Planned urbanization is key to employment and development

Urbanization is the cornerstone of modern economic growth as it concentrates human activity, leading to specialization and increased productivity, income opportunities, and economic growth. Village economies are no longer sustainable in the modern era and do not provide adequate high-growth opportunities to larger communities. A significant contribution to all levels of the economy stems from urban areas. For example, the Bangalore city area alone constitutes nearly 60% of Karnataka’s GDP. There is no economy in the world with a significant rural base, with 45% of the workforce dependent on agriculture (as in India), that has progressed to middle-income status without urbanizing and shifting its workforce towards industry and services. 

India needs a political mindset shift towards urbanization. Annually, nearly ₹8 trillion is pumped into supporting agriculture and rural development, and urban areas barely get any allocations. Voter base delimitation is based on the 1991 Census, which classified urban populations at 26%. There has been a massive shift of population in the last 20 years to urban areas, particularly Tier 1 and Tier 2 cities. These cities have evolved into India’s engines of growth. Census 2024 will reveal a drastically different picture, with large urban populations multiplying and shifting political power and significantly more seats to urban areas. 

Countries define urban areas differently, and India has a more rigorous threshold than most countries reporting to the World Bank. India is estimated to have an urban population of 34% today per its definition; however, movement trends suggest the number is higher. If India moves its parameters to a median global threshold, a more realistic picture of, say, 50-55% urban population will emerge, enabling better urban policymaking and devolution of taxes for development.

With constant immigration and scarce development budgets, the top 20 Indian cities are reeling under the strain of overpopulation, with problems like inadequate infrastructure, congestion, and rocketing living costs. Well-paying employment is unable to keep up with the inflow. Due to high costs, setting up industries in cities is uncompetitive. Without industries to absorb the incoming rural population, they mainly make low wages as contract labour. Even if they earn higher salaries than in their hometowns, they can’t keep up with living costs – resulting in a growing urban population with unfavourable living conditions. Because of the politicians’ and policymakers’ fixation on villages, cities aren’t allocated enough to develop infrastructure to handle their rapidly expanding populations. A lose-lose situation all around.  

A two-prong strategy is suggested here:

1. Greater devolution of taxes to cities to develop the infrastructure required to maintain economic output and improve productivity, along with Central grants and floating municipal bonds.   
2. Systematically urbanize 5,000 census towns all over India and develop them to absorb the rural-to-urban shift by linking these towns to labour-intensive industry clusters. 

Sustainable urbanization agenda

The 5,000-town network will emerge as India’s new growth engine with the following strategies:

1. Infrastructure and connectivity: Prioritizing infrastructure like roads and airport access, internet connectivity, and other amenities from the planning stage is crucial. It is essential for quality of life as well as for industrial productivity. 
2. Labour-intensive industry (LII) clusters: Establishing LIIs in and around the 5,000 towns is a strategic way to provide gainful employment to the transitioning population. With focused skilling programs, LIIs will offer excellent income opportunities to the incoming population. Women who are less mobile than men can now find employment near their villages and towns, commute and earn a living. Apart from focusing investment here, governments must also provide incentives for the private sector to create LIIs.
3. New sustainable technologies: The newly developed towns will have the advantage of having sustainable infrastructure integrated from the planning stage itself —renewables like solar panels and wind turbines, planned tree cover to offset urban spread, water treatment facilities based on phytoremediation and other plant-based technologies, integrated recycling, EV infrastructure, and public transportation with last-mile connectivity. 
4. Planning for future capacity: Indian policymaking has a jaded tradition of planning projects based on the latest available data—usually outdated—like the previous census. Projects are operationally overloaded when they are completed 5-10 years later. Instead, planning projects for sewage treatment, airports, roads, water supply, and so on with at least a 20-30-year forecast with provisions for future expansion is necessary. 

Urbanization budget

5,000 town network: Each of the 5,000 towns will require ₹100cr for development annually for atleast 10 years – of which the Centre must provide ₹50cr and the state the balance. Central funding will be essential to motivate states to allocate budgets. For 5,000 towns, the budget will amount to ₹5 trillion annually, with possibly an additional ₹2.5-3 trillion above the current spending to arrange for best-in-class mobility, water supply with 6-month storage capacity through reservoirs and lakes, sewage treatment facilities and power. To start with, the 5,000 towns will require 1 million EV buses for adequate public transportation. These utilities must also be planned for future capacity by forecasting to 2047 and beyond. Existing allocations to these towns can be included and re-allocated under this plan. 

Top 20 cities: The top 20 cities must receive special grants from the Centre to develop properly and invest in infrastructure like roads, sewage treatment facilities, water reservoirs and re-institution of lakes, housing, and public transportation. The current Metro coverage of 1,700km must extend to 5,000km sanctioned by 2030 between the 20 cities. Global benchmarks like Shanghai and Beijing must be considered while planning – Shanghai alone has 826km of Metro with planned extensions to 1,154km. The cities will also require 100,000 EV buses over 5 years. 

Central funding of atleast ₹1 trillion annually for the next 10 years for the 20 cities together will be required to realize this development agenda for the top cities. They also require greater devolution of taxes. Cities must also be allowed to raise municipal bonds in the domestic and global markets to arrange for the development budgets. 

India is today a Top 5 global economy on track to soon become #3. The government must consider India’s path to global leadership and allocate budgets accordingly to aid the ascendancy. Urbanization and gainful employment are integral to this vision and planning for this 5,000-town network will give rise to a powerful growth engine. Meanwhile, India’s economic backbone of the Top 20 cities needs urgent attention and detailed planning to evolve into the global economic and innovation epicentres they are capable of. 

About Authors: TV Mohandas Pai is the Chairman, 3one4 Capital and Nisha Holla is a Research Fellow, 3one4 Capital.

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