#22: The cost of ‘model’ laws
Nudge towards standardisation imposes higher economic costs
In January 2024, India saw a new set of proposed building regulations—the Standardised Development and Building Regulations, 2023, by the Bureau of Indian Standards. This is the fifth national building standards document in 54 years. These national standards are not binding on state governments. However, many state governments adopt these codes into their laws. For example, Haryana has adopted the fire-safety norms of the 2016 building codes into the state laws.
Is it better if state governments adopt the national laws? The latest code of 2023 promises that national standards:
“..will help in the ease of doing business in various geographic areas.”
However, standardisation comes at a cost. This article tries to quantify the cost of moving to national standards in two areas: industrial efficiency and job creation. The article compares state regulations with the last two national model regulations: (i) the National Building Code 2016 (2016 model code) and (ii) the Standardised Development and Building Regulations 2023 (2023 model code).
We find that national model codes are more restrictive than some state regulations. If states adopt the national codes, then factories in those states may lose productive land, creating fewer jobs.
National model laws v. State standards
States continue to have their own building codes, despite multiple attempts to achieve national standards. More often than not standards set by states are more liberal than national standards. In these states, buildings can be denser, land can be used more efficiently, and economic activity can be increased for the same plot. The table below compares the two national codes with requirements in some states, where the state regulation is more liberal than what is proposed nationally.
In some states, the national code is more liberal than state regulations. For example, the model codes allow more ground coverage and FAR than the building code of Bihar. Such states may benefit by adopting the national standards. However, for many states, the move to national standards will lead to less efficient land usage. A higher proportion of land will have to be left fallow, which will have economic consequences.
Economic consequences of adopting national standards
What are the economic consequences of adopting national standards? A hypothetical textile factory on a 1,000 sqm plot in Haryana shows the effect of adopting national standards. To establish the economic consequences, we must first calculate the land lost by the hypothetical factory. Our hypothetical factory will lose land primarily to four standards—ground coverage, setbacks, parking, and floor area ratio. The table below shows how the national codes compare to Haryana, on the four standards.
Haryana is worse than the 2016 model code, only on one standard, i.e. ground coverage. Compared to the 2023 model code, Haryana sets more liberal limits on all four standards.
With the estimated land lost, our hypothetical factory will become smaller. This will lead to two consequences: reduced employment and land left unused. For our calculations, we assume (i) the factory floor is equally divided between machines and space for workers (for job loss); (ii) the factory is located in Rajapur, Panipat (for land value). The following figure shows the economic consequences for our hypothetical factory if Haryana adopted the model laws.
For our hypothetical factory, economic consequences will be negative. The cost of land lost will double, and at least 55 (37% less) fewer workers will be employed.
Industrial efficiency and job loss hold for factories of all sizes. Model codes set more stringent standards that lead to worse economic consequences. A small factory on a 300 sqm plot will be able to use 160 sqm (56%) of land per the 2017 Haryana code whereas the same factory will be able to use only 80 sqm (27%) of land per the 2023 model code. Similarly, a large factory on a 5,000 sqm plot will be able to use 3,000 sqm (60%) of land per the 2017 Haryana code whereas the same factory will be able to use only 1,700 sqm (35%) of land per the 2023 model code.
A single factory’s losses accumulate at the state level. According to the Annual Survey of Industries 2019-20, Haryana has ~2,360 medium factories. Cumulatively, these factories would lose space for ~1.46 lakh jobs, if the state shifted to the 2016 national code. Suppose the state shifts to the 2023 national code; job losses in medium factories would still be ~1.29 lakh.
Conclusion
In the Indian Union, the central government enjoys a leadership position. Many states do not have the economic or administrative resources to review laws and develop model codes. Hence, states often adopt standards from these model codes. The 2023 model code nudges states and union territories to adopt the code. The preamble of the code says:
“...The states and UTs have been informed of the same and have been requested to adopt the document with minimal changes to suit their local conditions and only delete such text which are not applicable to them...”
(emphasis added)
As this article shows, the model Union codes impose significant costs to efficiency and job creation. It may be better to accompany such codes with a detailed cost-benefit analysis.
Model regulations, while advisory in nature, create pressure to conform. States are incrementally moving toward liberalisation, and the model laws may hold them back. For instance, Haryana has amended the Haryana Building Code to reduce parking requirements, increase ground coverage for the apparel and footwear industry, and set liberal norms for data centres. The state may be responding to the needs of their residents by liberalising laws, however, model laws will force states to walk back on these amendments, and create economic losses for the residents.
Model laws may be an opportunity but also a hazard. While some of these regulations may improve safety, we must ask at what cost. If the states adopted these model laws, they would hurt economic activity, kill job creation, and push more people towards poverty.
Applicable laws
GoI: National Building Code of India 2016
GoI: Standardised Development and Building Regulations 2023
BH: Bihar Building Bye-laws 2014
GJ: Gujarat Comprehensive Development Control Regulations 2017
HR: Haryana Building Code 2017
MH: Unified Development Control and Promotion Regulations for Maharashtra State 2020
OD: Odisha Development Authorities (Planning and Building Standards) Rules 2020
PB: Punjab Urban Planning and Development Building Rules 2021
TN: Tamil Nadu Combined Development and Building Rules 2019
TS: Andhra Pradesh Building Rules 2012
UP: Bhavan Nirman evam Vikas Upavidhi 2008
Bhuvana Anand, Sargun Kaur, and Shubho Roy are researchers at Prosperiti. The authors thank Bhavna Mundhra, Rohan Ross, and Anandhakrishnan S from Prosperiti for painstakingly mining and analysing the regulations.