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Urban areas may contribute 75 pct of GDP by 2020, says Barclays

Mar 18 2014, 20:29 IST
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The urban sector is likely to contribute nearly 70-75 per cent of the GDP by 2020, according to a Barclays report. Reuters The urban sector is likely to contribute nearly 70-75 per cent of the GDP by 2020, according to a Barclays report. Reuters
SummaryBarclays observed that there has been a shift in government spends from rural to urban sector of late.

With the government focusing on improving infrastructure and allied services, the urban sector is likely to contribute nearly 70-75 per cent of the GDP by 2020, according to a Barclays report.

"The urban sector could witness a revival as the government has started taking many measures on improving infrastructure and services. The government is focusing on increasing subsidies for cooking gas, electricity and piped water and is also taking initiatives to improve urban infrastructure and organised sector jobs," the report said.

According to the report, these initiatives could drive the growth of the sector, which is likely to contribute nearly 70-75 per cent of GDP.

Currently, urban sector constitutes 63 per cent of the GDP, up from 45 per cent in 1990. The current Five Year Plan has earmarked USD 1 trillion for infrastructure spend.

Barclays observed that there has been a shift in government spends from rural to urban sector of late.

"The government's policy focus has had a rural bias over the past decade. Budgeted funds for rural development during the past 10 years have been nearly 8-10 times the funds spent on urban development. Thus, while real urban wages have stagnated over the past five years, real rural wages have seen a healthy 7 per cent CAGR," it said.

The report pointed out that the allocation to the rural employment guarantee scheme has fallen 40 per cent year-on- year in FY14, growth in the minimum support price (MSP) of foodgrains is 5 per cent compared to a 12 per cent CAGR over the previous five years, while the real wage growth in rural areas has been less than 5 per cent.

Only 31 per cent of the population is currently urbanised. "With high population density and low GDP per capita, urbanisation trends have scope to significantly accelerate," it said.

The research firm expects urban India could house 35 per cent of the population by 2020.

Barclays further said with a per capita GDP of USD 3,000, the urban sector is similar to middle-income economies.

The report believes urban sector's revival could benefit various other sectors. "This will boost urban consumption like the premium end of consumer staples and four wheelers; services sector like consumer banking, private healthcare, telecom data services and Internet; and infrastructure and real estate sectors," the report concluded.

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