October 6, 2009 1:47:35 am
At Stanford Business School,one of the very first chapters our MBA students read is an article on the promise of development by economics Nobel laureate Joseph Stiglitz. The article highlights Indias successes,pointing to the shimmering buildings of Bangalore,but also notes the striking contrasts one finds in Indian cities,with pockets of affluence right next to terrible poverty.
These dramatic contrasts would surprise few residents of,or visitors to,Indias urban areas. As of 2006,Indias towns and cities housed more than a third of the countrys poor,a proportion that appears to be increasing. Yet,these towns and cities also produce around 65 per cent of Indias goods and services. In fact,it may be precisely the fact that Indias rich and poor live side by side that make many Indian urban areas such productive drivers of economic development,in contrast to many areas in the West where the poor live in economically segregated neighbourhoods or even projects set up in the name of urban renewal.
The central governments major urban initiative the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is a timely realisation of the importance of Indias urban sector. However,going forward,the project would do well to target investments at middle-sized towns where they may have the most social benefits and to be wary of creating Potemkin town centres that displace the poor.
The JNNURM has approved Rs 238.6 billion to urban projects in some 60 cities between 2005 and May 2009. The majority selected for funding have been infrastructure projects,with water management,drainage and sanitation being particularly important. There is no question that such projects are sorely needed across many,if not all of Indias urban areas. Yet a look at the target towns of the JNNURM shows a strong bias towards places that already enjoy strong political voice
and disproportionate access to taxpayers money.
Recent research by the World Bank suggests that the gains from investing in infrastructure in Indias towns are greatest in medium-sized towns and cities district centres that are often neglected relative to the reasonably reliable electricity and roads enjoyed in the bureaucratic and political precincts of state capitals. These mid-sized communities also play an important role in acting as marketplaces and employment catalysts for surrounding rural areas. Being a Central project,the JNNURM provides a great opportunity to target these district hubs.
The JNNURM also calls for urban renewal and affordable housing projects,both terms that sound benign but can have serious consequences. Indian cities,like Mumbai,contain some of the most expensive urban real estate in the world. At first,projects that remove slums from high rent areas seem like a win-win proposition. Governments can get revenue from selling the land underlying the slum to development,the city centre is cleared of poverty and the poor can then be placed in better affordable housing units in low rent peripheral areas.
However,simply put,having slums in close proximity to rich parts of cities can also create opportunities that are good for all. At the most basic level,employers can find workers easily,while workers can find employment and a chance to advance while still being able to afford the rent. The cost of living remains relatively low in Indian cities,despite high rents,in part because of the services that are provided by the relatively affluent and the relatively poor to one another. Given Indias global comparative advantage continues to lie in its ability to provide services at relatively low cost,this is not a trivial benefit.
In contrast,a tragic irony of Americas inner cities is that the poor often face higher costs of living simply because they live in segregated neighbourhoods with less access to goods and services,let alone jobs. Unlike India,slums in many Western cities are not hives of small-scale industry and production,but instead are likely to have a disproportionate number of unemployed residents. Affordable housing projects that displace the poor to low-rent peripheral areas run the risk of separating people from opportunities,reducing the very advantages that can make Indian towns globally competitive to work and do business.
This is not to say that having rich and poor living side by side cant also create problems. Crime and resentment,sometimes expressed violently,are common problems in places with large inequities. However,segregating the poor is often not an effective long-term solution to these problems. Indian towns continue to provide a space for profound opportunities. Government projects that focus on improving the transport,power and sanitation infrastructure for all,rather than creating a few Potemkin town centres devoid of poverty,would go far to allow them to reach their amazing potential.
The writer is assistant professor of political economy at Stanford University
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