Policy

Slow urbanization impacts India’s growth journey

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Slow urbanization

India has been facing a slow urbanization process which affects the progress of manufacturing sector and fast industrialization. In the current situation fast urbanization has been not up to the mark when compared to Western countries and other parts of the developed world.

The progress of urbanization as compared to world

The world has crossed 50 percent level of urbanization by 2005-2006 while Indian urbanization has only reached to the level of 35-36 percent. In India which had 11 percent urbanization in 1911 reached the level of 28 percent by the end of the century. While in China the urbanization level was 20 percent in the 1980s which increased to 50 percent by 2010 when India’s level has reached only 31 percent. On the basis of present forecast India’s urbanization will not reach 50 percent even by 2050. So the rate of urbanization in India has been slower than the other parts of the world.

Why fast urbanization is important

Significantly, the change in the development process is always associated with transfer of people from agriculture to manufacturing and rural areas to urban areas. This is then associated with acceleration of growth since productivity in manufacturing is typically the multiple of that in agriculture. As the labor moves from agriculture sector to different kind of urban pursuits the average productivity of agriculture in rural areas also goes up. As the labor force in agriculture comes down it adds to the economic growth.

Also, the country’s growth is dependent heavily on service sector. In most parts of the developed world the share of services is much more than the manufacturing sector for both the added value addition and employment. However fast urbanization is associated with high level of manufacturing growth as exhibited by countries in South East and East Asia. The remarkable growth of Japan, Korea and later China are the examples of the corresponding fast urbanization and manufacturing.

The dramatic growth of manufacturing and exports in China and fast urbanization from 20 percent in 1982 to the present level of 65 percent bear witness to this phenomena. The corresponding slow rate of manufacturing in value added and employment generation explains the slow rate of urbanization in India.

The present position

According to official estimates the share of urban GDP in total was stagnant at 52 percent from 1999 to 2012. At present its share is 55 percent. In India the industrial growth has been more capital intensive and not labor using leading to unemployment in organized manufacturing. There are more evidences available that shows that industries in urban areas are getting more informalized exhibiting slowing productivity and slow income growth.

China leads over India in urbanization process

The number of cities with million plus population is 65 in India while in China there are over 115 such cities. According to an estimate India will reach the present level of China by 2050. The need is to give attention for increasing the number of such cities through policies. Large cities increase overall economic productivity which leads to higher income and increased social welfare along with high quality of living.

According to an estimate the wages rise by 6 percent if the city size doubles in US. Large cites have large pool of labor which is beneficial for both employer and employee.

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