Introduction

Urban settlements are primarily classified as either formal or informal settlements. Formal settlements are considered to have been developed by the governmental agencies and, in some cases, constructed by the housing societies present in any country. Informal settlements emerge in a haphazard manner on either state or private land. In some cases, this territory is located on illegally acquired land. These forms of settlements are unplanned and, thus, violate all norms associated with government planning. Such districts are either permanent or semi-permanent and have temporary structures that edge around the city railways, drains, and even in flood-prone areas (Godfrey 236). Some occupy the rural land that was initially planned for agricultural use. Informal settlements lack portable water services as well as regular electricity supply. In addition, they have underdeveloped road networks, as well as poor sanitation and parks. The houses in these regions have inadequate lighting and contaminated air. Moreover, toilets and bathing facilities are often in a poor state because of overcrowding. The settlements require restoration in all aspects; and since most of the essential amenities are inadequate, the majority of the residents presumably come from a disadvantaged background. Informal settlements are primarily defined as slums in most countries and are commonly associated with the lower class of people in the society. In India, however, they significantly contribute to the country’s economy despite the existing challenges in these regions.

Development and Expansion of Informal Settlements in India

India remains one of the countries that has a significant percentage of population living in slum areas. In a census conducted in 2011, about 66% of all of the statutory towns in India were located in slum areas (Satterthwaite 207). An estimated 13.7% of households lived in about 108,000 poor areas with only 17.4% of the population in urban households inhabiting slums (Satterthwaite 207). The results indicated that close to 10% of the households in some towns lived in the slum areas, while other studies suggested that 50% of the population residing in deprived regions of such cities as Mumbai and Delhi (Satterthwaite 207). In the past years, the further estimates have indicated that 104 million people will live in slums by 2017 (Dovey and King 276). This statistical data raises several important questions about informal settlements in India. Therefore, the paper attempts to discuss and elucidate the process of establishment of informal settlements in India, their expansion as well as the impact on the economy of the country.

India remains one of the most populated countries in the world. There are several different factors that have resulted in the growth and expansion of informal settlements in this country. Rural to urban migration is considered one of the major reasons for the development of informal settlements. Other factors include urbanization, poor planning, poverty, growth of the informal economy, ineffective politics, social exclusion, and economic stagnation. A number of studies related to India’s economy indicate that people initially working at their agricultural firms have decreased by about 30% over the past fifty years, though the town populations have increased by about 250%, with such values being noted in New Delhi and Mumbai (Dovey and King 278). The Gross Domestic Product in India in 1954 was estimated to be 54%, and it gradually decreased to 19% in 2004 due to the decline of people investing in agriculture and moving to towns (Satterthwaite 207). Previously, agriculture contributed about 20% of the GDP of the country. More people are moving to the towns in an attempt to seek better jobs and reputable schools as well as diverse opportunities for children, which becomes less accessible when staying in the rural areas and engaging in subsistence farming. Considering that most people moving to the cities face mass unemployment, they are obliged to search for other job prospects in informal settlements and ultimately settle in affordable slums. The population of such town as New Delhi has increased by 221.57 % in the past twenty years (Satterthwaite 207). Such an increase has not been witnessed in any other city in the world (Lahiri et al. 412). Overpopulation tendency is largely attributed to poverty-induced migrations of individuals believing that there are better opportunities in the urban areas. Due to unending streams of people moving to the metropolitan centers and high rental costs in most cities, people massively look for reasonably priced settlements.

Urbanization is one of the drivers of economic growth and the sole reason for more people coming from rural areas seeking new opportunities in metropolises. In India, the local government is normally in charge of the urbanization and more specifically of the construction of industries. However, governmental officials paid little attention to the provision of appropriate housing units for their employees. Since the enterprises hire most people irrespective of their skills, the latter are in some cases forced to look for affordable alternatives, wherein they can dwell and, at the same time, be able to provide for their daily needs. A 1991 census data conducted in India indicated that the majority of people from the rural areas, namely 81. 56%, migrated to other allegedly wealthier parts of the country with the aim of searching for employment opportunities, while a mere 8.56% wanted to establish their business (Doberstein and Stager 32). The survey also indicated that more than 70% of the individuals migrating from rural areas to urban regions were illiterate, and, therefore, their chances of being formally employed were limited.

The mushrooming of slums in most towns in India has developed as a result of lack of adequate housing plans. Currently, the country witnesses an increase in population in these areas, though they lack additional space for extension. The water, lighting, and sewerage systems were initially planned for a particular number of residents, and, therefore, a surge of population living in these areas has strained the situation with available resources resulting in poor living conditions (Ghate et al. 158). Thus, governments should immediately consider developing and investing in special upgrade programs that would reduce the number of slums.

Historians view some slums as the products of colonization and segregation with key example being the Dharavi slum that developed in Mumbai India due to colonialists. Moreover, it is now regarded as one of the largest yet extremely deprived areas in India. In 1887, the British colonial government managed to move all individuals who worked in the noxious industry as well as the poor natives from the city to the colonial housing areas located in the suburbs (Godfrey 239). However, the officials did not assign any person the responsibility for the colonial supervision in terms of sanitation, public services as well as essential facilities. Most poor people worked and lived in these regions. Moreover, scholars assume that more representatives of the lower class would inhabit these areas in the upcoming years.

Poverty, ineffective politics, social conflicts, and natural disasters have also been implicated in the growth and development of informal settlements. India remains one of the countries based on aristocracy – a class society that privileges the high-class population and discriminates the low social class. More people of the latter caste are likely to live in informal settlements. The removal of slums and their replacement for modern form of housing has created serious political issues and tensions in India. In the past, politicians rejected projects aimed at relocating, removing, or upgrading slums, therefore ensuring the development of disadvantaged areas. Furthermore, natural disasters are also directly linked to the migration of people from one area to another resulting in the construction of temporary tents that eventually become permanent structures.

Informal Settlements and the Economy

The gross domestic product of any country refers to the monetary value of goods and services produced within a specific period. The informal settlements in India have been implicated in contributing to about 7.5% of the total gross domestic product of metropolitan India through direct, induced, and indirect effects (Satterthwaite 209). Also, the urban economy is considered to account for 60% of the total gross domestic product of India. When 7.5% of the informal settlements are calculated against the total percentages, they are responsible for about 4.5% of the total GDP in India (Satterthwaite 211). Informal settlements have largely contributed to the development of economies through the provision of taxable products and establishment of small and medium businesses. Generally speaking, India provides one of the most obvious examples of how informal settlements have facilitated the growth of the economy.

The informal settlement remains one of the key providers of labor force in India. The majority of workers across most industries in the country come from the informal settlements. In fact, most of the businesses across India are largely dependent on the work force that is mainly concentrated in the informal settlements. Additionally, most companies, especially those related to the manufacturing industries, demand heavy labor resources that are offered by residents from informal settlements. Without this population, most companies in the manufacturing business segment would not be able to produce planned amount of goods. One study indicates that population of India does not live in the towns but in the villages as more people from such informal settlements are considered the key drivers of the economy. Manufacturers and other investors in specific markets understand that these employees not only play the crucial role in the market but also satisfy urgent needs for work force at a minimum wage. Moreover, slums in Mumbai have become the major labor providers to some of the manufacturing companies.

The growth of small and medium based enterprises, commonly referred to as SMEs, have largely developed in informal settlements as compared to the formal settlements. These micro, small, and medium size companies have been contributing close to 17% to the gross domestic product of any country. As to India, where the total population is more than 100 million, the governmental institutions ensure that the growth of the economy remains in the hands of the people in the informal settlements as most of the SMEs are located in these districts (Shah et al.). Such small and medium sized enterprises situated in informal settlements are defined as the economic hubs since they employ more people and substantially contribute to the economy through direct and indirect taxes as well as the purchase of taxed goods. India became one of the first countries in the world that initiated the Micro, Small and Medium Enterprises Development Act 2006 which allows firms to provide for both service and manufacturing enterprises. This law offers an opportunity for informal settlements to invest in businesses and, as a result, enabled the development of the informal economy. Additionally, the officials removed other unnecessary regulations that hindered the growth and ease of doing business in the informal sector. The local government also established a number of business units to allow informal settlers to market their products. The cost of business licenses has also been reduced. Consequently, more people related to the informal economy can now purchase products from the local and international markets and sell them directly to people living in both formal and informal settlements. One major way of increasing the state budget is through the use of taxes that residents of these informal settlements pay when purchasing products from both local and international markets. Moreover, they are obliged to pay for a business license if the business aims to sell products across different designated markets, which is also potentially profitable for the state treasury. Formulation of such policies that favor the people living in the informal settlements has created a conducive environment for these communities to run business and contribute to the growth of the country’s gross domestic product.

One of the major indicators of economic growth in any country is the ease of startups. Close to 60% of the total start-up in India comes from the informal settlements. These small companies have become a new method of conducting business. The startups provide employment to people living in the informal settlements and, at the same time, received funds from different governmental and non- governmental organizations through India. Some of the programs target the use of technology for reducing the amount of garbage in the informal settlements. Such innovative approach has resulted in the development of solid waste management systems that recycle most of the plastic products in the markets and later resell the ultimate materials to companies that apply plastic packaging. Some of the manufacturing companies utilize the recycled plastic and reduce the dependence on imported products in the market. Additionally, some traders in the informal settlements even incorporate ornaments and other fashion accessories at a cheaper price and distribute some of these products to foreign countries through several companies. Start-ups in most of these areas are not taxed in the same manner as other companies, which enables them to invest more of their resources in the market.

Despite being hubs of economic investment, informal settlements face a myriad of problems that in some cases slow the growth of the economy. Specifically, they remain key areas that have high rates of unemployment. Accordingly, lack of job opportunities coupled with increased levels of inflation are two factors that affect the economy of any country. Since the majority of population living in the informal settlements are unable to provide for their daily needs and because of the inflation issues cannot afford purchasing specific livelihood products, it seems barely plausible that the informal settlements will reach satisfactory living standards and become highly developed industrial regions (Godfrey 239). As a consequence, most of the residents are involved in other activities seeking to earn money using different methods, thus leading to high levels of insecurity in these regions. Hence, such areas do not become hubs of economic prosperity as many different companies are not likely to invest in areas where the working environment is less favorable and has largely been associated with increased crime levels. A closer look at the dwelling of most informal settlements indicates that companies do not longer invest in zones that seem to be prone to insecurities. Most manufacturing organizations will be located outside the informal settlements. Although a significant percentage of people lives in the informal settlements in India, where the cultural practices of the traditional communities promote obvious elements of aristocracy, investments in these regions have remained limited over the years. Moreover, most governmental and non-governmental organizations decided that the most efficient method that could alleviate the conditions in the informal settlements is the development of programs that are geared to improve the living standards of people inhabiting these areas, commonly referred to as slums (Chen 26). Nonetheless, there are several programs that were introduced in some informal settlements with the key aim of providing security. However, the high rates of unemployment coupled with increased insecurity in such areas prompted more companies and investors to choose different sites for launching their businesses.

Economic hubs in India have largely been developed in informal settlements where people are not assured of their security as well as returns on investment. Economic investments are largely guided by the formulation of specific policies that seek to create better working environments that facilitate the development of business. Currently, most of the policies present in the 21st century rarely target markets that are in the informal settlements because of the risks that are related to such ventures (Doberstein and Stager 34; Webb et al. 599). One of the welfare programs that could have enhanced the economic conditions of the people, as well as the economy of the state, was the upgrading slum project that sought to decrease the number of slums present in most cities. The policy had serious political undertones to the point that the project was canceled before the investment came into operation. Such projects are usually transferred to other more wealthier settings where the representatives of the privileged society dwell, and as a result, one class receives more economic benefits at the expense of less fortunate individuals. When inequalities in such societies are not addressed, it is common to find that some areas of India where the affluent people live are developed, while other districts with the remaining population languish in poverty.

Conclusion

There are several factors that triggered the rise of informal settlements in India. As a consequence, the evident negligence of the government has resulted in the development of informal settlements, or what is commonly referred to as slums. Some of the major causes associated with the development of these poor regions include rural to urban migration, poor planning, urbanization, colonization and segmentation of people as well as economic exclusion and stagnation over the years due to the caste system in the Indian political and cultural structure. Moreover, governmental officials have taken no notice of the abovementioned issues for a long time, which have resulted in the development and expansion of slum areas at an unprecedented rate. The increase in population has further worsened this condition. More informal settlements continue to appear in India on a daily basis. Additionally, the informal sector has an effect on the economy. Informal business that is largely present in such settings are considered one of the key contributors to gross domestic product of the country. In addition, many micro, small, and medium-sized businesses are located in this region and play a critical role in increasing the GDP. Informal settlements also drive the manufacturing industries as well as other skill-based industries as they provide ample employment opportunities for the population. Nonetheless, the presence of informal settlements in specific areas has prevented investments due to the increased insecurity and high rates of unemployment. As a result, more and more newcomers prefer running their business in other more promising areas that could bring maximum profit and demand minimum expenditures. In addition, there are several governmental policies that are geared to assist the upper class since this caste largely controls the current politics in the country.