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The country needs a strong structural shift into organized manufacturing and away from its burden on the agricultural sector.

The role of urban spaces across India will be key in this transition.

Cities are hubs of economic activity and growth, and they increase productivity through the creation of agglomeration economies.

Why should the focus be on Cities?

As per the latest estimates available from 2011-12, urban areas in India contribute somewhere between 52.6% to 64.9% of the national output despite having much lower share of the population than rural areas.

This explains why they tend to be the focus of any discussion on economic activity. However, they should not be the sole focus.

The pillars

There are several policy changes that are needed to maximize the economic potential of cities.

  1. There is a need to deepen the economic data generation and analysis in the country. The data sets that we employ now (like Economic Census, National Sample Survey Office, Annual Survey of Industries) do not have the level of granularity as desired for analysis at the city and region level. In an age of big data analytics, machine learning, and artificial intelligence, this approach undermines our ability to harness the power of these technologies.
  2. The policy environment needs to be harmonized to create an unequivocal focus on economic growth at all levels. While the need for different policies across various sectors cannot be denied, their tendency to function at cross purposes to each other needs correction.
  3. It is important to understand the cause-effect relationship between economic growth and urbanization. Increased urbanization may not necessarily lead to increased economic growth.

How should Urbanisation be managed for economic growth?

  • Urbanization supports economic growth only if it improves economic complexity, i.e., fosters conditions leading to increased accumulation and aggregation of productive knowledge, thus help push the frontiers of technological progress in society.
  • There is a need to transform the urban local bodies (ULBs) into economic development enterprises.
  • The over-dependence on state and national governments threatens to sever their links with citizens and creates a complex principal-agent problem, wherein the principal (citizens), have poor control over the way their agents (ULBs) govern them.
  • Economic growth has to be a key objective of the city government, and that can only be possible if city governments are fully empowered in the true spirit of the 74th Amendment (devolution of powers to Urban local bodies).
  • As the increased pace of economic growth is bound to cause increased urbanization, the importance of spatial redistribution comes into play, and it is necessary to point out why cities should not be the sole policy focus for the government.

The negatives

  • There is congestion on the roads, rent prices rise, and time of commute increases for people in the city.
  • The productivity increases up to a certain threshold of city population, after which the costs of congestion begin to outweigh the benefits from agglomeration resulting in a decline in productivity.
  • Low growth makes the possibility of starting a new city more difficult, thus triggering a self-catalytic process of ‘over-urbanization’ of the large city, even after it has much exceeded its optimal size threshold.

How have we handles Urbanisation so far?

The draft National Urban Policy Framework (NUPF) of the Government of India has acknowledged the need for appropriate paradigms of regional development.

-Source: LivemintShare this article on

June 2024