India must overcome Gandhian fixation; urbanisation key to driving growth engines

To achieve its target of a $5 trn economy by 2025, india must overcome its gandhian fixation with a village-based society and invest in urban infra development.

India has been slow to urbanise because of the fixation on being a village-based society.

By TV Mohandas Pao & Nisha Holla

Development and urbanisation are two sides of the same coin. No society in recent history remained agrarian while adequately providing for its population. Urbanisation aggregates human activity—aggregation leads to specialisation, specialisation to increased productivity; enabling greater availability of goods, delivery of services, increased wages, and job opportunities. Urban areas are engines of growth in any modern economy.

China is a shining example of how urbanisation drives economic growth. China rapidly urbanised from 26.4% in 1990 to 59.2% today. The impact is evident in China, where the quality of life and life expectancy have improved dramatically. We can also trace the feedforward effect in China’s specialised workforce and productivity improvements—making China a Top 2 economy with nominal GDP of $14.1 trillion. In contrast, India is at $2.7 trillion, moving towards the target of $5 trillion by 2025.

The world, on average, is at 55.3% urbanisation, whereas India lags at 34% (see graphic). India has been slow to urbanise because of the fixation on being a village-based society. Most planners still look to Gandhiji’s sentiments on this topic—‘The future of India lies in its villages’, he said in 1947. This is no longer true—complexity has increased, people’s economic needs and aspirations have grown, and it is impossible to supply adequate resources to India’s six lakh villages. Keeping India’s population in villages while being unable to meet their economic needs has resulted in high inequity.

Rural employment is mostly in agriculture. 42.7% of India’s workforce in 2016-17 was engaged in the agriculture sector, crawling at a 3.4% growth rate and contributing only 17.3% to the GDP (see graphic). Meanwhile, 57.3% of the workforce was engaged in industry and services, growing at 5.5% and 7.6%, respectively. The income differential is very high, the ratio being 1:3:4 for the average wages of dependents on agriculture to industry to services. Left unaddressed, this large group of agricultural dependents will always be condemned to a sub-aspirational existence—with increasing distress and perpetual dependence on subsidies from the government.

Lack of opportunities is also accelerating large-scale internal migration towards India’s few urban growth engines—such as Mumbai, Bengaluru, Delhi, Hyderabad, and others. 2011 Census indicates 43,324 uninhabited villages, presumably abandoned due to migration. People are voting for urban areas with their feet while the government sings the same old romanticised song about India in villages.

Large cities are reeling under the strain of overpopulation, with problems like inadequate infrastructure and rocketing living costs. Employment is unable to keep up with the inflow. Due to high costs, it is uncompetitive to set up industries in cities. Without industries to absorb the incoming rural population, they are mostly making low wages as contract labour. Even if they earn higher wages than in their hometowns, they can’t keep up with living costs—resulting in a growing urban population with unfavourable living conditions. Moreover, because of the 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 compelling solution to this unstable situation is the systematic shift of people from rural to urban areas. The 2011 census indicates there are 7,933 towns/cities housing 31.16% of the population, with an average population of 47,536. Of these, 465 towns have a population over one lakh and 53 cities, over ten lakh. On subtracting these, the remaining 7,468 towns must have significantly lesser populations than the 47,536 average. The upcoming 2021 census will inform us of the current situation.

Census data must be used to suitably identify 4,000-5,000 smaller towns all over India and develop them to absorb the rural-to-urban shift sustainably. GoI’s Smart Cities initiative has identified 100 cities so far, focusing on roads, solar, water, and control centres. While expanding to 5,000 towns, four critical aspects must be incorporated:

1. Infrastructure and connectivity: From the planning stage, it is essential to prioritise providing infrastructure like roads and airport access, internet connectivity, and other amenities. Not only is state-of-the-art infrastructure crucial for quality of life, it also provides the logistical backbone for a productive industrial environment. Moreover, commissioning large-scale infrastructure development will also boost the construction sector—another means of mass employment. We need strategic investments from both the central and state governments in these towns for parallelised infrastructure development.

2. Labour-intensive industry (LII) clusters: Creating many LIIs in and around the 5,000 towns is the best way to provide gainful employment to the transitioning population. By focusing on the right type of industries—garments, fabrication, electronics assembly, automobiles, so on—this move will also boost India’s export capabilities. With focused skilling programs, LIIs will offer excellent income opportunities to the incoming population. Even a lower wage than cities will go a long way towards quality of life, especially since living costs are lower in towns. Women, who are not as mobile as men, can also now find employment near their villages and towns, commute and earn a living. Governments, apart from focusing investment here, must also provide incentives for the private sector to create LIIs.

3. New sustainable technologies: While urbanisation improves delivery of services, it poses several challenges like congestion, restricted mobility, high waste production, and pollution. These are solved problems, however, in many parts of the world. India must invest in understanding state-of-the-art technologies and implement them. The newly developed towns will have the advantage of getting sustainable infrastructure—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—integrated from the planning stage itself. Older cities will need careful planning to incorporate new technologies into unwieldy city plans.

4. Planning for capacity: Indian policymaking has a jaded tradition of planning projects based on latest available data—usually outdated—like the previous census. By the time projects are completed 5-10 years later, they are operationally overloaded. Instead, it is necessary to plan projects for sewage treatment, airports, roads, water supply, and so on with at least a 20-30-year forecast with provisions for future expansion. Again, China paves the way—many major airports have received the go-ahead to build a third runway and increase seating capacity by forecasting the demand to 2030. In parallel, new airports are being commissioned all over the country to provide additional capacity using forecasting beyond 2030.

Rapid urbanisation is essential to sustain India’s impressive 10-year growth trajectory and meet PM Modi’s 2025 economic target of $5 trillion. The proposed network of small towns and industry clusters can become India’s engine of growth and provide jobs at scale, thus improving overall economic prosperity. Sustainable urbanisation can be the force multiplier to mobilise India’s potential.

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

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