India's Urban Economic Trajectory

The Economic Survey presents a candid view of India's urban development as economically vibrant yet characterized by unfulfilled potential. The potential lies in agglomeration benefits, where clustering boosts productivity, while the shortfall is in not fully translating this density into productivity and livability.

Agglomeration and Productivity

• Value of Proximity: Historical perspectives by Alfred Marshall, Jane Jacobs, and Edward Glaeser highlight the productivity gains from urban density, estimated to increase by 3-8% in developed economies and 12% in India under favorable conditions.
• Challenges in India: Cities like Gurgaon exemplify clustering benefits but also show limitations due to uncoordinated growth, leading to infrastructure deficits.

Economic Contributions and Fiscal Challenges

• GDP Contribution: Urban areas account for over 60% of GDP, projected to increase to 70% by 2030-36, with a population nearing 600 million.
• Fiscal Limitations: Despite driving growth, cities have limited fiscal autonomy, with own revenues below 0.6% of GDP and property-tax collection at 0.15%, restricting infrastructure reinvestment.

Density and Livability

• Wage Elasticity: Density-related wage gains are modest, suggesting incomplete conversion of population density into productive density due to congestion, informality, and fragmented planning.
• Global Comparison: Indian cities lag behind global counterparts like New York and London in functioning as production and knowledge hubs.

Opportunities in Mid-Sized Cities

• Emerging Cities: Cities like Coimbatore, Indore, and Ahmedabad are urbanizing effectively with less congestion and flexible land markets.
• Infrastructure Initiatives: Programs like the Urban Infrastructure Development Fund aim to bolster infrastructure before pressures mount.

Polycentric Urban Development

• Distributed Growth: International examples show that growth diversifies beyond a single metropolis, as seen in Germany and China. This networked agglomeration sustains productivity across interconnected cities.

Policy Recommendations

• Diversifying Urban Systems: Enhancing governance, fiscal authority, and spatial planning can deepen urban systems.
• Climate Resilience: Investments in universal sewerage and services are crucial, as extreme weather impacts productivity.

The narrative of India's urban development is not one of failure but of unrealized potential. The goal is to transform existing scale into sustained productivity and competitiveness through improved institutions, flexible land use, and coordinated governance.