Fast Facts – Urbanization in India
- Most Urbanized States: Tamil Nadu 43.9%; Maharashtra 42.4%; Gujarat 37.4%
- 3 out of world’s 21 mega cities: Mumbai (19 mill); Delhi (15 mill); Kolkata (14 mill)
- Large Cities: 23 in 1991; 40 in 2001
- Urban Pop.: 25% of 850 mill in 1992; 28% of 1,030 mill in 2002.
- Estimated Urban Pop. by 2017: 500 mill
- % of Urban Residents who are Poor: About 25%
- Slum Population: About 41 million in 2001
- Estimated Slum Pop. by 2017: 69 mil
Urbanization is an integral part of the process of economic growth. As in most countries, India’s towns and cities make a major contribution to the country’s economy. With less than 1/3 of India’s people, its urban areas generate over 2/3 of the country’s GDP and account for 90% of government revenues.
Urbanization in India has expanded rapidly as increasing numbers of people migrate to towns and cities in search of economic opportunity. Slums now account for 1/4 of all urban housing.
In Mumbai, for instance, more than half the population lives in slums, many of which are situated near employment centers in the heart of town, unlike in most other developing countries.
Meeting the needs of India’s soaring urban populations is and will therefore continue to be a strategic policy matter. Critical issues that need to be addressed are:
- Poor local governance
- Weak finances
- Inappropriate planning that leads to high costs of housing and office space; in some Indian cities these costs are among the highest in the world
- Critical infrastructure shortages and major service deficiencies that include erratic water and power supply, and woefully inadequate transportation systems
- Rapidly deteriorating environment
CHALLENGES
Planning:
- Many urban governments lack a modern planning framework
- The multiplicity of local bodies obstructs efficient planning and land use
- Rigid master plans and restrictive zoning regulations limit the land available for building, constricting cities’ abilities to grow in accordance with changing needs.
Housing:
- Building regulations that limit urban density – such as floor space indexes – reduce the number of houses available, thereby pushing up property prices
- Outdated rent control regulations reduce the number of houses available on rent – a critical option for the poor
- Poor access to micro finance and mortgage finance limit the ability of low income groups to buy or improve their homes
- Policy, planning, and regulation deficiencies lead to a proliferation of slums
- Weak finances of urban local bodies and service providers leave them unable to expand the trunk infrastructure that housing developers need to develop new sites.
Service delivery:
- Most services are delivered by city governments with unclear lines of accountability
- There is a strong bias towards adding physical infrastructure rather than providing financially and environmentally sustainable services
- Service providers are unable to recover operations and maintenance costs and depend on the government for finance
- Independent regulatory authorities that set tariffs, decide on subsidies, and enforce service quality are generally absent.
Infrastructure:
- Most urban bodies do not generate the revenues needed to renew infrastructure, nor do they have the creditworthiness to access capital markets for funds
- Urban transport planning needs to be more holistic – there is a focus on moving vehicles rather than meeting the needs of the large numbers of people who walk or ride bicycles in India’s towns and cities.
Environment:
- The deteriorating urban environment is taking a toll on people’s health and productivity and diminishing their quality of life.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.