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A more fruitful way to look at the Indian economy is in terms of growth clusters and how to extend them. Photo: Mint
A more fruitful way to look at the Indian economy is in terms of growth clusters and how to extend them. Photo: Mint

Is the India vs Bharat trope passé?

The divergence between the fortunes of India and Bharat has been a recurring theme not just in economics but in many a Bollywood movie

The urban-rural divide in India is a cliché. The divergence between the fortunes of India and Bharat has been a recurring theme not just in economics but in many a Bollywood movie. Could it be that we are moving away from this rather glib urban-rural dichotomy? It would appear so from a recent World Bank research paper, Cities, Catchment Areas and Prosperity in India, by Yue Li and Martin Rama.

Development is not necessarily a process where all urban centres grow faster than rural. Instead, the centres of growth are usually clusters and agglomerations where skills, knowledge, infrastructure, networks and money converge. These are the areas of highest productivity in the country.

Of course, it’s well-known that location is an important driver of labour productivity. Why else do people migrate from rural Bihar to work in Mumbai and Delhi? What is interesting about the paper is its finding that as far as labour productivity is concerned, “the performance of large rural areas and that of small urban areas resemble closely, challenging the conventional view of a rural-urban divide."

The paper maps the spatial productivity patterns across the country by classifying centres into four types: top locations, their catchment areas, average places and bottom locations. The top locations are the 100 places with the biggest location effects. An example of a location effect is an average Indian household moving from a small rural area in the Malkangiri district of Odisha to Gurgaon, which, the paper says, would see its nominal household expenditure per capita increase 3.6 times. The seven large urban areas that qualify as top locations are, in descending order, Mumbai, Bengaluru, Faridabad, Thane, Kolkata, Surat and Delhi.

What’s remarkable, though, is that some small cities are among the top locations, while some large cities are not. The study also finds that top locations and their catchment areas include many high-performing rural places. Conversely, large urban areas such as Agra, Kanpur, Varanasi and Patna have location effects below the Indian average. A vast majority of the bottom locations are bunched together in the middle of India, crossing the states of Madhya Pradesh, Chhattisgarh and Odisha. A number of bottom locations can also be found in Uttar Pradesh and Bihar. Interestingly, most of them are not rural but small urban areas.

Taking the catchment areas into account, the study identifies 17 clusters in the country. These clusters are spread across several districts and even states. For example, the cluster of Mumbai, Surat and Thane encompasses nine districts in Gujarat and Maharashtra; the cluster of Ahmadabad covers seven districts in Gujarat; and the cluster of Bengaluru includes five districts in Karnataka and Tamil Nadu.

Within the 17 clusters, there are 12 large urban areas, 91 small urban areas, 45 large rural areas and 67 small rural areas. In other words, what matters for development is not so much whether the area is urban or rural, but whether it forms part of a cluster. Location, location, location, as they say in realty, is what counts for productivity as well.

The authors underline the point by mentioning that more than 10% of the rural population lives in one of India’s 17 clusters, compared with about 18% in its 218 bottom locations. Nevertheless, it’s a fact that top locations and catchment areas have both significantly lower employment shares in agriculture and significantly higher shares in manufacture. They also have higher educational attainment at both secondary and tertiary levels and better access to infrastructure and services. These are, rather obviously, factors that set apart India’s most productive areas from the rest of the country.

The paper also highlights that road density increases from bottom locations to top locations and top locations register significantly higher road density than any other tier. In other words, the lesson is: build the roads and the firms will follow. Indeed, that is precisely what is happening. High costs in cities have led to firms converting their land into lucrative real estate while shifting their factories into those parts of the hinterland that are well-connected. In recent years, manufacturing has been moving into rural areas.

It follows from all this that the current government’s single-minded emphasis on road building, therefore, is the right one, as is the work being done on the North-South and East-West freight corridors. As a paper by Urmila Chatterjee, Rinku Murgai, and Martín Rama in the Economic & Political Weekly pointed out earlier this year, in an economy that is transforming rapidly both economically and spatially, the rural-urban divide is becoming blurred. Perhaps a more fruitful way to look at the Indian economy is in terms of growth clusters and how to extend them.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at capitalaccount@livemint.com

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