The changing face of India

30 Oct 12
India is on the move. Its surging economy has triggered an urban expansion that is seeing new towns and cities emerge across the country. For Urban Development Minister Kamal Nath, the focus now is ensuring that India has the infrastructure needed to cope with this transformational change

By the editorial team, Ernst & Young | 30 October 2012

India is on the move. Its surging economy has triggered an urban expansion that is seeing new towns and cities emerge across the country. For Urban Development Minister Kamal Nath, the focus now is ensuring that India has the infrastructure needed to cope with this transformational change

Few countries are under as much urban pressure as India. Propelled by strong economic growth, the country has seen huge numbers of its population forsake rural areas in favor of its towns and cities. Its urban population now numbers more than 400 million — up from 285 million in 2001 — and is projected to rise to 700 million in 2020.

Similarly, the number of towns has increased from 5,161 in 2001 to 8,000 in 2011 — an increase of 55%. Cities, too, are rapidly expanding. There are currently 55 cities with a population of more than one million and this is likely to be close to 70 cities in the next decade. There will also be six megacities with a population of 10 million — more than in the whole of Europe.

 

Mind the gap

 

Small wonder, then, that Urban Development Minister Kamal Nath is focusing on delivering the infrastructure necessary to cope with these sweeping demographic shifts. “Although only 31% of India is urbanized, we have the second-largest urban population in the world,” he says.

“But, as India grows, the growth has preceded infrastructure. We have a huge infrastructure deficit and we need to bridge this deficit as it remains a huge challenge.” This challenge is crystallized by the too-familiar sight of slums and homelessness in many Indian cities — the direct result of too many people moving to urban areas unable to cope with such an influx.

To cope with this problem, the Indian Government is poised to launch the US$40b second phase of its urban renewal plan within the next couple of months. The Jawaharlal Nehru National Urban Renewal Mission (phase II) will be carried out over the next five years to support infrastructure development in India’s 28 states and will be deployed in addition to the plans of individual state. “The challenge is not only to bridge the deficit but also to build for the future,” he says.

“Our vision is to facilitate the creation of economically vibrant, inclusive, efficient and sustainable urban centers.” India has spent nearly US$15b on the first phase, which was launched in December 2005, and there have been some notable successes — particularly the development of metro systems in Delhi, Mumbai, Kolkata, Bangalore, Chennai, Hyderabad and Jaipur.

The Minister believes that Indian land needs to be used more efficiently in the years ahead. “We are working to formulate land use plans with town and city planners,” he says. “If you take the

population, and divide with the available land area, it is one of the most dense countries in the world. Take away the mountains, the forests, the deserts, the rivers and the lakes from the Indian land mass, and the density of land population will be very high. So we have to look at more efficient use of land, with strategic management for land assets

 

The role of the private sector

While much of the impetus for this urban transformation comes from government — both national and state — it is clear that the private sector also has an important role to play, particularly in light of a growth rate that has recently slowed to 5.3%. Although such an expansion would be eagerly welcomed by many countries, it represents the lowest in seven years for India — and a significant slowdown from the double-digit pace of growth that occurred between 2004 and 2008.

Minister Nath, however, is keen to play down any concerns. “India has become too used to a boom,” he says. “So whenever it’s not a boom, people think gloom. But all the macroeconomic indicators are very good, with growth predicted to be 6.8% next year — which is much more than most other countries in the world. This is a perception problem and it affects all sectors in India.

“The Government has been seeking to manage the country’s growth — ensuring that it touches all parts of the country and all sections of society. This is because growth will not be sustainable unless it is inclusive. By contrast, Western countries are looking at the structure of their economies and how they need to transform themselves to remain as engines of the global economy. New economic architecture will be needed for their future.”

Certainly, the fundamentals that make India attractive to investors remain intact. The high potential of the domestic market, driven by an emerging middle class, cost competitiveness and a huge pool of talent continue to make India one of the most preferred destinations for foreign investment. This underlying strength will Nath’s drive to deliver a number of investment-based models of private public partnerships (PPP) that can implement the massive projects.  “PPP has been a success in India but it is a mistaken notion to assume there is a one-size-fits all model,” he says. “We are appraising various PPP models and would like to get a basket of PPP options to continue large-scale development.”

There is little doubt that such investment is needed. “Economic activity is what attracts people to urban areas,” says Minister Nath. ”In the next 10 years 70% of new jobs will be created in our

urban areas, and almost 70% of our GDP will be generated in urban areas.” Irrespective of slowing economic growth, India’s towns and cities will be at the forefront of the country’s development in the years to come.

This article first appeared in the October issue of Citizen today

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