Indian Cities – An Important Step Towards Economic Development

The World Economic Forum in Davos brings with it a surge of narrative about India’s economy, often invoking the country’s rising GDP but tending to ignore the epicentres of economic growth – cities. The development of cities should be a larger part of any dialogue about Indian economic growth than it is presently.

In addition to being hubs of innovation, commerce, and culture, cities are the centers of most economic activity within their respective provinces or countries. Most discussions about cities involve a macro and a micro lens – the former addressing the role and distribution of cities in a regional context, and the latter dealing with infrastructure and economic activity within cities. Let’s look at the macro first.

Globally, close to 80 percent of economic growth and 54 percent of the population can be attributed to cities. While in India just 10 percent of the population is housed in the 50 most populous cities, and close to 68 percent of the population lives in rural areas. The 10 largest commercial cities in India[1] account for 55 percent of GDP, with the top 4 cities accounting for a quarter of the country’s output.

Also read: The Indian Economy in 2018 – Analysis & Predictions

In comparison, 22 percent of the Chinese population resides in just 15 cities[2]. Over the last 3 decades, China succeeded in growing 19 cities from populations of a quarter of million people to that of over a million. Many of these 19 cities have been the backbone of Chinese growth since the mid-1980s. India attempted a similar strategy of special economic zones, but was unsuccessful due to restrictive labor, land and construction laws.

India suffers from the ‘Tyranny of Capitals’ – with a majority of commercial and demographic activity concentrated into regional seats of power. This concentration skews resource allocation and prevents the development of second cities[3]. The growth and development of small and medium sized cities into hubs of industrial activity could be an important step in bringing people out of the chronically unproductive agriculture sector and into manufacturing and services. The rural-urban divide in India is much larger than is warranted, given the country’s economic aspirations.

In order to judge the importance of growing small and medium sized cities, consider the case of West Bengal – India’s eastern state which borders Bangladesh and stands between the country’s quintessential center and its far east. The largest city in West Bengal is its capital, Kolkata. Once the capital of the British Raj, Kolkata now houses India’s oldest and second largest stock exchange, boasts the title of India’s cultural capital, and the center of the eastern railway system. Kolkata also happens to be the only spark of life in an otherwise struggling state. It houses 10 times as many people as the next most populous city, and contributes to almost half of the state’s economic output. These may be contributing factors to West Bengal being an economic laggard in India. On the other hand, within India’s most economically vibrant and second most populous state – Maharashtra – 4 urban areas account for a fifth of the state’s population, and for most of its economic output. [4] Mumbai’s share of Maharashtra’s economic and demographic activity is almost half of that observed in Kolkata.

Also read: ‘India’s steelindustry is dominated by electric-based processes’: US Energy Information Administration

India has several opportunities for the effective development of its cities. One of the most significant of these is along the coastline. The Indian coast is one of the largest for any single nation and its access to the economically vibrant regions of East Asia, Australia, and the Middle East makes it a notable maritime opportunity. Despite these geographic advantages, not a single Indian port is among the world’s 20 busiest[5]. Meanwhile, 9 Chinese ports made this list after the country opened up to foreign trade.

Port development need not just be along the coast. A number of river ports like that in Varanasi, and dry ports like those in Kanpur and Durgapur can make their cities into hubs of commercial activity. The lack of services like cold storage and of proper logistics infrastructure immensely reduces the productivity of Indian industry (especially agriculture). Inland cities like Indore, Bhopal, and Nagpur can potentially fill this gap and develop themselves by creating the appropriate logistics infrastructure.

Parallel industries sometimes develop in different cities within the same region, befitting the region as a whole, and can be a source of economic development of second rung cities. In the state of Maharashtra, the financial services and consumer goods sectors in Mumbai is complemented by manufacturing and IT in Pune.

Also read: Marijuana Tax: How Colorado is spending its marijuana tax revenue

Another good place to start is by improving inter-city connectivity. It can take up to 3 hours to drive from the center of Karnataka’s capital, Bangalore, to the city’s airport, while the drive from Bangalore to neighboring Mysore takes around the same time. The same story is true for Mumbai and Pune, as well as New Delhi and Jaipur. While the time taken to travel to an airport is a great indicator of city congestion, the improvement of transport infrastructure between cities can help in decongestion and in spreading economic activity.

Increased demand for scarce land within cities leads to higher real estate prices, congestion and pollution. The development of second cities can ameliorate a number of these problems by leading to decongestion of large cities, equitable economic growth, and better infrastructure for workers moving into these growing cities.

The challenge is to grow more cities that can accommodate excess of a million people, so as to absorb an increasing labor force and excess labor from agriculture. A seemingly effective way to do so is by developing ports, improving inter-city linkages, and promoting industrial investments into small to medium sized cities. This very point – the vibrancy and economic diversity that embodies a city – brings us to the ‘micro’ lens of urban analysis.

Also read: The Bank of England is planning a Bitcoin-style virtual currency – but could it really replace cash?

This lens deals with the systems and infrastructure that allow residents, institutions and enterprises to interact with each other. Sanjeev Sanyal refers to cities as ‘living ecosystems’, and writes of an organic approach to city planning – which involves envisaging various possible scenarios and creating optionality rather than concrete plans[6]. The idea of imagining possible scenarios and responding appropriately does however entail that progress and developments be monitored scrupulously. Staff within city offices must collect data on indicators ranging from traffic conditions to police activity to parks to street vendors. It is only when we know all that we can about a city’s conditions, that we may understand the systems that drive life within it, and act upon this knowledge to design useful interventions.

City infrastructure across India is in disrepair, and 2017 gave us a series of unfortunate examples in Mumbai: multiple building collapses, a stampede after a pedestrian bridge collapsed, lamentable monsoon floods, and a horrific fire in the Kamla Mills complex. Buildings often disobey city fire codes and ambulances find it difficult to reach their destinations in time. These problems aren’t isolated to a few cities – over half the natural disasters in India since 2000 can be attributed to floods. The obvious need for an infrastructure upgrade is complemented with the need for accessible services within cities.

Also read: Behind Narendra Modi: The growing influence of the India lobby

Compliance with such regulations is a challenge in itself, but technology can be used to make cities safer. World Bank funded projects like early warning systems have helped reduce the impact of natural disasters immensely. Cities like Ahmedabad are following China’s example in keeping their citizen’s safe through pollution warning systems. Lessons can be learned from interventions in fragile cities like Medellin, where complex tools like satellite monitoring and predictive analytics, combined with simple changes in police activity and public lighting have been used to make cities safer. These evidence-based ‘smart’ interventions, if implemented in India, can have considerable benefits.

The point of a city is to facilitate interactions between citizens, businesses, and public institutions. These interactions are what drive economic growth within cities – investments from companies, consumption of citizenry, the city investing in interventions that aid its organic growth, and business activity. These factors work best when they are not mutually exclusive. By investing in the development of sustainable cities, India needs to break away from the myth of the compartmentalized city. These cities need to take root in commercial activities that make preexisting industries more productive – such as logistics and storage to make agriculture efficient, and to attract new investments into ports, manufacturing centers and services. By dispelling the myths that have thus far driven city systems, and engaging in reality through better observation of how the county’s cities truly work, India might be able to develop robust cities for its future economic needs.

Also read: Demonetisation & The Indian Economy: A Policy Disaster


[1] These cities are ranked by their GDP. The cities with the highest GDP, unsurprisingly, also tend to be those with high populations.

[2] Comparing countries is not as easy as juxtaposing their growth rates, or their per-capita incomes. It is important to make appropriate comparisons of a country with a relevant peer group. If one is studying ‘access to healthcare and social services’, it is important to look at countries with similar levels of per-capita income. Similarly, when studying demographic distributions, it is more appropriate to compare the Indian population to that of China – a country with a similarly large populace, than with Germany – a country with a smaller and much wealthier populace.

[3] Tyranny of capitals is perhaps too harsh of a phrase. Many countries around the world see the same trend. It is however important to point out the lack of enough cities with populations of over a million people in India, as compared to China.

[4] An urban area can at times comprise of two or more cities, where the boundaries of these ‘cities’ are political, and not functional. Functionally, these separate cities act as part of the same unit, earning them the distinction of an ‘urban area’. Navi Mumbai and Mumbai are separate cities, politically, but functionally the same unit, and are thus counted as a single urban area.

[5] Port activity is a function of trade policy as well as industrial activity. Increasing the efficiency of existing ports, and building new ports can play a role in increasing traffic if it is complemented with an effective industrial policy that invigorates firms to export more.

[6] For an example of organic planning, take the High Line Park in New York. Once an out-of-use railway line, the elevated train tracks were transformed into a public space, which now attracts millions of visitors and has rapidly increased the commercial activity in the surrounding areas.

[References: WPR, LiveMint, Livemint]


The author, Mihir Baxi, is an economic analyst and researcher. His work focuses on international economic affairs.

Tweet at Mihir: @baximihir95

Follow Indus Dictum on Facebook and Twitter for the latest updates.


Leave a Reply

%d bloggers like this: