Over the past eight months, the scenario of a Hyperloop line connecting Mumbai to Pune has advanced steadily from a mere idea to an actual possibility. In November 2017, Los Angeles-based Virgin Hyperloop One signed a memorandum of understanding (MoU) with the Pune Metropolitan Region Development Authority (PMRDA) to commence feasibility studies for such a route. In late February, this partnership was featured prominently at the Magnetic Maharashtra Global Investing Summit. What does it all mean?

In a two-part series, we outline the possible consequences of this development.

In this, the first part, we describe what Hyperloop is and how it is likely to change the urban geographies of the two cities in question.

We admit at the outset that the views we are expressing here bypass the financial aspects of the project as these are still being studied under the auspices of the MoU. Early estimates indicate that the project is indeed financially viable, even profitable, but financial figures are not the focus of this series. Nor will we offer estimates of the likely traffic that a Hyperloop line will enable or occasion between Mumbai and Pune even if we have preliminary estimates. Rather, in what follows, we wish to dwell on how the urban landscapes of Mumbai and Pune might be transformed by a Hyperloop line.

Hyperloop is a new high-speed transport technology that will reduce the commuting time between Mumbai and Pune from the present-day 3 hours (by car) to a mere 20 minutes (by specially designed pods in a vacuum tube). This dramatic reduction in travel time raises perplexing questions for the discipline of urban economics where the “cost of distance" is never explicitly modelled and does not, therefore, determine outcomes in any clear sense. Economists, especially trade and financial economists, understand, however, that a decline in the cost of transporting goods and capital between two locations activates a force of arbitrage that tends to equalize prices across the two locations.

We conjecture that a Hyperloop line connecting Mumbai to Pune will activate an analogous force of arbitrage, which we might call “cost of distance arbitrage", that will eliminate existing differences between the two cities across various dimensions, such as spatial structure and densities, valuations of residential and commercial real estate, demographic characteristics, and so on.

The network might connect a central hub in Mumbai, such as Dadar or Bandra-Kurla Complex, to a central hub in Pune, such as Shivajinagar, and this main corridor might then offer access to an airport in either city. Some such mixture of airports and transit hubs will constitute the main features of the network, but whatever the precise layout, we imagine that it will create a Mumbai-Pune megalopolis, unlike anything hitherto seen in India or elsewhere. Already, each city enjoys considerable agglomeration economies, which are the myriad benefits of businesses and households co-locating near each other. With the emergence of a megalopolis, we are being called upon to imagine the unique instance of two existing agglomerations, considerably distant from one another, becoming connected with a major transit line, as opposed to conventional models of agglomeration driven by a city centre that feeds economic life into the fringes of its ever-expanding borders. The resulting “mega-agglomeration" would constitute a mammoth scale—26 million citizens.

Cost of distance arbitrage will be the primary economic force at work, its most likely manifestation being a levelling of prices across the two cities, with Pune’s significantly lower cost of living (at present about 30% lower than Mumbai’s) rapidly rising to Mumbai’s levels, and thereafter growing at roughly the same rate. As this happens, large swathes of the distance separating the two cities will come under development, but demand-driven development will be concentrated more at the Pune end of the line. Pune will, therefore, grow much faster than Mumbai, benefiting especially from the draconian state of building regulations in Mumbai that severely restrict the construction of high-rises in a water-locked city.

If Mumbai, because of its greater size and the greater diversity of its workforce, currently enjoys greater agglomeration economies than Pune, then this advantage may also, over time, shift to Pune. For example, co-working spaces, involving the atomization of workspaces into physically and geographically distinct locations, are at present more favoured in Mumbai, but this trend may relocate to Pune.

If this suggests that Pune will disproportionately reap most of the benefits of the proposed Hyperloop line, then that is because it presumes that certain geographical, infrastructural and regulatory constraints that currently prevail in Mumbai will continue to be in place before, during and after the construction of the Hyperloop line. Such a presumption is, needless to say, very simplistic.

It is quite likely, indeed perhaps imperative, that policymakers give the force of arbitrage some direction and purpose by assessing and then relaxing some of the constraints prevailing in Mumbai. What this might look like is left to the second part of our two-part series.

This is the first in a two-part series on the proposed Mumbai-Pune Hyperloop.

Tushar Kanade and Indradeep Ghosh are, respectively, CM’s fellow with the government of Maharashtra and project coordinator for the Hyperloop collaboration, and associate professor and dean (faculty) at the Meghnad Desai Academy of Economics.

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