Almost half of our urban population lives in slums. Urban population and slums grow due to rural migration. The poor come down to the cities because the land is unable to sustain them, or because the prospects of life there are brighter.

Economic theory tells us that the root of prosperity is productivity and that productivity depends on the division of labour and knowledge. The scope for this division and specialisation is far higher in cities. Cities therefore are prosperous. But can cities exist without slums?

Consider the rural migrant: He works as street vendor, rickshaw puller, labourer in construction and small-scale industry. A documentary by Madhu Kishwar informs that Delhi has about two lakh rickshaw pullers and more than three lakh street vendors. But the city government has put a limit of 50,000 on licenses to pull rickshaw. About 1.5 lakh rickshaws operate illegally in Delhi. A vast majority of street vendors have no license either. They all operate outside the legal economy harassed by police and municipal authorities. The license-permit raj is now largely gone for the Tatas and Birlas, but it is as entrenched as ever in the areas where the poor earn their livelihood. No wonder that 80 percent of the respondents in a survey say that they have not experienced any change in economic policy. There has been no change in policy for them. Liberalisation has so far been for the better off. It has hardly touched the informal economy or the agriculture.

Where do the people who make a living in the informal economy live? In slums. They should be called informal housing. It would restore dignity to the dwellings of the poor and also put the problem in a proper context. Formal economy is closed to them, so is formal housing. They are compelled to get their roti and makan from the informal sector.

The alternative of low-cost housing, especially of cheap rental housing is non existent in our cities. In a poor country like ours, resources are always scarce. But the resources that we do have are not used optimally. The real villains are the institutions and policies that determine the allocation of these resources. These, not paucity of resources, that explain the pervasiveness of informal housing.

The Urban Land Ceiling Act, rent control, and tenancy laws have killed the incentive to build housing for rent. Delhi Destruction Authority and its siblings control the use of land in the cities. How long will it take if a group of humble families were to petition them for a piece of land to build? For the city of Lima in Peru, Hernando de Soto calculates 'six years and eleven months of bureaucratic red tape and payment of $2,156 (which is equivalent to 56 times the minimum wage).' Should we blame the humble families for occupying the public land illegally? What option do they have?

There are ways to increase effective supply of land in the cities. First, allow high-rise construction. Second, build proper transportation links - roads, monorails - to the surrounding areas; let the suburbs develop. Efficient transportation would also enable growth of secondary and tertiary towns. The more the goods can move, the less the people would have to move. Not so long ago, building materials like cement and steel were under government control. Even today, Laxmi Mittal can run steel mills all over the world but in his motherland. In addition to land and materials, ample credit is necessary. In polite company, the less is said about the concern of our nationalised banking system for small borrowers without political connections the better.

Don't urban development authorities, rent controls, and tenancy laws exist to make it possible for the poor to have a roof? "Nothing has done more harm to the poor than good intentions", says Milton Friedman. Remember that when you think about slums, nay, informal housing.