Aurangabad is a town I know very well. Fifteen years ago, it was a dusty backwater far removed from the glitz and glamour of Mumbai and Pune. It is now an emerging city with foreign banks, car showrooms, malls and multiplexes lining the arterial roads. Aurangabad hit the headlines recently when 150 of its residents came together to book Mercedes cars for themselves.
Small-town India often gets lost in the binary discussion about villages and metropolitan cities. The usual belief is that small-town India is an economic dead-end and suffers from chronic social claustrophobia, a view beautifully captured in the early moments of Bunty Aur Babli, the 2005 film starring Abhishek Bachchan and Rani Mukherjee about two small-town youngsters who desperately want to escape to the big city.
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Yet, a new report by McKinsey Global Institute (MGI) predicts that middleweight cities will drive global economic growth. The Indian middleweight cities with potential identified by MGI are: Bangalore, Pune, Chennai, Ahmedabad, Hyderabad, Surat, Nagpur, Kochi and Vadodara. Some like Chennai will become megacities. The megacities of today will decline in relative importance. In fact, MGI estimates that the likes of Mumbai, Delhi and Kolkata are already growing slower than the national economy.
The relative decline of megacities, with a population in excess of 10 million, over the next 15 years poses some fundamental questions. Cities prosper because they have inbuilt economic advantages: large pools of skilled labour, lower transaction costs and robust knowledge networks. Cities have also traditionally offered more political and social freedom than villages have, one reason why B.R. Ambedkar never tired of telling his downtrodden followers to migrate to cities. But have many megacities reached a stage when the economies of scale are being replaced by diseconomies of scale?
“However, our evidence does not suggest that there are fixed limits beyond which cities cannot grow—and grow productively. The only hurdle to the growth of urban centers is an inability to keep pace with, and manage, their expansion. Large urban centers are highly complex and demanding environments that require a long planning horizon and extraordinary managerial skills. Yet many city governments are not prepared to cope with the speed at which their populations are growing. Without skillful planning and management, cities run the risk of diseconomies— such as congestion and pollution—starting to outweigh scale benefits, leading to a deteriorating quality of life and a loss of economic dynamism,” say the authors of the MGI report.
The spread of economic power to middleweight cities should be welcomed. India has too few dynamic cities for a country of its size. As my colleague Anil Padmanabhan wrote in his Capital Calculus column earlier this week, the first cut results of Census 2011 that will be released soon will show that India is becoming increasingly urban. It is neither possible nor desirable that migrants land up in a handful of megacities in search of opportunities. The growth of middleweight cities will be crucial in the new India.
The challenge will be for these middleweight cities to manage growth. They will need better social and physical infrastructure—roads, water, electricity, schools and hospitals. They will need funds to build such infrastructure. The 13th Finance Commission headed by Vijay Kelkar has done well to suggest in its report that taxes collected by the Union government should be shared not just with the states but also increase the share allocated to the so-called third tier of village and city governments.
Getting the physical building blocks will be only part of the job. City administrations will also have to compete for private sector investments. The national government was the main agency trying to attract domestic and foreign investment at one point of time. The states have since got into the act. It is quite possible that we will see city governments acting independently to attract investments in the coming years.
As far as Maharashtra is concerned, two small towns have held investment conferences in recent months: Nanded and Latur, both in the relatively underdeveloped Marathwada region. We could see more of this happening in the future. Chinese cities already aggressively pursue corporate investors to build factories, have their own lending units and own local companies. India may not go down the same path as China did; but it is quite likely that emerging cities will have to think for themselves rather than just be a cog in the state-level machinery.
Smaller cities are fast changing with the times. The growth of national retail chains, broadband connectivity and cable television will ensure that the lifestyle gap between the smaller and larger cities will narrow down. From films to cricket, new sensibilities and talents from small towns are enriching India, be it a Vishal Bharadwaj or a Mahendra Singh Dhoni.
The big cities will not become irrelevant, but it seems likely that they will have to cede some of their dominant power to smaller competitors.
Niranjan Rajadhyaksha is managing editor of Mint. Your comments are welcome at firstname.lastname@example.org