outlined plans to create a trust that could work as an agency through which companies -- both private and public -- could market goods and services to Indian farmers. The trust route would hopefully make other companies more willing to sign up with their offerings. ITC has the right credentials to launch this trust. Like Hindustan Lever's project Shakti, its eChoupal venture has been the subject of several case studies.

ITC's foray into an enhanced distribution network came from the recognition that the existing agri-produce distribution channels were inefficient. The company exports various agricultural products -- soybean, rice and wheat, to name a few. It needs to source them from farmers.

"In 2000, ITC embarked on an initiative to deploy technology to reengineer the procurement of soybeans from rural India," says S. Sivakumar, CEO of ITC's agri-business division. "Kiosks -- called eChoupals -- consisting of a personal computer with Internet access were set up at the villages." He explains that soybean farmers could access this kiosk for information on prices, but had the choice to sell their produce either at the local market or directly to ITC at their hub locations. A hub location services a cluster of eChoupals. By purchasing directly from the farmer, ITC significantly improved the efficiency of the channel and created value for both the farmer and itself.

"While the eChoupal network was initiated to facilitate more efficient and effective procurement, the connectivity -- both physical and informational -- between the farmer and the market that it facilitated has allowed ITC to use it for distribution of goods and services from the market to the farmer," says Sivakumar. It has thus evolved into a business platform.

The eChoupal infrastructure consists of:

• A kiosk with Internet access in the house of a trained farmer, called a Sanchalak. This kiosk is within walking distance of target farmers.

• A warehousing hub managed by the former middleman, called a Samyojak. This is within a tractor-driveable distance of target farmers. (The former middlemen were given a role to avoid resistance to the project. They joined because they could see that their traditional business was in jeopardy.)

• A collaborative network of companies orchestrated by ITC with a pan-India presence.

This is, of course, a simplified structure. And there has been a stream of new initiatives. For instance, in August 2004, ITC introduced the Choupal Sagar, a rural retail outlet at the hub. The first was set up at Sehore in Madhya Pradesh. "This 7,000 sq. ft. mall sells consumer goods as well as agri-products," says Sivakumar.

The benefits to the farmer are obvious. And ITC itself gains. Apart from the more efficient channel, there is money to be made from the reverse flow. In 2005-06, ITC generated $23 million selling chemicals and fertilisers. That may not sound like much, but it's early yet. In a recent move, ITC has set up its first urban outlet, the other end of the eChoupal chain, to retail fresh fruit and vegetables.

What about other companies? Does it make sense for them to climb on the bandwagon? Sivakumar gives the example of PI Industries, which has increased its market share in Madhya Pradesh from 12.3% in 2003 to 33% in 2005 after partnering with ITC to sell through the eChoupal. "The eChoupal project is already benefiting more than 3.5 million farmers," says Sivakumar. "Over the next decade, the eChoupal network will cover more than 100,000 villages, representing one-sixth of rural India, and create more than 10 million e-farmers."

Room for All

Both Project Shakti and eChoupal have been around for less than a decade. Which is likely to succeed? Observers say there is place for both; the Indian rural market is huge. According to Wharton's Raju, while Shakti and eChoupal are different in orientation -- one focuses on individuals while the other is corporate-based -- each has been very successful in its own way. "You can't think of success just in financial terms," he says. "Both projects have created tremendous goodwill for Hindustan Lever and ITC." That is no small asset, especially for ITC, whose initials once stood for Indian Tobacco Company.

Sivakumar claims the ITC model is superior because it involves two-way traffic. "We are starting with raising rural incomes," he says. "The level of affordability in rural India is low. For consumers to buy products, you have to first put more money in their pockets. We are creating a virtuous circle of higher income, higher productivity and higher consumption." He adds that there is a distinction between the commission paid to Shakti entrepreneurs and the micro-credit arranged for them, and the eChoupals' efforts to raise rural incomes by improving agricultural efficiency for the whole community. At Hindustan Lever, company officials are equally confident about Project Shakti. They say they are in the business of creating entrepreneurs and arranging micro-credit for them. This, too, has a catalyzing effect on the whole community.

Raju believes that the drive to gain access to rural retailers is, in some ways, as critical as the one to reach consumers. "If you look at rural retail in India, the outlet size is very small. Merchants will often stock just one brand in a category; they do not have the resources to stock multiple brands. They will stock the brand that sells the most."

This lesson has hardly been lost on Indian-owned companies. Over the coming months, the battle for rural wallets will include not just European and U.S. multinationals but also fast-growing Indian companies. A retail initiative by the $22.6 billion Reliance Industries is a case in point. The Mukesh Ambani-led group plans to pump in $5.5 billion over the next few years to create a farm-to-storefront infrastructure for a pan-India retail network. (Only part of this money is for the rural component.)

Mukesh Ambani has company. Brother Anil Ambani, who parted ways with him in 2005, is connecting rural India through Reliance Infocomm, a mobile services provider. Its network now encompasses 240,000 towns and villages, accounting for 42% of the rural population. It plans to double the rural coverage to 400,000 villages, making up 50% of the rural population.

There are many others. The rural initiative of the Mumbai-based $1.3 billion House of Godrej -- Godrej Aadhaar -- plans to set up 1,000 stores across India in the next five years. Delhi-based telecom major Bharti Airtel chairman Sunil Mittal has tied up with Wal-Mart, which will need its supply chain. From the Goenkas to the Gulabchands, from the Tatas to the Thapars, every major Indian business group has plans to move into the hinterland.

Like Thoreau and Tolstoy, Gandhi, revered as the father of modern India, believed that the country's future lay in her villages. These days, every marketer would agree.

Opening a Big Box: Organized Retail Confronts the Challenges of Local Markets - India Knowledge @ Wharton

Published: March 20, 2008 in India Knowledge@Wharton

Unused to modern, organized retailing, the Indian consumer is still figuring out how to extract value -- beyond lower prices -- from the stores, supermarkets and shopping chains that are popping up everywhere. Meanwhile, retailers face other challenges: Indian consumers shop frequently and are used to travelling short distances to their stores; brand penetration is lower compared to developed-country markets; and interstate goods movement is fraught with taxes, delays and other inefficiencies.

All that means warehouses have to be closer to stores, which in turn have to be closer to their so-called "catchment" areas, where the new retailers have to build store-specific customer loyalties. Training large numbers of employees in such virgin territory, and promoting retailing as a respectable and attractive career path, are other challenges, according to senior executives from Best Buy, Staples and Aditya Birla Retail, who participated on a panel titled, "New Paradigms in Indian Retail," at a recent Harvard Business School conference.

"Indian consumers themselves don't know what they want," said Sumant Sinha, CEO of Aditya Birla Retail, which has rolled out 500 stores across India in the past year and is part of the $24 billion Aditya Birla Group. "They are evolving," he said, especially those in urban settings. "You put a hypermarket in front of them; they've never seen it before. So there's no way they can understand the concept. You really have to go with your gut in India and wait for the reaction."

The Aditya Birla Group began considering a foray into retailing after it was approached by Wal-Mart a couple of years ago, Sinha recalled. Those talks didn't progress "because they were looking only for a front-end partner. We like to control our businesses."

But the group found the numbers compelling. "India is a trillion-dollar economy, of which retail accounts for about 40%," he noted. "Of that, 40% to [nearly] 60% is spent on food and groceries, and of that, about 60% is rural and 40% is urban." The group recognized that "the food and grocery business was under penetrated from a retailing standpoint," and that drove its decision to enter the business. Within a year of launching operations, the company has 500 supermarkets, employs about 10,000 people and is hiring at the rate of a thousand employees each month, he added.

What struck Sinha right away was "the fact that Indian consumers are extremely value conscious." For them, "value is not just price" and includes other connotations such as "quality, convenience and trust." Most other Indian retailers are going after price to build customer loyalties, and are perhaps getting it wrong, he said. "It's not as if they haven't been shopping before organized retailing arrived -- they have been shopping for decades and decades at mom-and-pop stores. It's about shifting these consumers from their existing shopping behavior into a different shopping behavior; they are also testing the new format. At this point of time, you have to just go with what you think will work. It's very early days to figure out how that will play out."

Lukas Ruecker, who oversees emerging market business as vice president at Staples, the office products retail chain, agreed with Sinha's assessment. "The market is changing so rapidly in India that we haven't even invested in consumer research," he said. "This is going to be an ongoing experiment. The Indian consumer doesn't know what he wants; you have to shape his opinion."

Describing Staples as a cautious strategist that would "rarely be caught being first at anything," Ruecker noted its first international foray was into China in 2004, followed by Brazil, Argentina, Taiwan and then India about six months ago. He expects Staples to open 11 stores in India by the end of this month. Staples' Indian business is made up of both retail stores and institutional customers it serves with "the only pan-Indian delivery system for office products," he said. It partners with the Mumbai-based Future Group, a fast-growing diversified business house with prominent organized retail banners including Pantaloon and Big Bazaar.

"When you enter emerging markets like India or China, you really learn only through experimentation," said Kal Patel, executive vice president of emerging business at Best Buy. He recalled that when he worked on Best Buy's China launch a few years ago, "we had to throw away consumer research. The assumptions you have from a top-down marketing standpoint don't stand up in these markets."

In developed markets, "you can sit down in a corporate office with a whole bunch of analytics and make predictions for next year," Patel said. "In [China], we're asking our store managers and store employees to tell us what they think they can grow if we give them more tools and the things they need. They are coming back with three or four times more optimism."

That strategy is ideal for Best Buy in its new markets, according to Patel. "The general principle is: The more local you go, the more front-end you go and ask the people who are serving [customers] -- whether in rural markets in India or in big cities somewhere else -- the better is your understanding of emerging trends," he said. "Fundamentally, we engineer our company based on the demand we get from the very, very different micro segments."

Half-empty Stores

Harvard professor of business logistics Ananth Raman, who moderated the discussion, asked Patel and the other panelists about their experiments with the design of their stores in India and how that might be different from those in their home countries. Best Buy has yet to enter the Indian market, but Patel recalled a conversation with his company's store designer who was tapped a while ago by an aspiring Indian retail group to replicate Best Buy stores in India. He refused to do the work, because using an American design in an Indian context made no sense to him. "The interesting thing is that Indians in India are bringing American assumptions into India," Patel said.

Ruecker said Staples did not copy its conventional store design for the Indian market, but created a wholly new one to suit local tastes. "We used our technology platform and ideas from our experiences in Portugal, Germany, the Netherlands and the U.S., and then modified them for India." He noted that Staples in India has its own logo, different color schemes and other variations "to make them a little more Indian." The response has been mixed. "Some people in Bangalore said it doesn't feel like the U.S. Staples; some others said it was fantastic and they liked it."

Unlike in western markets, the Indian store cannot be as big as 15,000 to 20,000 sq. ft., said Sinha, explaining that the markets there don't have as many brands to be stocked. "That, unfortunately, is the reality of India -- you just do not have enough branded products out there. If you put up a big store, it's probably going to be half empty. You have to think of a smaller-size store." Smaller stores also fit in well with the average Indian family's shopping experience.

"For many, many decades, Indian housewives have been used to buying things almost on a daily basis. You have vendors who come in push carts to your house," Sinha added. Such observations lead to other questions, he noted. "You would assume that this behavior is borne out of a desire to buy fresh food and cook it every day. Or is it because the supply chain for fruits and vegetables is so poor that the food would become spoiled the next day?" Other reasons for buying food on a daily basis may include a lack of storage space or ways to keep food fresh for extended periods of time. "They don't have big houses or big refrigerators. And even if they have refrigerators, very often the power goes off."

Since the daily shopping habit isn't likely to go away soon, Sinha predicted that stores that are far away but have large catchment areas may not work; they have to be closer to customers. "Most Indian housewives don't have easy access to transportation, so going long distances to shop doesn't work for them," he said. "A supermarket in the Indian context is going to be a lot closer to customers and will have a lot more footfalls on a daily basis with much smaller basket, or ticket sizes."

Building Supply Chains from Scratch

Raman wondered if the supply chain in India is ready for organized retailing, or if a wholly new infrastructure has to be developed. Ruecker said for Staples, it was a major challenge in both India and China to move products from its warehouses to stores. "The overall logistics is so much more difficult from a port in Chennai or a port in Shanghai to stores," he said. Yet, unfathomable as it was, the system worked. "You rely on the fact that Indians have always figured out a way to do it. Stuff gets into the stores, it gets there in time, and all our stores are well stocked." But he is not taking too many chances. "We are willing to live with the faith, but we need modern warehousing (in India)."

According to Sinha, the logistics and supply chain infrastructure "has to be built from scratch; it's really about creating a new industry." He said his company started by outsourcing the logistics and warehouse management from third party companies, but eventually decided to bring those functions in-house. It turned out that the main problem the third party logistics suppliers faced was not a lack of expertise, but difficulties getting trained people to track and ship orders, which resulted in lost sales and excess inventories, he said. Aditya Birla Retail decided to take on the training responsibilities. Sinha added that it takes about three months to get new hires up to speed with the requirements.

Sinha said Indian municipal taxes (called octroi) and other laws governing interstate movement of goods also make things difficult. "You can't set up five large warehouses across the country to serve the market," he said. "You have to set up [very small] warehouses wherever you open each store. And so the profitability of each cluster becomes a function of [that arrangement]. The Indian supply chain infrastructure has a ways to go before it becomes efficient. Unless some laws change in India, it is not going to happen in a hurry."

What's more, many Indian companies, including arms of multinationals, are used to inefficiencies in delivering goods, according to Sinha. "In India you had companies always delivering half of what you asked for, and you don't know which half is delivered," he said. "They are not used to organized retailing. They recognize the value and benefits of modern retailing, but it's hard to get the discipline that is required."

"The reason we are in China and not in India is because of supply chain," said Patel of Best Buy. In preparation for its plans to enter India, Best Buy brought together consumer electronics suppliers and posed them the problem of generating efficiencies. "We told them to give us higher gross margins," he said, adding that Best Buy had bargaining power because it went about its sourcing globally. All the suppliers at the meeting recognized that "it was in everybody's interest to bring in efficiencies."

At the consumer level, Patel said he is acutely aware of how customer loyalties work in the Indian market. "You have mom-and-pop [stores] that have relationships with consumers -- they have a relationship with the family and the community. What we would do differently is we want to leverage that. However, at the back end you have so much inefficiency."

Best Buy has a retail academy in China in partnership with a couple of universities, "and that's how we are going into India and that's how you create self esteem for a retail job in that country," said Patel, citing Best Buy's 11,000-strong "geek squads" in the U.S. as one of his models. "Essentially, geek squads are about bringing high self-esteem to computer repair," he said. "We are going to use that [model] in India in sales and service."

The 'Underprivileged Majority': Merging Policy with Practice to Help India's Poor - India Knowledge@Wharton

Published: May 29, 2008 in India Knowledge@Wharton

In the subtext of India's recent economic success story lies "the stubborn statistic of 400 million to 600 million people living in poverty," according to Shanta Devarajan, chief economist of the World Bank's South Asia region.

Devarajan spoke as part of a panel discussion on "India's Underprivileged Majority: The Real Development Story" at the Wharton India Economic Forum, held in Philadelphia in March. India's rapid economic growth can obscure rampant poverty, and flawed public policy is a culprit, Devarajan and the other panelists indicated. A key to helping the poor, they said, is to alleviate Indians' financial dependence and the exploitation that can accompany it.

Despite the rapid ascent of India's economy in recent years, the country's poverty rate continues to decline at the same 1% that it did in the 1970s, Devarajan said, noting that sharp disparities in growth perpetuate "stubborn" poverty. The country's southern and western states are growing significantly faster than those in the east and the north. "The difference between the growth rate of fastest and the slowest growing states ranges from 2.5% to 6.5%," he said.

Employment growth has not been commensurate with economic growth, he added. "Much of this has been really jobless growth," he said. "You aren't seeing much growth and demand for talent in manufacturing and export-led industries." As a result, he noted, the demand for low-skilled workers has lagged behind the demand for white-collar workers. The informal sector constitutes 93% of the workforce. "Firms are very small in India's informal sector. Forty percent of them have between five and nine workers. That's much too small to be able to take advantage of any economies of scale."

Meanwhile, Devarajan added, "India's agricultural growth has not accelerated at all, and that is where the majority of the poor get their incomes. You have 100 million farmers, and they contribute as much to GDP growth as one million businesses."

China's growth in agricultural productivity has been double that of India, and even Bangladesh has done better, he said. "The problem is simple and fundamental: public policy toward agriculture." Public policy has stunted efforts to improve productivity, including populist programs supplying free power and seeds. "Those subsidies don't go to the poor farmers," he said. "They go to the middle class and larger farmers." (Devarajan spoke about these and other issues during a separate speech he made at the University of Pennsylvania last year, which India Knowledge@Wharton covered in an article titled, "What Could Derail the India Express?")

Exploitation and Absent Teachers

Ravi Kuchimanchi, founder of the Association for India's Development (AID), a volunteer movement with 50 chapters in the United States, India and Australia, resists the characterization of pro-poor policies as "subsidies"; rather, in the course of being implemented they become "exploitation." He pointed to the roughly 140 special economic zones being planned across the country, which have triggered controversies over farmlands being acquired to make way for new construction. "The incentives are going to the companies who take the lands from the exploited people," he said.

According to Kuchimanchi, another such "exploitative" program is the government's "Aanganwadi" initiative, which aims to provide basic health care across the country's villages. Funds earmarked for the program are routinely diverted to local officials' personal coffers, and investigations that result from complaints have been a sham, he said.

Devarajan cited additional problems plaguing health care among the poor. India's immunization rates are below those of Kenya, he said. "You expect the public sector to deliver this, but only 8% of such spending goes to the poorest sections. The doctors and nurses are frequently not available; the average absenteeism among doctors is 40%, and this goes up to 60% in Bihar," a northern Indian state. Devarajan said he saw no solution but to "restructure employment policies" and enforce accountability among doctors.

The same level of accountability should hold for teachers, Devarajan added. "Everybody, including the World Bank" takes credit for getting 93% of Indian children in some form of primary school, he said. However, "60% to 65% can't read a sentence in their [native] language, and 55% can't do a two-digit subtraction problem." These statistics came to light two years ago in surveys conducted by Pratham, a nongovernmental organization in India. The surveys found a "high degree of absenteeism among teachers in public schools," from 25% to 40%, Devarajan noted.

What Can Be Done?

Start with feedback, which forces policy-makers to act, said Kuchimanchi, whose organization connects non-resident Indians with issues concerning rural poverty but also serves as a watchdog group for government initiatives. "A system cannot grow without feedback; it is the difference between simple interest and compound interest," he said. "Feedback from the underprivileged, the exploited and the poor in India is not being taken by the government and the corporations. If we don't take the feedback, how do we expect to serve that market?"

Kuchimanchi spoke of government programs that make electricity available to poor Indian rural households. Many such households spend about Rs. 40 (about a dollar) each month on kerosene for lamps. In India's eastern state of Orissa, the government sells electricity meters for Rs. 2,000 each (about $50), which he noted is beyond the reach of many poor households. But the neighboring state of Andhra Pradesh rents meters for Rs. 150 each ($3.50), making them affordable. "So the poor in Orissa don't have power, but those in Andhra Pradesh have it," he said.

Where government programs fail, innovation helps, and Kuchimanchi's organization has developed a technology to help poor households consume less energy. Most use firewood in their kitchens and use large amounts because they can't modulate the heat. Kuchimanchi displayed a box made of hay with a cloth lining serving as insulation material. "This costs Rs. 70 ($1.75) and it saves two hours in cooking rice," in addition to keeping it hot all day, he said. (To learn more about this project and others like it, see India Knowledge@Wharton's videocast interview with Kuchimanchi.)

Such efforts directly help in alleviating poverty, he said, and "exploitation happens only with financial dependence."

Empowering Women and Small Businesses

Empower women with education to catalyze change, said Indira Rajan, chairwoman and managing director of the Minerva Group of Educational Institutions in India's southern state of Kerala. Among many projects, Rajan is currently implementing a program called "Pariraksha" to promote mother-and-child health through hospitals in her state.

Public programs aimed at poverty alleviation, health and education work best if they start with "capacity-building" among women, Rajan said. "Women constitute 48% of India's population, and when women are empowered, so is a society," she said. She called for "the highest priority" in providing education to women, along with microfinance and vocational training.

Women, in fact, are the preferred borrowers at SKS Microfinance, according to Vikram Akula, the microfinance organization's founder and CEO. Their default rates are low, he said. "Women are better entrepreneurs, tend to work better in teams, and tend to reinvest their earnings in the business." SKS Microfinance boasts a 99% repayment rate, providing ample justification for Akula's model.

Akula recounted the example of a woman named Sidhamma in an Indian coastal village. Nine years ago, he offered her a loan of a thousand rupees (about $25). Her family earned less than a dollar a day, and her son was in bonded labor, a form of debt slavery, with a local moneylender, because that brought in some extra money. Thanks to a succession of bigger loans, Sidhamma now runs a frozen-fish business that employs eight people. Her income has grown tenfold. She was also able to get her son out of bonded labor.

According to Akula, microfinance has made deep inroads into rural India's impoverished households in recent years, yet it reaches only a fraction of those it could benefit. His firm has provided more than $440 million in unsecured loans and micro insurance products to 1.7 million poor women and their families in 20,000 villages and slums in India.

A Yale graduate with a Ph.D. from the University of Chicago, Akula quit a successful career as a management consultant with McKinsey & Co. to set up SKS nine years ago. His firm has 700 branch offices across India and is in the process of adding 50 branches. SKS Microfinance's customer base of more than two million is growing at the rate of 20% a month. It has attracted equity investments from venture capitalists including Sun Microsystems cofounder Vinod Khosla, and Yahoo and Google investor Sequoia Capital. (In a recent videocast, Akula spoke with India Knowledge@Wharton about microfinance in India and his organization's latest initiatives.)

SKS employs a for-profit model, which works best for microfinance institutions, Akula said. India's microfinance sector is attractive to an increasing number of lenders, he said, because "the poor are willing to pay a premium." Despite big gains in recent years, though, microfinance in India "has not been able to scale to large levels." By his count, microfinance reaches barely 10 million to 15 million in a potential market of 450 million households. "If I could change the world, I would end poverty," he said.

Foreign hands building India - The Times of India

Foreign hands building India
15 Jun 2008, 0249 hrs IST, Neelam Raaj,TNN
Time was when there was only the occasional eruption of concrete. Today, India's skyline is a work in progress. But while the towering new skyscrapers, sprawling IT parks, glitzy airports and swanky townships reflect desi aspirations, the blueprint, more often than not, is foreign. Be it a slum redevelopment project in congested Mumbai or Kolkata's new museum of modern art, the global imprint on the country's fast-changing urban landscape is evident. Made in India but designed by a clutch of foreign architects looking to cash in on the country's real estate boom. For Edinburgh-based RMJM, the company behind the distinctive Scottish Parliament, a foray into India four years ago has translated into business of £1 billion. That, the company says, is unprecedented for a UK architecture firm doing business in India. "There's a cue here for UK business — we need to be in India in a very big way," says RMJM CEO Peter Morrison. RMJM, which currently has 38 projects under way in India, is now looking to establish a permanent base in Mumbai. Many others have taken the cue. Celebrated British architect Lord Norman Foster, who shaped London's skyline with buildings such as the Gherkin and designed the Reichstag in Berlin, has entered India in a tie-up with a Mumbai real estate firm, the Neptune group. Other big UK names in India are Laing O'Rourke, Davis Langdon and Mott MacDonald. Not just UK, firms from Canada (Arcop) to Australia (Omiros One) have designs on India. But does India really need foreign architects or is it just about getting a brand on the brochure? Most builders agree it's as much about star power as it is about international quality. After all, well-heeled buyers respond to designers with international reputations as much as they respond to a luxury label like Gucci or Prada. "When people purchase an expensive apartment, a famous architect is extra validation they're making a good choice," says Kunal Banerji of Ansal API which signed up US firm Chelsea West to design Manhattan-style condos at its Aquapolis project in Ghaziabad. The Mahindra group's real estate arm Mahindra Lifespaces, which has roped in US-based architect and design firm HOK (of Dubai marina fame), says their reasons go much beyond the brand. "The selection of an international architect or planner is driven by the unique needs of the project. For instance, the 325-acre Mahindra World City project is one of the largest such developments under implementation and to that extent the width and depth of on-ground implementation experience is currently available only with international firms who have conceived and implemented such projects in different parts of the world," says Anita Arjundas, COO of Mahindra Lifespaces. Size does matter and with Indian developers going beyond stand-alone commercial blocks and residences to converting huge swathes of land into townships and IT parks, a 'foreign hand' does come in handy. "Foreign firms can visualise and handle massive scale. Also, their designs are very innovative. They create landmarks and not just buildings," says Shantanu Malik, DGM-Architect, Unitech Ltd. It's a win-win for Indian architects as well. "Working with foreign firms gives us exposure to international standards. There is a lot to learn from their use of detailing and modern materials," adds Malik.
Unitech often hires multiple design firms for a single project. For instance, it has 10 global architecture and design consultants for the $3 billion Unitech Grande, a super-luxury residential complex spread over 347 acres along the Noida expressway. This project draws on the expertise of US-based mall designer Callison, landscape artists SWA and EDAW, Britain's RMJM for architecture and interiors and HOK for floor plans, besides a course designed by Australian golfer Greg Norman. With so much demand, it isn't surprising that Mark Igou, director in the US architectural firm Skidmore, Owings and Merrill Llp (SOM), has been shuttling between New York and India over the last three years. "I spend more than three months a year in India, familiarising myself with the ground situation." And ground reality is what SOM — the firm which has designed the Burj Dubai, which will be the world's tallest skyscraper when it is finished in 2009 — is faced with in Mumbai where it is designing homes for slum dwellers in Mumbai's Santa Cruz as part of a masterplan for Unitech. "It's a unique design challenge — recreating the same sense of community that exists in their current housing so that people don't want to return to the slums they left," says Igou. SOM is also using the services of sociologists and cultural anthropologists to get a sense of the social and cultural aspects of the lives of those being rehabilitated. Whether it's slum housing or a swanky township, India is essential to the design inputs. "Education and social interaction are both important to Indians so our designs will reflect these needs. So residential units would have schools nearby and public spaces for people to interact," he says. Besides projects like the Jet Airways headquarters in Mumbai, SOM is also working in Tier-II cities like Ahmedabad and Nagpur. Be it the Indian ethos or the vagaries of its climate, Uruguayan architect Carlos Ott keeps it in mind when he is on the drawing board. Ott, who has designed a technopark for Tata Consultancy Services at Siruseri, Chennai, in association with countryman Carlos Ponce de Leon, says, "I am constantly studying the history and traditions of India, hoping to integrate some of its characteristics in my buildings. And though my work is definitely contemporary, the clues from the past are integrated in a modern vocabulary." Ott is building on the work that earlier foreign architects have done in India. Apart from Lutyens and Le Corbusier, several other international architects have showcased their designs in India. Ahmedabad's Indian Institute of Management reflects Louis Kahn's trademark style of veering towards monolithic masses resembling ancient ruins. Christopher Charles Benninger designed the Mahindra United World College of India, near Pune. British-born Laurie Baker planned the Fishermen's Village in Poonthura in Kerala, while American Joseph Stein gave shape to Delhi's India International Centre. Now, a new generation of foreign architects has designs on India. And their glittering computer-generated images look set to redefine the country's skyline. neelam.raaj@timesgroup.com