Rings a bell? Yup! All these are cities which have grown from humble levels to one of the fastest growing cities in their respective urban systems. All these are cities which have transformed themselves from lousy towns into hubs of economic activity in a blistering speed. San Diego’s population grew by 9 times from 1950 to 2000, while the total US population less than doubled. Shenzhen saw its population multiply by a whopping 20 times over the last 25 years. Surat, in has also grown by many times the national average, increasing its population more than 3 times since 1980.
Cities can transform themselves in relatively short durations.
In general, the factors which give the impetus for a city’s growth can be put into two groups. First is natural selection - being on a coast, having a waterway (Venice), or a favourable climate. The second is being an industrial centre, strategic trade/transport. The not so obvious factor in the second group is knowledge centre (Nalanda). There are some cases where cities grow purely because they are administrative centres (Delhi). None of the factors identified above should be considered as ‘sufficient’ for a city to grow rapidly. However, the presence of one or a subset of them is ‘necessary’ for them to develop.
Surat has seen a massive influx of migrant workers in its textile mills and gems and jewelry business. The population of the city has grown from 0.9 million to around 3.6 million in 25 years. This is after the city decided to clean up its act after an outbreak of bubonic plague in 1994, and has now become a hub of activity. In the east, Asansol, about 3 hours west of Kolkata is emerging as a trading hub serving the nearby industrial and coal belt. Its location on the Golden Quadrilateral and as a conduit to Kolkata is helping it grow.
Meanwhile, nearby Dhanbad (50 km away) on the same coal belt has seen an increase of only about a fourth as much due to governance issues even though it has similar triggers as Asansol. In the north, the satellite townships of Gurgaon, Noida, Ghaziabad and Faridabad have all benefited from spillovers from Delhi, and strong manufacturing bases, to grow very rapidly. There are numerous other examples of cities—industrial towns and trading hubs such as Ludhiana, Aurangabad, Rajkot, knowledge centers such as Pune and administrative and governance centers such as
Bhubaneshwar which are showing rapid growth. It is extremely rare to see a city show an absolute decline in population size, but in relative terms some cities will show higher growth than others.
Cities are centers of economic activity and demand growth. Estimates of the contribution of cities to total output in India ranges from 60%-80%. Urbanization in India is being driven by economic growth, demographics—younger workers tend to migrate more than older workers, low initial stage of development and urbanization, better transport, especially roads, and better communications and openness. India’s urbanization rate, however, is slower than that of China’s as well as other Asian economies in part due to government policies. Although, a lower growth rate and a smaller manufacturing sector vis-à-vis China are fundamental factors, government policies such as lack of investment in urban infrastructure, the Rural Employment Guarantee Act which guarantees employment for 100 days each year to rural households, and the non-taxation of agricultural income act as a deterrent for the government of labour to towns. This prevents the realization of the gains from urbanization and leads to suboptimal city size. There is a misconception that urbanization will lead to only the growth of mega cities and increase congestion and other costs, while most of urbanization actually occurs in small towns. To achieve the full gains from urbanization, it is imperative that it is, at the very least, not discouraged by government policy.
Gains from urbanization to the economy stem from several factors:
• There are efficiency gains from having firms located in the same place. The variety of goods offered is greater, search and travel costs are reduced, and competition is stronger. This is what we call ‘economies of scale.’ A good example is a shopping mall which leads to efficiency gains in retail.
• Firms want to be close to their customers, whether it be firms in the same industry, or a mass of consumers. This creates a powerful force for clustering of firms in related industries in cities. Firms are then able to learn about and imitate the practices of other firms in the industry. Good examples include the clustering of software firms in Bangalore and car manufacturers in Detroit.
• Cities are also centers of innovation in the production of ideas, knowledge, and their commercialization. People can absorb knowledge from contact with more skilled individuals in their own industry. Large cities therefore facilitate learning, and are particularly attractive for highly-talented young people, e.g., London.
Other benefits of moving to cities include political access, enhanced by proximity to the administrative and governance center, as well as the anonymity that city life rings. The latter is especially the case in India where urbanization can often mean freedom from the oppressive caste system of the villages.
And now some number crunching.
According to Goldman Sachs’ projections, another 140 million rural dwellers will move to urban areas by 2020, while a massive 700 million people will urbanize by 2050. This is because India’s urbanization rate of 29% is still very low compared with 81% for South Korea, 67% for Malaysia, and 43% for China. Rural-urban migration in India has the potential to accelerate to higher levels as, judging by the experiences of other countries, migration tends to hasten after a critical level of 25-30% urbanization is reached, and due to faster economic growth.
The implications for productivity growth are significant. Goldman Sachs’ estimates show that movement of labor across sectors, primarily from agriculture to manufacturing and services, adds 0.9% to GDP growth a year, a process that is likely to continue. Demand for urban housing and infrastructure such as electricity, health care, sanitation, and education is set to jump several-fold.
Verdict: Urbanization is not necessarily sinister, especially if it can aid the growth of tier II cities.
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