Undergraduate Economist

Perspectives of an economics student

Urbanization in India: What does it mean?

Posted by Alex M Thomas on 26th August 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.

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Posted in Agricultural sector, Demographic Dividend, Demography, Development Economics, Economic Growth, Economics, Employment, Francois Quesnay, GDP, India, Macroeconomics, Political Economy, Poverty, Richard Cantillon, Unemployment, Urbanisation | 10 Comments »