#26: Breaking the glass ceiling
Building standards stunt the growth of office buildings in India
India’s merchandise exports constitute 1.9% of global trade, but its services exports constitute 4% of global service exports. From a domestic perspective, the IT/ITES sector is expected to contribute 20% to the country’s GDP by 2025. This sector currently stands as the largest private organised employer in the country, providing direct employment to 5.4 million people, and has the highest female participation in the workforce.
The IT/ITES sector primarily requires a skilled labour force, quality telecommunication services, and high-grade office spaces for its functioning. While India has addressed the first two factors, it is lagging in providing good quality, affordable office spaces to meet the sector’s demand. For instance, the rise in the IT sector has led to an increased demand for quality office spaces in Gurugram in recent years.
Indian building standards
One reason for the lack of office space in India could be building standards such as ground coverage, setbacks, floor area ratio, and parking requirements. These standards determine the footprint and floor space that can be created by offices on a plot of land. Indian building standards are far more restrictive than standards set by commercial hubs like Singapore. Consider a sample IT office building constructed on a 5,000 sqm plot in Haryana (Gurugram), Uttar Pradesh (Noida), and Singapore (Downtown Core). The following figure shows the economic losses incurred by office buildings in Indian states compared to Singapore.
An entrepreneur can construct five times more office floor space in Singapore than in Haryana (Gurugram) or Uttar Pradesh (Noida). This means that office buildings in Singapore can generate more jobs in the same plot area. Loss of floor space also limits the wages created per office building. For instance, the average salary of an IT employee in India is Rs 50,000 per month. An office building on a similar plot in Singapore could accommodate five times more people than what's possible in Indian states, resulting in a five-fold increase in wages disbursed.
Which Indian regulations explain this enormous gap between Singapore and Indian cities? Four standards drive a bulk of the loss of office space– (i) Floor Area Ratio (FAR), (ii) Parking, (iii) Ground coverage, and (iv) Setbacks.  Â
Of the four standards, Indian office buildings lose most of their potential floor space to Floor Area Ratio standards. In this standard, India is the farthest from other Asian cities. India’s IT hubs, like Gurugram and Noida, allow a maximum FAR of 2.5, while countries like Japan, Hong Kong, and Singapore allow FAR as high as 15.
After Floor Area Ratio regulations, Indian buildings have to provide more parking spaces than other jurisdictions. Laws mandating parking space in Uttar Pradesh (Noida) and Haryana (Gurugram) are nearly double that of offices in Singapore, even though the floor area allowed is one-fifth of what is allowed in Singapore. Buildings do not lose floor space to parking because regulations do not count parking in the Floor Area Ratio. However, builders will still have to construct the parking space, which in turn increases the cost of the building. In the hypothetical above, parking for the office in Noida will be equal to 49% of the floor area allowed. This is equal to constructing three additional basement floors to accommodate parking.Â
Finally, Indian buildings lose considerable land due to the combination of two standards: ground coverage and setback restrictions. These restrictions limit the footprint of the building when measured as a percentage of the plot the building occupies. This forces builders to construct more floors to utilise the maximum permissible FAR. The office building in Noida can have a maximum of 10,000 sqm floor space with the given FAR limits. A builder will need to construct at least seven floors to achieve this floor space. In contrast, had the same building been located in Singapore, achieving a floor space of 10,000 sqm would require just three floors. This is because, in Singapore, the ground coverage and setback restrictions permit a larger building footprint than those allowed in Noida. Additional floors increase the height of the building, which can increase the cost of construction and compliance with structural safety measures. The table below shows how these regulations reduce the floor space of ITES buildings in India compared to Singapore.Â
Global commercial hubs
Building standards in Indian states lead to a low stock of office floor space compared to commercial hubs like Singapore, Japan, and Hong Kong. These global commercial hubs have created high-density commercial areas. The following table shows the scale of some commercial projects developed in Singapore and Tokyo, compared to one developed in Noida.Â
Consequences on economic growth and welfare
As the table above shows, the lowest building in Tokyo will enjoy twice the floor space of Noida’s proposed development. India will have to pay for this land waste in multiple ways, including costs to the environment, urbanisation, jobs, and the economy as a whole.Â
When plots are not utilised to their maximum potential, the environment pays the cost of sprawl. For the same level of economic activity, Indian buildings will have to cover much more of the land. This is environmentally wasteful. Instead, India could have used less land for the same economic activity and left more land free for parks, forests, and other natural uses. The low density of offices also increases the emissions from the increased commuting distance.Â
The sprawl created by low-density offices also hurts urbanisation. Low-density office space means that workers will have to commute longer distances, and utilities and roadways will have to cover a longer distance for the same population. Instead of promoting urbanism, this building regulation may contribute to urban sprawl.Â
Finally, India’s ITES industry has to compete in the global marketplace. The inefficiency in land use has to be compensated by lowering some other costs if India is to be globally competitive. A firm in India will have higher land costs because of India’s building regulations. This higher cost will probably have to be offset by lower wages for Indian workers in the IT industry. Indian IT companies may become even more competitive and increase employment and salaries if building regulations do not hamper the efficient use of expensive land.Â
The costs identified above are incomplete. Restrictive building standards probably cause India to lose out in many more ways. The overall economic costs of building standards in India have not been calculated. India may gain more jobs at higher wages and with more economic growth if building standards are designed with keeping economic costs in mind.
Shubho Roy and Anandhakrishnan S are researchers are Prosperiti. The authors thank Sargun Kaur and Rohan Ross for their contribution.Â