Open letter to CEA Arvind Subramanian: How urban is India?

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Published: November 1, 2017 5:50:57 AM

When low level of urbanisation, declining rates of urban population growth, limited role of rural-urban migration, and out-migration of manufacturing from cities are all added up, the stress on urban India is evident.

Open letter, Arvind Subramanian, Open letter to CEA Arvind Subramanian, urban India, urbanisation in India, Economic surveyOpen letter, Arvind Subramanian, Open letter to CEA Arvind Subramanian, urban India, urbanisation in India, Economic survey. (Image: Reuters)

Dear Dr. Subramanian,

Allow me, at the outset, to compliment you for widening the scope of the 2016-17 Economic Survey to include inter alia a discussion on such themes as how urban is India (pp 221-224, volume II), (ii) the size-distribution of urban settlements in relation to the Zipf law (pp 301-2, vol I), and (iii) decentralization and municipal finance (pp 302-314, volume I). Inclusion of these themes signals an important departure from the Economic Surveys of the earlier years which would consist of a routine and often lackadaisical description of the central government urban programmes and initiatives. In line with the trends you have now set, we expect that the 2017-18 Economic Survey which you will have the honour to present in January 2018, will have a more comprehensive account of the “state of the India’s urban economy”. Urbanisation is important to the Indian economy and deserves better treatment and coverage. I am writing this open letter with regard to the theme “How urban is India”, where the key point that you make is that the Census of India does not fairly capture the country’s level of urbanisation, attributing it to the demanding criteria it uses for classifying a settlement as urban, and suggest that criteria such as the population size, density, and occupational character of settlements, are “inadequate to capture the complex phenomenon, especially when we study this at the state or local levels”. In support of this statement the Economic Survey shows India’s urbanisation level to be significantly higher—in the range of 47% to 78%—if population thresholds of 2,500 or 5,000 or density thresholds of 400 or 800 persons per sq/km were used to measure it, as indeed countries such as Ghana, Qatar, Mexico and Venezuela do. The Economic Survey also presents figures from Uchida’s agglomeration index and the GHSL satellite imagery datasets to reinforce the point that India is more urban than what the Census of India shows.

You would recall that, until 1951, the Census of India used a population threshold of 5,000 as the sole criterion for classifying a settlement as “urban”. The change to a three-fold criteria was introduced in 1961 on the grounds that population size as the sole criterion was an inadequate measure—urbanisation was not just a spatial unit with X number of people, it represented concentration of population and of non-primary sector activities, and these needed to be brought in to distinguish an urban settlement from a rural one. I do not know if Ashok Mitra, the then Census Commissioner, was in any way influenced by the 1938 seminal paper of Louis Wirth who had argued that the characterisation of a community as urban on the basis of population size alone was “obviously arbitrary” and had further asserted that “the shortcomings attached to the number of inhabitants as a criterion applied, for the most part, to the density of population” as well. More recently, the United Nations has taken the same position (2011: pp 32).

I fully understand that the position taken by Mitra, Wirth or the United Nations does not in any way weaken or diminish the relevance of the suggestions made in the Economic Survey, and, in fact, it is quite simple to rework the level of urbanisation by changing over to any of the suggested criterion. But you will agree, Dr. Subramanian, that a question as important as “How urban is India” is much broader in scope and needs to be addressed by looking at not just the share of urban population in the total, but also firstly, the rate at which India is urbanising, whether the rate is commensurate with the country’s growth parameters and whether the rate has the potential of producing a level of urbanisation that is comparable with that of the other large, emerging economies, and secondly, the composition of urban population growth, whether it is led by the run-of-the-mill natural increase or driven by rural-urban migration which, as the text books suggest, is central to the process of urbanisation. These three attributes, viz., the level, rate, and composition, taken together, should give a better grip on the question, “How urban is India”.

Let me provide some facts on these two aspects. That India is urbanising rapidly (Economic Survey, pp 221 vol II) has been a common refrain in the media coverage of the past 2-3 years. Facts here are somewhat complex. India’s annual growth of urban population (AEGR) registered a high of 3.83% in the 1971-81 decade and 3.09% in 1981-91, but dipped in the 1991-2001 decade to 2.74%, recovering marginally to 2.76% in the most recent decade of 2001-2011. While a rise and fall in such rates are commonplace, and this fall too would have gone unnoticed but for the fact that the fall took place during the decades of high rates of economic growth when most observers had expected it to accelerate. What caused the rate to decline, indeed, plummet to its lowest level since 1961? Has India’s economic growth become independent of urbanization and the economies it is associated with? A fall in the urban population growth rate at this stage of India’s urbanisation and per capita income cannot be dismissed as just an “ordinary number” or a blip; it has important implications.

That India’s urbanisation is propelled by droves of people migrating into cities and towns is another narrative that has found space in the print media of the post 2015 period. Is this portrayal justified? The Census figures on migration suggest that the share of net rural-urban migration in urban population growth has been around 20-22% for the past 3 decades and shown little uptick or buoyancy. The economy-wide changes of the recent years, it would seem, have found little use of rural-urban migration in the development process. The question is how was the urban demand for labour met during this period? Did technology come in to substitute for the labour? Or do the explanations lie elsewhere? Irrespective of the reasons, the low level of rural-urban migration differs markedly from the trends observed in China and several South-east Asian economies where rural-urban migration has played an important disruptive and transformative role in the process of urbanisation and economic growth.

The all-too-familiar China story is almost entirely founded on a low wage, rural-urban migration, making China among the most competitive economies for a large number of goods and services. The question is: Has India lost out on this opportunity? There are a few economic facts that also allude to the slowing down of the pace of urbanisation in the country. The first is the urban share of the Net Domestic Product (NDP). According to the Central Statistical Organization (CSO), the urban share of the NDP was estimated at 52.6% in 2011-12, where the key point to note is that between 2004-05 and 2011-12, the urban share of the NDP increased by just 0.6% point, hardly an increase considering that the overall NDP rose substantially during the period! The CSO data further show that the urban share of NDP accruing from manufacturing took a beating during this period when its share shrunk to 48%, less than the rural share of manufacturing NDP ! Puzzling as it may seem, rural areas now produce more domestic product from manufacturing than the urban areas! The Annual Survey of Industries data reaffirm these trends, showing a decline in manufacturing employment from its urban share of 67.2% in 2001-02 to 59.2% in 2014-15.

What has led the manufacturing activities to migrate from the urban to the rural areas? Has India become geographically “flat”, using Thomas Friedman’s description of the globalised world, where the rural areas in terms of their potential are now no different compared to their urban counterparts? Are cities proving to be difficult places for business and manufacturing to operate efficiently? When all of this is added up—low level of urbanisation, declining rates of urban population growth, limited role of rural-urban migration, and out-migration of manufacturing from cities—the stress on urban India is evident. At the same time, there is no clarity if these trends are transitionary, whether the urban sector is a victim of the structural weaknesses such as the problem with the urban land market referred to in the Economic Survey, or do these happen to be the unintended consequences of public policies. Urbanisation in India is central to growth and development. The Economic Survey rightly puts it as integral to India’s development trajectory. I assume that the discourse on urban issues that you have so thoughtfully initiated via the Economic Survey will be expanded to improve our understanding of the dynamics of urbanisation and hopefully response to urban issues.

Kind regards,
Om Prakash Mathur

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