The metropolization of India and other stories

The metropolization of India and other stories
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First Published: Tue, Sep 22 2009. 10 31 PM IST

Updated: Tue, Sep 22 2009. 10 31 PM IST
Reserve Bank of India data on deposits and credit split according to rural, semi-urban, urban and metropolitan centres shows that a steadily rising share of deposits comes from the cities. Similarly, these account for a steadily larger share of credit.
If we compare the shares of total deposits, we find that since fiscal 2000, the share of rural, semi-urban and urban branches has diminished substantially, while that of metropolitan branches has increased. For instance, in 2000, rural branches accounted for 14.7% of total deposits, semi-urban branches 19.7% and urban branches 23%. By fiscal 2008, the share of rural branches had fallen to 9.3%, semi-urban 13.2% and urban branches 20.3%. In contrast, metropolitan branches had 42.6% of total deposits in 2000, which rose to 57.2% in 2008.
A similar story has unfolded in bank credit as well. In 2000, metropolitan centres accounted for 60% of all bank credit. In 2008, it had risen to 67.1%. Once again, the share of all other centres had declined. The share of rural credit fell from 10.6% in 2000 to 7.5%, of semi-urban credit from 12.2% to 9.5% and of urban centres from 17.2% in 2000 to 15.9% in 2008.
To be sure, some of the changes in rural deposits and credit are due to the reclassification of branches. But it’s not just the rural share of deposits and credit that’s shrinking—it’s also the semi-urban and urban shares. And while the increase in the size of metropolitan areas may also have led to some reclassification, that doesn’t explain the continuous rise in the share of cities in the last few years.
A lot has been written and discussed about the urbanization of India. The data shows, however, that what we’re seeing is the metropolization of India. There are probably several explanations for this. One could be a shift of population from rural areas not to small towns but to big cities. Another could be the concentration of economic activity in the big cities. And a third could be rising inequality.
The United Nations Population and Vital Statistics Report for 2008 puts India’s urban population in 2008 at a mere 28% of the total population. But while the total population growth rate is 1.5%, that for the urban population is 2.4%.
Graphics: Sandeep Bhatnagar / Mint
The trend of increasing metropolization of the Indian economy, therefore, is likely to continue. That will bring in its wake all kinds of problems ranging from urban infrastructure to housing to tensions between local and migrant population. It will provide a boost to consumption, while also changing its pattern. Demand for healthcare, education, entertainment, transport and consumer goods should all rise by more than the increase in GDP.
RBI data also shows that the western region has been the prime beneficiary of the country’s growth. Between 2000 and 2008, the share of the western states (Goa, Gujarat and Maharashtra) in bank deposits rose from 25% to 31.8%, while the share of bank credit increased from 33.7% to 37.9%.
In contrast, the share of the eastern and central regions declined sharply (Uttar Pradesh and Uttarakhand are part of central India under this classification). Rather surprisingly, even the share of the northern and southern regions declined over the period. The share of the North-East was too small to matter. Again, this data provides an explanation why migrant labour is making a beeline for Mumbai.
If the bank deposit numbers between March 1991 and March 2008 are compared, we find that the share of the western region has gone up from 25.8% to 31.8%, while in credit it has risen from 28.2% to 37.9%. Over the same period, the share of the eastern, central and north-eastern regions fell. The share of the northern region increased a bit, while the share for the south fell slightly.
Clearly, the western states, particularly Maharashtra, have been the prime beneficiary of economic liberalization. The growth of Mumbai has a lot to do with that.
Manas Chakravarty takes a weekly look at trends and issues in the financial markets.
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First Published: Tue, Sep 22 2009. 10 31 PM IST