The urbanisation challenge

India is poised for massive urban transformation, which could be the largest in the 21st century. The country’s urban population is expected to double between 2018 and 2050, adding 416 million people. 

When the United Kingdom became the first country in the world to undergo large-scale urbanisation in the nineteenth and early twentieth centuries, the process transformed its economy and society. Today, India is facing a similar transformation, only it is happening at 100 times the pace. By 2030, India’s urban population will reach 600 million people, twice the size of America’s entire population.

For India, rapid urbanisation is crucial for harnessing the demographic dividend of a young population. With 12 million more people joining the country’s labour force every year, the potential of that dividend is huge. As the urbanisation process continues, connectivity, proximity, and diversity will accelerate knowledge diffusion, spark further innovation, and enhance productivity and employment growth.

India needs to build 700–900 million square metres of residential and commercial space annually to accommodate its growing urban population, equivalent to a Chicago-sized city each year for two decades. India is projected to have 60 cities with a population of over 1 million and 6 megacities with a population of over 10 million by 2030.

India needs to tackle the enormous challenges posed by the rapid urban surge, from mobilising more resources to build the urban infrastructure to promoting new centres of growth and managing congestion and pollution. As a latecomer to urbanisation, India will benefit from technological innovations—including cleaner energy, innovative construction materials, and new modes of transport—that will enable it to leapfrog some of its more developed counterparts, ensuring inclusive, sustainable, and equitable growth.

India will need to focus on three pillars to shape the future of urbanisation:

Mobilising financial resources

Avoiding lopsided urban spatial transformation

Integrating urban and climate change agendas

A key challenge is to mobilise the huge resources required to build the infrastructure to meet the increased demand for clean drinking water, reliable power supply, and efficient and safe road transport. India will need to invest nearly $60 billion per year in urban infrastructure and a total of nearly $900 billion over the next 15 years. This demands a shift in financing, emphasising private and commercial investments. Currently, the central and state governments finance over 75 per cent of city infrastructure, while urban local bodies (ULB) finance 15 per cent through their own surplus revenues. Only 5 per cent of the infrastructure needs are currently being financed through private sources. This has to change.

Public-private partnerships offer potential, with ULBs able to borrow more from private sources. This process will be helped by improving the regulatory environment and strengthening ULB capacity. Urban property tax in India is far lower than that in other developing countries, and it can be increased from 0.15 per cent to 0.5 per cent of GDP. Reforms in taxation policy and the fiscal transfer system will enable cities to leverage more private financing.

India’s industrialization and urbanisation grew together in the early 1990s, but the two have dispersed in the last two decades. Manufacturing growth was initially concentrated around the megacities. But it has dispersed, and the share of the manufacturing sector in employment, output, and number of enterprises has declined in urban areas. The share of manufacturing has increased in rural areas.

This de-urbanisation of the manufacturing sector has been much steeper in the organised sector compared to the unorganised sector. Large-scale manufacturing enterprises, which account for 80% of output, are moving into rural areas in search of lower land costs to remain competitive.

India’s future engines of growth and job creation will be in its secondary cities and small towns, not megacities. The relatively slow-growing smaller towns will grow much faster in the future. Of the well-known IT clusters in India, the medium-density places, such as Ahmedabad, Pune, and especially Bengaluru, will have high growth rates in the future, while the high-density places, such as Chennai and Mumbai, will slow down.

Cities are where spending on climate action will have the biggest impact. India already has the fastest urbanisation and the most polluted cities in the world—New Delhi, Faridabad, Ghaziabad, Hisar, Gurgaon, Noida, Rohtak, Sonipat, and Bhiwani. New Delhi not only secures its position as the fastest-urbanising city but is also the most polluted city in India and globally. The poor, who lack access to basic amenities, have suffered more from extreme heat and water shortages.

Cities have an essential role to play by setting clear de-carbonisation goals, promoting energy efficiency, and shifting more urban energy consumption in transportation and buildings towards electricity. Cities cannot do it alone, so these efforts should be adequately supported by utilities and regulators. A timeline should be provided to work towards climate change goals and make cities smarter. Infrastructure and urban areas are still being built out in many parts of India, which gives policymakers a chance to ensure that what goes up is more resilient and can withstand climate risks, and progress can be easily monitored. Climate change goals should be socially inclusive to integrate slums and low-income communities, who can benefit from improved public transport and who may be at higher risk from climate-related damage.

Time is of the essence. What is needed is visionary leadership at the local level, with municipal governments identifying infrastructure projects that promote entrepreneurship, increase their cities’ competitiveness, and promote regional development by strengthening urban-rural connectivity. Urban local bodies should leverage their assets, including land, mobilise user revenue, and modify financial regulations and incentives to increase investors’ risk appetite. Add to that greater technical and financial capacity, and it would become much easier to attract the needed private funds and build partnerships benefiting India’s urban transformation. India has the tools to promote economically dynamic, inclusive, and sustainable cities. Use it wisely.

(The writer is a senior fellow at the Pune International Centre. He has formerly worked with the United Nations and World Bank)