While the government's policy focus has had a rural bias, it is cities which will drive growth in the future. Urban India will constitute 70-75% of the country's GDP by 2020 from 63% now as urbanisation will grow from 31% at present to 35% by 2019-20. To sustain rapidly urbanisation, the government will have to spend around $1 trillion in urban infrastructure over the next 20 years.
Budgeted funds for rural development in the past ten years have been nearly 8-10 times the funds spent on urban development. A report by Barclays says the country's growth momentum during 2003-05 was led by a revival in urban India as both private sector capital formation and household consumption increased. The urban India-led growth can benefit different sectors as compared to a resurgent rural sector. There would be strong growth potential for consumer spending on staples, durables, health care and internet penetration and allied services.
Urbanisation will also fuel growth in rural areas. Higher urbanised states like Kerala, Gujarat and Haryana are not only wealthier but also has a stronger rural economy due to a tickle-down effect. In fact, various studies have shown that the relationship between increasing wealth and urbanisation is prevalent globally, with countries moving up the urbanisation curve along with an increase in GDP per capita.