The Challenge for India's Urbanization

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Macroeconomics

The Financial Times carried an interesting if somewhat depressing report on research done by the McKinsey Global Institute covering urbanization in India. The report called India Urban Awakening predicts that 590 million people or 40% of the population will live in cities by 2030 up from 340 million today. By that time, Asia’s third largest economy would have 68 cities with populations over 1 million, up from 42 today. For anyone who regularly visits India the movement of 250 million people into the county’s already over crowded cities is almost unimaginable.

These graphs from the website Urban Age illustrate the trend

After decades of underinvestment, many of India’s cities lack a formal public transport system, adequate sewage, clean water and suffer heavy congestion. There are some success stories such as Mumbai’s Metro System which could provide a model for others to follow both as a major infrastructure project and as a public private initiative but such examples are few and far between.

Cities in India, which has a population of 1.2bn people, have been starved of planning and investment for decades. Uncontrolled expansion has led to the creation of large slum areas in some of the most prosperous centers. An estimated two thirds of the population of Mumbai, India’s financial center, live in slums yet cities are expected to generate 70% of new jobs, 70% of GDP and as much as 85% of the tax take. Meanwhile, the report states that India has just 10 years to make urgent interventions to prevent cities being overwhelmed by tens of millions of migrants in search of economic opportunity. The report proposed that India raise its yearly capital spending per head in cities to $134 from a current level of $17, which is only 14% of China’s $249 a year. India will almost certainly fail to do this. The country can somehow afford to put satellites into space but not provide adequate drinking water for its people. The intensely (although slowly improving) bureaucratic nature of Indian local and regional governments will create slow decision making and maintain the reality that the state has to be a part of any significant attempts at urban renewal. Unlike in China, where decisions are made fast and implemented side by side with private investment, in India competing areas of interest at every level of government frequently lead to delays, changes and cost increases.

India needs an estimated $1,200 billion of capital investment to help cities prepare for the migration from the countryside. “The cost of not paying attention to India’s cities is enormous. Today’s policy vacuum risks worsening urban decay and gridlock. McKinsey say.

–Stuart Burns

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