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Rajesh Shukla: Why India's top cities matter

Their citizens are most educated, have highest incomes and highest share of savings

Rajesh Shukla  |  New Delhi 

Their citizens are the most educated, they have the and, consequently, account for the highest share of savings in the country.

With elections around the corner, India’s politicians are likely to go around the countryside telling voters what they would like to do for them. Better roads, more electricity, better education, higher farm prices, All of these are laudable, but India’s political class would do well to remember that the country’s prosperity comes from its cities, the top 20 cities in fact. So, if these cities are neglected, India’s growth will suffer.

India’s top 20 cities account for just 10 per cent of the country’s population, but this population earns more than 30 per cent of the country’s income, spends 21 per cent and, so, accounts for just under 60 per cent of the surplus income. The next lot of cities account for 20 per cent of population, 13 per cent of income and under eight per cent of surplus income or savings. Rural areas account for 70 per cent of population, 64 per cent of expenditure and just a third of the country’s surplus income. It’s obvious then that India’s savings can grow only as the country’s urbanisation rises. Given this, the promise of creating more urban centres would be a more effective tool in getting votes from rural India.

The reason for this is quite clear once you look at the data closely. NCAER’s annual survey of households across the country shows that around 51 per cent of the households in the top 20 cities have at least one graduate (that means, at least a tenth of the population in these cities consists of graduates);the figure is 38 per cent for other cities, and the number is just 15 per cent in the villages. As a result, nearly 49 per cent of those employed in the top 20 cities tend to have salaried jobs, and another 32 per cent are self-employed. In comparison, the other cities and rural areas, which have a smaller proportion of graduates (see table), tend to have a much smaller proportion of either the salaried or those who are self-employed — 32 per cent of those in the other cities are salaried and the figure is just 10 per cent in villages; in the case of the self-employed in non-agriculture, the figure is 30 per cent for smaller towns and a mere 11 per cent in rural India.

Combining this occupation structure with the big difference in earnings across the top 20 cities and rural areas is what gives us the difference in income and savings levels. So, for instance, the latest NCAER survey shows us, the average graduate earned Rs 180,000 per year in the top 20 cities as compared to just Rs 91,000 in rural areas. The difference, in fact, is higher for the illiterate as well — the average earnings of an illiterate was Rs 70,000 per annum in the top 20 cities versus just Rs 22,500 in rural areas.

In terms of those with regular jobs, the ratio of salaries in rural areas to the top 20 cities was 0.62 (Rs 96,500 versus Rs 155,000); it was 0.38 in the case of the self-employed and 0.47 in the case of labourers. As a result, the average earning of those in the bottom-most quintile in the top 20 cities was Rs 44,000 as compared to Rs 19,500 in rural areas; for the top-most quintile, the earnings were Rs 302,000 and Rs 136,000 respectively.

An interesting finding is that the top 20 cities are not any more unequal than rural areas are, with the ratio of the earnings of the average family in the top quintile to that in the lowest quintile being around 6.9 in both the top 20 cities as well as in rural areas. This is important to keep in mind because, when looked another way, inequality levels appear very high in the top 20 cities — 53 per cent of households in the top-most income quintile are to be found in the top 20 cities. The figure is 30 per cent in the other cities and just 12 per cent in rural India. The Gini coefficient (the higher it is, the more the inequality) for the top 20 cities is 0.41 versus 0.43 for other cities and rural areas.

From the point of view of India’s marketing firms, the top 20 cities and their growth are clearly of paramount importance. In the case of colour televisions, for instance, 68 per cent of households in the top 20 cities own these products, the figure is a lower 47 per cent in the other cities and a mere 17 per cent in rural areas. For cars, the figures are 23 per cent, five per cent and three per cent respectively; for refrigerators, the figures are 63 per cent, 34 per cent and eight per cent respectively. With 67 per cent of households in the top 20 cities putting their money in bank deposits versus just 46 per cent in rural areas, the impact on financial savings is obvious.

Another interesting finding relates to the impact of the slowing economy on income levels across the country. NCAER regularly uses data from its annual survey to get the shape of the income distribution curve and then super-imposes this on to get estimates of the number of households in different income groups. This showed the number of lower-income households (those earning under Rs 71,000 per annum at 2007-08 prices) would fall from 65 million in 2001-02 to 46 million in 2007-08 — if GDP next year grows at under six per cent, this number will fall to 41 million. The number of middle-income households (Rs 71,000 to Rs 285,000) was projected to rise from 109 million in 2001-02 to 136 million in 2007-08 and this, under a lower GDP growth, will rise to just 141 million in 2009-10. The upper-income classes were projected to rise from 14 million to 37 million and, under a lower GDP growth, will still rise to 47 million in 2009-10. In other words, the lower income classes will continue to fall at more or less the same pace even if GDP growth falls, the upper income classes will also continue to rise at more or less the same pace; the middle classes, however, will see a slight slowing in their growth with GDP growth falling.

The author is Senior Fellow, NCAER

First Published: Tue, February 10 2009. 00:49 IST