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Business News/ Opinion / The promise and pitfalls of urbanization in India
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The promise and pitfalls of urbanization in India

The urbanization that has taken place is skewed and cannot be a healthy long-term model

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

The eye has never seen a place like it," wrote Persian ambassador Abdur Razzak of Vijayanagara, capital of the Vijayanagara empire, “and the ear was never informed that there existed anything to equal it in the world." He was writing in 1443, during the long summer of the empire. Other visitors would praise the city’s wealth and prosperity in later years; Domingo Paes, a Portuguese traveller, compared it favourably to the Italian city-states in 1520. A high compliment indeed—the latter, at the height of the Renaissance, were global centres of wealth, commerce and culture. Sailing east along the Mediterranean coast would have brought a traveller like Paes to one of their few rivals, Constantinople (now Istanbul)—in its time the richest and largest city in Europe.

The role of cities as engines of economic growth and innovation has a long history. Urban studies pioneer Jane Jacobs has argued that cities, not nation-states, are the main players in macroeconomics. The Economic Survey, 2016-17 starts its chapter on cities as growth dynamos by quoting her, as it happens. It goes on to detail the manner in which urbanization has defined—and will continue to define—Indian development. From 1991 to 2011, the percentage of India’s population that lives in cities and towns has increased from a quarter to a third. This segment produces more than three-fifths of the country’s gross domestic product (GDP). The survey notes that controlling for GDP per capita, India’s rate of urbanization is not particularly slow—and as the former picks up, so will the latter.

Higher rates of urbanization will in turn boost GDP more, creating a virtuous cycle; the core thesis of agglomeration economics is that productivity increases with proximity to high levels of economic activity such as are likely to be found in urban centres. A 2016 National Bureau of Economic Research (NBER) paper, What Is Different About Urbanization In Rich And Poor Countries? Cities In Brazil, China, India And The United States, finds that the agglomeration effect in India is, in fact, larger than the US. Nor are the benefits confined to capital owners. Unlike the other countries studied, there is a significant real-wage premium associated with denser population clusters in India. There are also associated differences in the quality of human capital due to differences in the quality of education and the like. In other words, greater urbanization in India will boost citizens’ quality of life just as it will boost the GDP.

So far, so good. But urbanization in India also faces a large number of problems, many of them related to internal migration. The 2011 census showed that a third of India’s population consisted of internal migrants. The NBER paper, however, noted that “only two per cent of the sample had moved during the preceding five years in 2011, and that figure replicates results for 2001 and 1993. Less than one per cent of the population had made a major move." A substantial number of studies back this up. Although there is a lack of comprehensive data about the composition of India’s migrant population—a problem in itself when it comes to policymaking—independent surveys point to the reason for the discrepancy: The majority of internal migrants are seasonal workers.

Thus, policymakers must address two parallel issues: how to enable temporary migrants, and how to enable more long-term migration in the formal sector. There are no silver bullets here, only a host of overlapping measures. Empowering urban local bodies (ULBs) is one, as the Survey points out. The political deficit—the lack of responsibility and authority vested in a city government—leads to governance fragmentation, deficits in funding and infrastructure and low expenditure per capita. This failure of the majority of cities to deliver adequate services and infrastructure means that urbanization patterns are skewed, adding pressure on a handful of already burdened urban centres.

Another measure is allowing temporary migrants to easily access financial services and benefits. The present administration’s JAM (Jan Dhan-Aadhaar-Mobile) Yojana is a start—but only that, as the numerous reports of account dormancy and duplication show. Stabilization here, allowing migrants to access and transfer resources through formal banking, must be followed by delinking benefits from location to the extent possible and gradually shifting to the direct benefits transfer model.

That would be just a start. Encouraging more compact urban development through changing land use regulations, investing in urban mobility and addressing the convoluted classification process of census towns that results in denied urbanization should all be on the menu. As matters stand, the many problems mean that the organizing principle of urban economics—spatial equilibrium, which dictates that if an urban centre has high wages and good services, it will also have a high cost of living, which in turn will make other centres attractive and lead to equalization of growth across a region—has failed to function adequately in India. The skewed urbanization that has resulted cannot be a healthy long-term model.

Should more power be devolved to urban local bodies? Tell us at

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Updated: 09 Feb 2017, 04:53 AM IST
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