Urbanise India to eliminate poverty

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Updated: Aug 21, 2019 11:54 AM

The case for urbanisation is evident when we examine state-wise data. The accompanying graphic shows urban percentage, per-capita GSDP, higher education Gross Enrolment Ratio (GER), and Total Fertility Rate (TFR) for representative states.

Sustainable urbanisation, urbanise India, India, poverty, India population, population, Gross Enrolment Ratio, GER, Total Fertility Rate, TFR, financial express editorial, financial expressStates in the South-West zones are more urbanised, all above the 31% all-India average. These states also have low TFR, considerably below the national average of 2.18.

By TV Mohandas Pai
& Nisha Holla

Sustainable urbanisation can mobilise India’s potential. The world is at 55.3% urbanisation on average, whereas India lags at 34%. A detailed analysis in our previous article (bit.ly/319wUCb) demonstrates that keeping a majority of India’s population in villages has resulted in high inequity. India must systematically urbanise and provide mass-employment to its large population in high-growth sectors like industry and services.

The question of whether we can grow enough food with a reduced agriculture workforce is answered by studying other countries. World Bank data shows that with only 1.3% of its workforce in farms, the US produces enough food to feed double its population. In 2017, median farming household income was $75,994, which exceeded the $61,372 US household median. China, with 27% of its workforce involved in farming, produces 500 million tonnes of food every year with less arable land than India. India, in comparison, produces 290 million tonnes of food with a 43% agriculture workforce when 20% would suffice. With higher yield and productivity, a smaller agriculture workforce will earn comparably with industry and services.

The case for urbanisation is evident when we examine state-wise data. The accompanying graphic shows urban percentage, per-capita GSDP, higher education Gross Enrolment Ratio (GER), and Total Fertility Rate (TFR) for representative states. GER is an indicator of human capital development; crucial for high-growth sectors like services. TFR indicates whether a population is shrinking or expanding and is vital to policy planning, as discussed in the article (bit.ly/2MtXsLY). Urbanisation data from the 2011 census must be re-examined with the 2021 census. Nevertheless, there is a clear correlation between urbanisation and prosperity.

States in the South-West zones are more urbanised, all above the 31% all-India average. These states also have low TFR, considerably below the national average of 2.18. Low fertility and high GER has resulted in better educated, smaller populations that are earning more than their northern counterparts. Urbanisation is driving this trend—urbanisation aggregates human activity, enabling specialisation and productivity improvements. It boosts economic prosperity, which reflects in the leading per-capita GSDP figures of these states. In 2011-12, already these states had higher per-capita GSDP—with Andhra Pradesh on the low end at Rs 77,000 and Maharashtra with the highest at Rs 1.13 lakh. In six years, these figures have doubled.

Tamil Nadu (TN) has India’s highest GER, at 48.6, and one of the lowest TFRs, at 1.7. In 2011 itself, we can see TN is most urbanised at 48.4%, with an already-high GER of 40. No other big Indian state attained a GER of 40 even in 2017-18. Rapid urbanisation has boosted TN’s enrollment in higher education. However, regressive focus on caste politics has taken away from growth. Though TN had the second-highest per-capita GSDP in 2011-12, growth is lower compared to states like Karnataka and Telangana, which are driven by services. The TN government must converge on using high GER and urbanisation to drive its strong industry legacy and build a large services sector.

Karnataka is an intriguing case. With one of the highest per-capita GDPs at Rs 2 lakh in 2017-18 and a reasonably high urban percentage at 38%, a reality check indicator is its lower GER of 27.8. Data from RBI and the Economic Survey show 60% of Karnataka’s GDP comes from Bengaluru and the services sector—driven by IT and other technological drivers. As analysed in our article (bit.ly/2GAaSk6), a majority of the specialised workforce comes from elsewhere. Like most southern states, TFR is low; but, the state sees significant immigration. Despite its large services sector, by defocusing on human capital, Karnataka’s government is placing natives in an unfortunate situation of being unable to compete for the best jobs in their state. Karnataka must focus on urbanisation and development of human capital to remedy this, which will further boost the state’s impressive growth trajectory.

Gujarat is another unusual case—high urbanisation at 43% but lower-than-average GER of 20.1. Gujarat’s steady growth and high per-capita GSDP of Rs 2 lakh are driven by its phenomenal industry sector, which accounts for more than half of GVA. High dependency on industry, and not services, which contribute only 35% of GVA, means Gujarat’s growth will start slowing down when automation and other factors kick in. With a TFR of 2.03, Gujarat’s population downturn is not as steep as southern states. Without the development of human capital, Gujarat is in danger of lagging in the future. The answer to this is investing in higher education and building a strong services sector to complement its industry.

Punjab stands out among northern states. It boasts a high urban percentage (37.5%), high GER (30.3) in 2017-18, and one of the lowest TFRs (1.62). Despite this, Punjab still relies heavily on agriculture; its services and industrial output is lower than that of southern states. With indicators of high urbanisation, high GER and low population growth, Punjab can easily make the transition to a high-growth economy focused on services, with the right policies.

Other states in the North-Central-East zones mostly have low urbanisation and low GER. The lack of urbanisation has resulted in a shortage of industry and services sectors and low per-capita GDP. The populations in these states will keep growing in the foreseeable future, indicated by higher TFRs. Without employment options in high-growth sectors, these large populations cannot rely on agriculture or industry alone for growth. Services are a must. Uttar Pradesh has made a valiant effort to develop human capital—GER rose from 17.4 to 25.9 in six years. Now, policies to boost output with labour-intensive industries (LIIs) and services to provide formal employment can increase growth.

Bihar is a troubling case study on the effects of low urbanisation and human capital. Only 11.3% of the population is urban. GER is the lowest in India and hardly growing—from 12.5 to 13 in six years. Per-capita GSDP is lowest, at `42,000 in 2017-18. Despite having fertile land, Bihar’s agriculture sector cannot grow because it is disorganised with a large number of dependents. With India’s highest TFR—3.41—Bihar’s expanding population is condemned to a sub-aspirational existence due to the state’s stagnant economy. Bihar needs special attention from the Centre, with focused schemes to organise the agricultural industry, urbanise and educate the masses, and provide mass employment through LIIs. Madhya Pradesh has set a good example here by prioritising agrarian growth as well as instituting LIIs to provide mass employment.

It is clear that every state—irrespective of prosperity or geographical location—is diverse. We are now in an era where the role of the Centre is increasingly limited, and state spending is growing. Each state must evaluate its economy—workforce distribution, sectoral contribution, demographics, formal employment, higher education and specialisation, unique growth drivers—and set a development plan.

Maharashtra CM Devendra Fadnavis has taken the lead here by setting a farsighted vision of a $1 trn economy by 2025 to match PM Narendra Modi’s $5 trn goal. It remains to be seen how Maharashtra will back this vision up with policy changes. Similarly, we need CMs of each state to evaluate and execute a long-term plan and vision for their state. India can only realise its true potential as a top-three economy when every state rises out of poverty—and into prosperity—through sustainable urbanisation and human capital development.

Pai is Chairman, Aarin Capital & Holla is Technology fellow, C-CAMP
Views are personal

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