India is urbanising away from the big cities. This trend calls for policy changes
Say rural India,and the image that flashes in our minds is that of a buffalo tied outside a mud hut. After all,for most if not all of us,rural equals agriculture. Imagine the surprise,therefore,when told that while all agriculture by definition is rural,the converse is no longer true. Now only one-fourth of rural output comes from agriculture. Fifty-five per cent of Indias manufacturing output comes from rural India. Seventy-five per cent of all manufacturing plants that started in the last decade started in rural India.
This is so counter-intuitive,it needs an explanation,and it lies in the unique way in which India defines urban. In India,there are two types of towns: statutory towns and census towns. A statutory town is simply a habitation that the government calls a town it has a municipal corporation instead of a gram panchayat (village council) as the administrative organisation. The census town,on the other hand,is a far more interesting construct: the government thinks of it as a village,but the Census Bureau thinks it has all three mandatory characteristics of a town: one,a population of at least 5,000; two,a population density of at least 400 people per square kilometre,and three,at most 25 per cent of working males in agriculture. This third criterion is what makes India stand out very few,if any,countries have this requirement.
This is why comparing Indias urbanisation (31 per cent) with,say,that of China (50 per cent),is like comparing apples with oranges. For arguments sake,a habitation with 70 per cent of the workforce in factories but 30 per cent herding cattle would still be called a village in India: not until the agrarian dependency is below 25 per cent will it become even a census town. In China,it would most likely have been reclassified as a town and given an urban administrator a decade back. This is possibly why roads to some exotic seaside villas in Alibaug were constructed with funding from the Pradhan Mantri Gram Sadak Yojana.
But is this only an issue of definition? Is the only implication that Indias urbanisation ratio may be understated? No. It demonstrates two very important trends in the economy: the process of urbanisation,and that of job creation.
India seems to be urbanising away from the big cities. Between the two censuses of 2001 and 2011,Indias urban population grew by a third (33 per cent). During this period,the combined population growth of Indias six largest urban centres,that is,Delhi,Mumbai,Chennai,Kolkata,Bangalore and Hyderabad,was far lower,at 24 per cent,much closer to the 18 per cent overall population growth. It wasnt even the growth in the population of smaller towns and the booming state capitals that drove this urbanisation. It was a dramatic 54 per cent increase in the number of habitations called urban: from about 5,200 in 2001 to about 8,000 in 2011. Almost all of this increase came from a tripling of the number of census towns,rising from 1,362 to 3,894.
K.C. Pradhan from the Centre for Policy Research estimates that in the last decade almost 30 per cent of the increase in urban population came from the reclassification of villages into new census towns. Add that to the natural population growth in cities/towns (that is,urban-dwellers having kids),and it would seem that the conventional view of urbanisation,that of a poor migrant worker sitting in a train moving to a city,is fast becoming outdated.
It is not hard to see why moving to larger cities may now be a lot less attractive than it used to be. Take Maharashtra,for example,the second most populous state of India,constituting one-sixth of Indias GDP. Over the past six years,per capita output in the districts of Maharashtra has shown a strong trend of mean-reversion. Put simply,the poorest districts grew the fastest,and the richest grew the slowest the richest districts constituting the metropolitan area of Mumbai,in fact,were among the slowest growing economically. Some believe the base effect is the explanation Mumbai being so rich that it is hard to keep growing at a strong pace,and conversely,poorer districts like Yavatmal and Nandurbar were so poor that growth came easily. But this view is incorrect: even Mumbais per capita output is a fraction of Brazils its,therefore,far from hitting a level of prosperity at which it is hard to keep growing. Similarly,there is nothing automatic in poorer areas suddenly showing growth there is a reason they were poor in the first place.
What has changed,in our view,is the remarkable spread of rural roads,cellphones and electrification. In a study conducted last year,we found a strong correlation between the productivity of a district and that of phone penetration,electricity usage and vehicle ownership. This trend is visible at a national level (details in our article in these columns last month: Hope lies low,IE,April 12,goo.gl/U7usc),as with increasing federalisation,the implementation of ground-level infrastructure development has improved dramatically.
This sharp increase in the number of census towns also reflects acceleration of the pace at which the workforce is moving away from agriculture. After all,less than 25 per cent of working males being in agriculture is a mandatory requirement of classifying a habitation as a census town. Between 1978 and 2005,the proportion of working males in rural India who considered agriculture their primary employment fell by 13 pp to 67 per cent in 2005. This ratio then fell another 12 pp to 55 per cent in 2010: what happened in the 27 years from 1978-2005 was almost replicated in the subsequent five years!
This form of urbanisation,a more bottom-up,less Chinese form,is perhaps healthier in the longer term,especially given our abject failure in managing larger cities. One needs strong top-down planning and execution to manage large urban centres our track record in general on this whole concept is abysmal. We do much better in bottom-up development,even if sporadically. But this trend also necessitates policy changes: governing urban centres under rural administrative rules can exacerbate problems.
After all,this neither here,nor there classification called census town is a classic example of an inefficient administrative short-cut the government believes the place should be administered as a township,but political inconvenience keeps it rural. Not that just converting all census towns to statutory towns,that is,giving these habitations urban administration will solve the problem (I live in Mumbai!),but it can be an important first step. Re-thinking what is rural is also an important change in assumptions.
The writer is the India Equity Strategist for Credit Suisse