Undergraduate Economist

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Urbanization in India: What does it mean?

Posted by Alex M Thomas on August 26th, 2011

 

In the recent past, there have been a lot of discussions and commentaries on the merits of urbanization in India. In addition to this, we also hear about the poor, rather pathetic, living conditions of migrants who work in urban spaces, there are pressing environmental concerns especially regarding air and water pollution, public transport is in a disarray, etc. The latter concern has led to the rise of ‘new’ areas of learning and research such as urban studies, urban economics, urban ecology, urban sociology and urban planning. These are extremely important areas of learning considering the fact that urban centers attract both labour and capital. This blog post tries to understand some economic issues relating to the process of urbanization that is taking place in India. In particular, we seek to understand the limits of urbanization and in the process we try to know what it means to achieve economic growth.

According to the World Bank, “Urbanization is not a side effect of economic growth; it is an integral part of the process.”  McKinsey states that “Urbanization is critical to India’s development.” Further, Ministry of Urban Development, Government of India notes that “It is important to note that the contribution of urban sector to GDP is currently expected to be in the range of 50-60 percent. In this context, enhancing the productivity of urban areas is now central to the policy pronouncements of the Ministry of Urban Development. Cities hold tremendous potential as engines of economic and social development, creating jobs and generating wealth through economies of scale. They need to be sustained and augmented through the high urban productivity for country’s economic growth. National economic growth and poverty reduction efforts will be increasingly determined by the productivity of these cities and towns.”

From the above excerpts, some important assumptions (or rationales) for promoting urbanization can be understood.

(1)    Economic growth is synonymous with urbanization.

(2)    India has to urbanize in order to attain economic growth and development.

(3)    Urban spaces need to be promoted because they generate about 50% of the Indian GDP.

(4)    Cities are potential engines of economic and social development.

 Economic growth

In a macro sense, economic growth refers to the sustained growth in national output – GDP. However, for policy purposes it is important to look at per capita GDP. This is a proxy for looking at how much on income an average person possesses. The objective of economic growth (and economics) is to ensure that all individuals are employed (who seek work), have adequate food, have access to drinking water, transport, etc. In no way should we consider the objective of increasing GDP to be our aim. It is a necessary means to an end- better life.

Urbanization is understood as an increase in the population of urban spaces. This also means that there is a growth in employment, capital inflow, infrastructure, etc. In turn, such large increases in population will result in an increased pressure on resources – water, space, housing, transportation, office space, air, etc. Communication seems to be the only one which has relatively negligible supply problems.

Given this, how can the Central Government or Planning Commission argue that urbanization is the way to go forward? This means – fatten urban spaces and neglect rural areas! Both, as we know, are not desirable. Fattened urban spaces will present a whole new set of issues to tackle with; neglecting rural areas will mean that agriculture and those dependent on agriculture (around 60% of India) will not be encouraged. Clearly, this does not increase the well being of majority of Indians. More importantly, it is illogical and unwise to argue that urbanization is (or leads to) economic growth. Yes, it leads to economic growth, but only in a very superficial manner and not in any substantive way.

India: Rural and Urban

As per Census 2011, 69 % of Indians live in rural areas and only 31 % in urban spaces. It seems to be the case that the policy makers are interested in improving the “urban spaces”. This does not necessarily include improving the living conditions of the majority of Indians. It is strange how language plays a dividing role too: urban habitats versus rural areas! It is true that the urban sector contributes roughly around 50% of India’s Net Domestic  Product (NDP). The remaining comes from rural India which comprises majority of the populace. As for agriculture, rural areas contribute 94% (for the year 2004-05) of total agricultural output. So, if urban areas are targeted at the cost of rural areas, those employed in agriculture, which is a very difficult occupation, are going bear the brunt.

It is strange that the Government and policy makers (including private think tanks) argue that cities are potential engines of economic growth, when 60% of Indians depend on agriculture for their livelihood which is mainly located in rural areas. This tendency of policy making to favour any method which just boosts the numerical value of GDP without any qualitative change must be stalled. By qualitative change, I refer to improvements in quality of life – food, shelter, education, water, health and so on.

According to a recent paper (July-August 2011) by Gilles Pison in Population & Societies, India is expected to become the most populous country by 2050 and will overtake China. Yes, we have heard that India has been blessed with the demographic dividend; but we must remember that it is no dividend unless there are employment opportunities, and they should not just be in urban spaces. This paper also notes that India records the highest number of deaths under age one – 13,96,000.

Hence, the Planning Commission has considered it imperative that the next 5 Year plan will include urbanization as a key challenge. This, however, is a myopic strategy and especially because of the neglect of agriculture. In addition, employment generation should be the key challenge. Jayati Ghosh also argues in a similar fashion in a recent article of hers. She points out that “The number of urban settlements has increased from 5161 in 2001 to 7935 in 2011, an increase of 54% that dwarfs the 32% growth in urban population.” This means that urban statistics have swelled up because of a reclassification and not mainly because of rural-urban migration. This key information poses further problems for policy makers; actually, it poses problems only for the ‘concerned’ policy makers!

Conclusion

To sum up, it would be disastrous to formulate policies which targeted the urban spaces at the cost of rural areas. The objective of economic policies must be to improve the well-being of the people and not to increase the percentage of GDP by a few points! In fact, even in France and Europe, when the process of urbanization began in the early 18th century, agriculture was neglected. However, a group of economists known as Physiocrats argued that agriculture cannot and should not be neglected as it will lead to a downfall of the economy (see more). It is time that we realized the interdependence present in the economy between rural and urban areas and also high time we acknowledged the significance of creating employment opportunities to the majority of the population.

10 Responses to “Urbanization in India: What does it mean?”

  1. PRANAYAN DEY Says:

    it was great…

  2. Deaz Says:

    Nice post.

  3. Divya Says:

    I totally agree with your view. Agriculture is such an important aspect and cannot be neglected again. What we need is second Green Revolution. The recent upsurges in food prices reflect the need to strengthen supply side. Yet I believe that the main reason that PC is concentrating on economic ‘growth’ only is because they know that higher GDP rates show up rather than long term measures which are difficult to observe.

  4. Alex M Thomas Says:

    Hi Divya,

    Thanks for your comment. Yes, we cannot neglect agriculture nor the people dependent on agriculture. I am not sure whether we need another ‘Green revolution’, but agriculture has to be made more profitable for the farmers. Today, it is profitable for those farmers/middlemen who own seeds, pesticides, credit, etc (known as interlinked markets); they create a very unequal bargaining scenario.

    Heh. What you pointed about high GDP showing up is right on target! Perhaps, it is lure funds from abroad by displaying that India is growing at such a high rate. Irrespective of the reason, this tendency of the Government to focus only on GDP is very dangerous.

    Alex

  5. neers Says:

    whoa! good gyan! :)

    on a serious note: this is damned good article!

  6. icyhighs Says:

    When ppl talk about saving agriculture in India, there’s never a comparison to developed agricultural states – say Australia who have automated farms, high tech facilities etc and a lucrative ag. economy. You can’t really justify an agricultural sector that subsists on handouts – far better to ‘industrialize’ (for lack of a better word), and hope it translates into mechanization of agricultural sector down the line.
    Also be worth discussing the social impact of urbanization – its a definite plus in that it introduces a rather rare commodity in India -entrepreneurship. Of course, plenty of negatives too to consider.

  7. Alex M Thomas Says:

    Icyhighs,

    Thanks for your comment. Firstly, about agriculture, India and Australia are hardly comparable. For, “In 2003-04, the [agricultural] sector directly generated 4 per cent of GDP and employed 375 000 people or 4 per cent of the workforce” in Australia. [see Productivity Commission 2005, Trends in Australian Agriculture, Research Paper,Canberra.] Whereas, in India it employs about 60% of the population. In other words, a lot of people depend on agriculture for their livelihood.

    “You can’t really justify an agricultural sector that subsists on handouts”. This comment is quite problematic. Agricultural sector comprises people who are trying to earn a living. The purpose is not to generate higher GDP or productivity for the Indian economy; instead, it is to live a decent life.

    As for entrepreneurship in India, it would be a mistake to argue that this is rare in India. India has historically been home to some of the greatest merchants/entreprenuers.

    Alex

  8. sunny saurav Says:

    the problem in india is that we have neglected d agriculture sector so much so that it needs immediate response from policy makers.just see,d contribution of this sector is hardly 20% in GDP of india,while almost 70% of people depend for their livelihood on it.it simply means that d policies today r meant to benefit only manufacturing n service sector,while agriculture sector is neglected.how can urbanisation mean economic growth in india,when majority of ur people live in villages..majoritu of them working in agriculture sector??it is really disheartening to know that the growth rate that we see today is mainly becoz of people working in urban areas,thus,making an incorrect view that urbanisation leads to economic growth.
    what we need today is not urbanisation,but better employment opportunities in rural areas,more stronger agriculture sector{whose growth is declining} may be by bringing reforms in this sector so that growth become more sustainable n equitable!!let us not neglect 70% of those people who still today depend on agriculture!!

  9. Undergraduate Economist » Blog Archive » Undergraduate Economist: The 100th Blog Post Says:

    [...] (8) Urbanization in India: What does it mean? [...]

  10. Vikram Says:

    Alex, can it be conjectured that urbanization promotes certain kinds of economic activities that are not easy to establish in a rural setting ?

    Think about a creative industry, like film making. This enterprise requires skilled labor of different kinds, ample capital, all of which have to be located in a relatively small area to synergize and produce an end product.

    I am not so sure such synergies can be generated in a rural setting. The same actually applies for most activities that involve the human brain, accounting, the restaurant business, retail services, they all require an urban environment to thrive.

    There is certainly a pressure for depopulation of rural areas due to the myopic policies of the government, but I believe that there is an endogenous pull towards to cities because they offer a much wider range of possibilities. There is no reason why 56 % of the population will want to do the same profession: farming.

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