Monday, February 9, 2009

Should some urban schools be relocated to facilitate commercial development?

A proposal mooted by the Municipal Corporation of Delhi (MCD) to sell some sixty Corporation owned school properties in prime locations across Delhi to raise revenues for the Corporation has come unstuck in the face of intense media and public opposition. The MCD had hoped to sell these properties for development of malls and commercial complexes and relocate the schools to other buildings in the area.

Without going into the specific context within which this proposal was mooted by the MCD (which may be questionable, given the high probability of corruption and links with big developers), the undertones and premise of the popular opposition expressed through the media throws up a few issues. If the opposition is related to the absence of clarity in the relocation - the distance of the new school from the population it services, availability of adequate space and building, convenience to the children, new school surroundings, etc - or corruption in the land sales (in which case, make the process transparent and go ahead with it), then I will happily join the opponents. But if it is related to a blind opposition to any re-development of a school property, as I suspect the Delhi issue is about, then I have my concerns.

It is commonplace to find public schools in dilapidated condition occupying prime locations in cities across the country. These school complexes have numerous scattered small single or two storied structures, consisting of classrooms, teachers rooms, kitchens and toilets. Since these structures have been incrementally added as part of different schemes (with their budgetary limitations), it becomes difficult to develop the school complexes in a planned manner by making optimum use of the available land. Therefore most of such schools are characterized by inefficient utilization of valuable land area. Further, most of these schools, except a few, have no playgrounds worth the name.

It is clear that there is a massive opportunity cost incurred by way of such inefficient utilization of a valuable economic resource (land, here). Given the huge land values, it is surely more optimal to have muti-storied schools buildings. In the circumstances, it is surely more economically efficient if either the school complex is re-developed or if it is shifted to a nearby alternative location where a building is available or can be constructed.

Reality shows that arguements that such re-developments will reduce the playground land available to children is superfluous. In most cases, except a few glorious exceptions, which should be preserved, playgrounds have long become a luxury in our Government schools. The primary infrastructure challenge for our schools is to improve the quality of existing schools and provide sorely needed additional built-up area.

School re-development on a Public Private Partnership (PPP), by sharing the built-up space (the private developer will construct the school infrastructure as per specifications in a part of the land and also give regular lease rentals, in return for the right to commercially develop the remaining land), can help improve the infrastructure of these schools besides providing a regular income for the maintenance of these schools. Such PPPs can be made contingent on investing some share of the returns on local infrastructure, including a provision for maintenance expenditures for the school.

Positive externalities include - children get better school facilities, local community benefits by way of better infrastructure and the multiplier from the re-development, local government gets revenues, and the developer makes his profits. Negative externalities include - inconvenience and other costs in relocating to the new building, increase in rental values affecting tenants, presence of commercial activity adjoining a school etc.

Further, any commercial re-development and attendant urban renewal will benefit the local neighbourhoods serviced by the school. Land and rental values will increase, and newer employment and livelihood options will emerge. Depending upon the commercial value of the locations, the positive externalities will far outweigh the negative externalities.

Therefore such re-development decisions should be taken based on an economic cost-benefit analysis (CBA) which internalizes the externalities, as against the simple financial CBA which merely focusses on the actual cash flows.

There are also likely to be some old schools, located in previously predominantly residential locations that have now turned commercial, and therefore has limited enrollment. In a few instances, good and affordable private schools have crowded in children from the local government school, leaving it with only a few children. There is a strong case to be made for closing down these schools and merging them with the nearest school.

Then there are those who opine that if the Government wants to raise revenue, it should consider leasing out the schools to private agencies under the condition that they should provide free education to the poor children from the area. Apart from the unsustainability of such models (both for the private person and the poor children) and the difficulty in enforcing such contracts, this still does not address the issue of oportunity cost of the land.

Surely having a dilapidated Rs 30 lakh school building complex, with cramped accomodation, no toilet or kitchen shed, sitting on a Rs 50 Cr land is an inefficient way to use scarce resources. No right thinking person will dispute an arrangement which gives a Rs 1 Cr worth integrated, new school building complex, with more space for each child, apart from annual revenue of say, Rs 2-3 Cr. All the externalities, positive on the balance, apart. But the devil is in the implementation, and our experience such experiments inspires little or no confidence!

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