Not by investment alone

Amongst the many things that India does well is to shoot itself in the foot with unfailing regularity. Things only have to start going well before some politician or political party comes along to express shock and horror that this should be the case. India then eschews success for a while as an elitist obsession. Urbanisation is not an exception to this general rule. Indeed, in many ways it is typical of it. One only has to look at the state of Indian metros, cities, and towns to see why. Considering they generate as much as 40 per cent of GDP, it is a shame that Indian urban conglomerations are so grim. So while the Prime Minister is no doubt right in saying that urban India needs a big leg up, and his government is even putting its money where its mouth is, it is necessary to put things in perspective.

In a superb exposition two weeks ago in the US, Rakesh Mohan, Deputy Governor of the Reserve Bank of India, laid out the story and prospects of Asian urbanisation. Two things emerge clearly from it. One, that India is lagging far behind most of Asia and that although that is depressingly true, if you are an investor looking for profitable opportunities, you could do worse than keep India in mind. After all, where else but Asia, and especially India and China, will you find so many mega-cities, that is, cities with populations exceeding 10 million? "It is expected that 12 out of the 21 mega cities in 2015 will be in Asia ... 11 of them will be in the developing countries of Asia." Of these three""Mumbai, Delhi, and Kolkata""are in India. In the next 25 to 30 years, urbanisation in China and India, not to mention the others, will happen simultaneously. The process has already started and though China seems to have braced itself properly for what is coming, India is being, well, India. As Dr Mohan puts it, "the Indian story is somewhat different with relatively low attention being paid to urban development over the years."

He then gives the reasons why. For one thing, perhaps in a veiled reference to the ersatz India vs Bharat controversies, there have been systematic policy biases against urbanisation. So there are severe problems in the management and financing of cities. And, of course, there is the all-encompassing corruption""to which Dr Mohan does not refer""which makes management and financing even more difficult. But the key point Dr Mohan makes, one to which the government and politicians should pay heed but will not because there aren't enough votes in it, is that "biases against labour-using manufacturing remain in overall economic policy making, in the industrial regulatory regime, labour regulations and in urban land policy. Thus employment growth in manufacturing remains low."

In short, try as you will, unless India changes its policies in a way that favours more rapid industrialisation, Indian urban conglomerations will remain awful. And, unless something is done, increasing migration from rural to urban India will make them even more awful. The question, however, is whether investment alone will solve the problem if governance remains as it is, or as is likely, becomes worse. The responsibility for improving things lies squarely with the politicians, who have failed India in various other ways as well.