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Doing business in Dharavi
We visited Mumbai’s Dharavi Slum on Boxing Day, gaining a peek into this
city within a city. We were moved by the scenes of daily life that we
encountered but were most surprised by the sophistication of Dharavi’s
economy. As a single data point in India’s informal economy, the
recycling, textiles and leather businesses that we saw were vibrant
enterprises and had developed sophisticated links with the wider
economy.
One of Mumbai’s largest slums
q Dharavi encompasses a 1.7km2 area and is home to an estimated one million
residents
q Its residents face a daily challenge from their impoverished conditions
Sophisticated businesses
q Dharavi supports a strong economy, producing ~US$600 million of goods each year
q We visited local recycling, textiles and leather businesses and were surprised by
their sophistication
Sophisticated consumers
q Even in the midst of poverty, we still saw evidence of growing consumerism
q We were struck by the number of smartphones in use, satellite TV dishes on the
rooftops and motorcycles on the streets
Seeing is believing
q We recognise that Dharavi is just one slum of many and may not be representative
q Still, Dharavi provides a fascinating insight into India’s informal economy and
refutes the idea that the informal economy must be stagnant and backward
q We recommend investors contact Reality Tours & Travel to see Dharavi with their
own eyes
One of Mumbai’s largest slums
While on holiday in India, we spent Boxing Day afternoon on a five hour tour
of Mumbai’s Dharavi Slum. As seen in the Oscar-winning film “Slumdog
Millionaire”, Dharavi is a crowded huddle of shanty homes nestled into the
centre of South Mumbai. An estimated one million residents live within its
~1.7km2 borders. It is typical of the developments which have mushroomed
along with rising urbanisation and Mumbai’s rapid growth – in the last 10
years alone, Mumbai’s slum population has grown from 6.4 to 8.6 million.
Dharavi was once the largest slum in Mumbai but now there are four other
slums which are believed to be larger.
We were guided by a local-resident who showed us through the narrow alleys
and passageways of the slum. We were moved by the scenes we saw of daily
life: cramped living conditions, poor hygiene, noise and pollution. We
understand that many residents are second and even third generation slum
dwellers. Others are migrants who have come to Mumbai in search of
employment. While we expected housing to be basic and temporary, we were
surprised by how robust and permanent most dwellings appeared. A typical
dwelling is two stories high and made of bricks and concrete. A family will
live on each floor, sharing ~20 square feet between 4-5 people. Rent for such
a space is ~4,000 rupees per month.
Slums are defined by the Indian government as “any compact housing cluster
or settlement of at least 20 households with a collection of poorly built
tenements which are mostly temporary in nature with inadequate sanitary,
drinking water facilities and unhygienic conditions”. The government’s
attitude towards slums has shifted from one of forceful relocation (1970s-
1980s) to one of amelioration and redevelopment (1990s-present). Now,
because Dharavi is recognised as an official slum, the government is obliged
to provide basic infrastructure. This consists of electricity distributed to
homes, communal water supplies and communal toilet facilities.
While the government ultimately owns all the land on which slums are built,
slum dwellers are legally entitled to compensation if their land is taken to be
used for redevelopment. Furthermore, residents are required to give consent
before redevelopment may proceed. Dharavi has specifically been targeted
for redevelopment given conditions there and its prime location in central
Mumbai. However, aside from a few small scale trial projects, most efforts
have failed to take off in the face of opposition from residents.
Sophisticated businesses
A recent Harvard Business School case study cited that Dharavi’s ~5,000
informal businesses produce goods each year with a value of ~US$600
million. Despite being part of the informal economy, the slum’s enterprises
are clearly not an amateur operation. Our tour of Dharavi included stops to
see a selection of businesses from the recycling, textiles and leather
industries. We were impressed with how sophisticated they were.
Our first stop was to an area of recycling companies. These businesses
collect waste materials such as cardboard, plastic bottles, and tin and
aluminium cans from Mumbai’s residential and commercial areas and bring
them to Dharavi for hand-sorting. Plastics were sorted by colour before being
compressed, melted, and extruded into re-usable pellets. These recycled
pellets were then sold on to manufacturing companies for use in household
products such as lawn chairs. Cooking oil tins were scrubbed clean in boiling
water, beaten back into shape and then re-sold to manufacturers. An
aluminium smelter was the most ambitious enterprise we saw although we
did not stay for long because of the toxic fumes coming from the furnace.
Dharavi was also home to many small textile workshops. Each workshop
would hold about 10 stations, each with its own sewing machine. The
workshops made jeans, shorts, shirts and other items of adult and child’s
clothing for the domestic and international markets. They also made
traditional hand-embroidered spreads – although one workshop was using
imported Chinese embroidery machines to produce its ‘hand-made’ crafts.
One small workshop even made suitcases.
Leather was the final industry cluster we visited. What impressed us the
most about this industry was its connection with slums in other parts of India.
While goats and other animals used for their skin were slaughtered in
Dharavi, health regulations forbade their tanning in the slum. Instead, they
were shipped to Chennai and returned as processed leather. Once back in
Dharavi, the leather was used for making shoes, wallets and bags.
While the informal economy provided jobs in the slum, the quality of
employment conditions was poor at best. The enterprises we visited in
Dharavi were clearly founded on low wages (which made labour-intensive
processes economic) and lax safety and health conditions (which reduced
overhead costs). What’s more, it appeared that profits were leaving the
slum: we happened to bump into the owner of one leather workshop as he
was preparing to leave for his villa in a stretch BMW. Still, our visit changed
our view that the informal economy was by definition a backwards and
stagnant economy. The businesses we saw in Dharavi were sophisticated and
the informal economy was vibrant.
Sophisticated consumers
We were also impressed by the sophisticated consumers we saw on our visit.
Even in the midst of poverty, we were struck by the number of people with
cell phones (including Smartphones) and homes with satellite dishes
(supplied by Dish TV). Motorcycles were prevalent in the wider streets (with
Hero Motocorp the most visible brand). Small shops sold a good range of
basic branded consumer products. Elsewhere, on the edge of the slum, a
private hospital catered to most illnesses and injuries – although its prices
were considered by our guide to be out of most people’s reach.
Seeing is believing
We recognise that Dharavi is but one of the thousands of slums in India and
may not provide an accurate picture into the struggle millions of slum
dwellers face each and every day. However, we believe that our visit gave a
useful insight into the complexities and sophistication of India’s informal
economy (discussed in the recent Paradox revisited (Land, labour and capital
twist the tale) report). The industries we saw in Dharavi were certainly based
on low wages and lax safety and health standards but they were vibrant and
had developed sophisticated links with the wider economy.
Should you wish to see Dharavi with your own eyes, our tour was organised
by Reality Tours & Travel, a non-profit organisation dedicated to breaking
down the negative stereotypes surrounding slums and their residents. Reality
Tours & Travel is recommended by the Lonely Planet in the latest edition of
their India travel guide. 80% of profits from the tours are used to support a
community education project in Dharavi which focuses on teaching young
people the computer, communication and inter-personal skills they need to
find work outside of the slums. Should you wish to contact Reality Tours &
Travel for your own peek into Dharavi, they can be reached at
info@realitytoursandtravel.com or +91 (0) 2222833872.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Doing business in Dharavi
We visited Mumbai’s Dharavi Slum on Boxing Day, gaining a peek into this
city within a city. We were moved by the scenes of daily life that we
encountered but were most surprised by the sophistication of Dharavi’s
economy. As a single data point in India’s informal economy, the
recycling, textiles and leather businesses that we saw were vibrant
enterprises and had developed sophisticated links with the wider
economy.
One of Mumbai’s largest slums
q Dharavi encompasses a 1.7km2 area and is home to an estimated one million
residents
q Its residents face a daily challenge from their impoverished conditions
Sophisticated businesses
q Dharavi supports a strong economy, producing ~US$600 million of goods each year
q We visited local recycling, textiles and leather businesses and were surprised by
their sophistication
Sophisticated consumers
q Even in the midst of poverty, we still saw evidence of growing consumerism
q We were struck by the number of smartphones in use, satellite TV dishes on the
rooftops and motorcycles on the streets
Seeing is believing
q We recognise that Dharavi is just one slum of many and may not be representative
q Still, Dharavi provides a fascinating insight into India’s informal economy and
refutes the idea that the informal economy must be stagnant and backward
q We recommend investors contact Reality Tours & Travel to see Dharavi with their
own eyes
One of Mumbai’s largest slums
While on holiday in India, we spent Boxing Day afternoon on a five hour tour
of Mumbai’s Dharavi Slum. As seen in the Oscar-winning film “Slumdog
Millionaire”, Dharavi is a crowded huddle of shanty homes nestled into the
centre of South Mumbai. An estimated one million residents live within its
~1.7km2 borders. It is typical of the developments which have mushroomed
along with rising urbanisation and Mumbai’s rapid growth – in the last 10
years alone, Mumbai’s slum population has grown from 6.4 to 8.6 million.
Dharavi was once the largest slum in Mumbai but now there are four other
slums which are believed to be larger.
We were guided by a local-resident who showed us through the narrow alleys
and passageways of the slum. We were moved by the scenes we saw of daily
life: cramped living conditions, poor hygiene, noise and pollution. We
understand that many residents are second and even third generation slum
dwellers. Others are migrants who have come to Mumbai in search of
employment. While we expected housing to be basic and temporary, we were
surprised by how robust and permanent most dwellings appeared. A typical
dwelling is two stories high and made of bricks and concrete. A family will
live on each floor, sharing ~20 square feet between 4-5 people. Rent for such
a space is ~4,000 rupees per month.
Slums are defined by the Indian government as “any compact housing cluster
or settlement of at least 20 households with a collection of poorly built
tenements which are mostly temporary in nature with inadequate sanitary,
drinking water facilities and unhygienic conditions”. The government’s
attitude towards slums has shifted from one of forceful relocation (1970s-
1980s) to one of amelioration and redevelopment (1990s-present). Now,
because Dharavi is recognised as an official slum, the government is obliged
to provide basic infrastructure. This consists of electricity distributed to
homes, communal water supplies and communal toilet facilities.
While the government ultimately owns all the land on which slums are built,
slum dwellers are legally entitled to compensation if their land is taken to be
used for redevelopment. Furthermore, residents are required to give consent
before redevelopment may proceed. Dharavi has specifically been targeted
for redevelopment given conditions there and its prime location in central
Mumbai. However, aside from a few small scale trial projects, most efforts
have failed to take off in the face of opposition from residents.
Sophisticated businesses
A recent Harvard Business School case study cited that Dharavi’s ~5,000
informal businesses produce goods each year with a value of ~US$600
million. Despite being part of the informal economy, the slum’s enterprises
are clearly not an amateur operation. Our tour of Dharavi included stops to
see a selection of businesses from the recycling, textiles and leather
industries. We were impressed with how sophisticated they were.
Our first stop was to an area of recycling companies. These businesses
collect waste materials such as cardboard, plastic bottles, and tin and
aluminium cans from Mumbai’s residential and commercial areas and bring
them to Dharavi for hand-sorting. Plastics were sorted by colour before being
compressed, melted, and extruded into re-usable pellets. These recycled
pellets were then sold on to manufacturing companies for use in household
products such as lawn chairs. Cooking oil tins were scrubbed clean in boiling
water, beaten back into shape and then re-sold to manufacturers. An
aluminium smelter was the most ambitious enterprise we saw although we
did not stay for long because of the toxic fumes coming from the furnace.
Dharavi was also home to many small textile workshops. Each workshop
would hold about 10 stations, each with its own sewing machine. The
workshops made jeans, shorts, shirts and other items of adult and child’s
clothing for the domestic and international markets. They also made
traditional hand-embroidered spreads – although one workshop was using
imported Chinese embroidery machines to produce its ‘hand-made’ crafts.
One small workshop even made suitcases.
Leather was the final industry cluster we visited. What impressed us the
most about this industry was its connection with slums in other parts of India.
While goats and other animals used for their skin were slaughtered in
Dharavi, health regulations forbade their tanning in the slum. Instead, they
were shipped to Chennai and returned as processed leather. Once back in
Dharavi, the leather was used for making shoes, wallets and bags.
While the informal economy provided jobs in the slum, the quality of
employment conditions was poor at best. The enterprises we visited in
Dharavi were clearly founded on low wages (which made labour-intensive
processes economic) and lax safety and health conditions (which reduced
overhead costs). What’s more, it appeared that profits were leaving the
slum: we happened to bump into the owner of one leather workshop as he
was preparing to leave for his villa in a stretch BMW. Still, our visit changed
our view that the informal economy was by definition a backwards and
stagnant economy. The businesses we saw in Dharavi were sophisticated and
the informal economy was vibrant.
Sophisticated consumers
We were also impressed by the sophisticated consumers we saw on our visit.
Even in the midst of poverty, we were struck by the number of people with
cell phones (including Smartphones) and homes with satellite dishes
(supplied by Dish TV). Motorcycles were prevalent in the wider streets (with
Hero Motocorp the most visible brand). Small shops sold a good range of
basic branded consumer products. Elsewhere, on the edge of the slum, a
private hospital catered to most illnesses and injuries – although its prices
were considered by our guide to be out of most people’s reach.
Seeing is believing
We recognise that Dharavi is but one of the thousands of slums in India and
may not provide an accurate picture into the struggle millions of slum
dwellers face each and every day. However, we believe that our visit gave a
useful insight into the complexities and sophistication of India’s informal
economy (discussed in the recent Paradox revisited (Land, labour and capital
twist the tale) report). The industries we saw in Dharavi were certainly based
on low wages and lax safety and health standards but they were vibrant and
had developed sophisticated links with the wider economy.
Should you wish to see Dharavi with your own eyes, our tour was organised
by Reality Tours & Travel, a non-profit organisation dedicated to breaking
down the negative stereotypes surrounding slums and their residents. Reality
Tours & Travel is recommended by the Lonely Planet in the latest edition of
their India travel guide. 80% of profits from the tours are used to support a
community education project in Dharavi which focuses on teaching young
people the computer, communication and inter-personal skills they need to
find work outside of the slums. Should you wish to contact Reality Tours &
Travel for your own peek into Dharavi, they can be reached at
info@realitytoursandtravel.com or +91 (0) 2222833872.
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