India's cities grow fast, develop slowly

Tue Aug 3, 2010 8:01am EDT

1 of 2. High rise residential buildings are seen behind a slum in Mumbai, July 20, 2010.

Credit: Reuters/Danish Siddiqui

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For a package on China's urbanization in PDF format, click on: r.reuters.com/tap92n

By Rina Chandran

MUMBAI (Reuters) - It happens every year. When monsoon rains lash Mumbai, the city turns into a cesspool, which along with its potholed roads and gridlocked traffic, mocks its ambition of becoming a global financial center.

India has Asia's third-largest economy and the increasing global clout that goes with it. It is already home to a quarter of the world's 20 most densely populated cities.

One of them is Mumbai, India's financial capital, where some 18 million people crowd into slums and skyscrapers, stretching the city's amenities and making it less attractive for investors.

While rapidly modernizing cities such as Shanghai and Sao Paulo are winning business from centers such as London and New York, the slow pace of urban development in India is harming its cities, which by 2030 will be home to about 590 million people -- nearly twice the population of the United States today.

Indian cities over the next two decades will also house 40 percent of the country's population and generate some 70 percent of new job opportunities, McKinsey Global Institute (MGI), the research arm of consultancy McKinsey, estimates in a report.

To cater to this growth, India needs to invest $1.2 trillion in capital expenditure, mainly infrastructure, over that period, an eight-fold increase of current spending levels, MGI said.

"Across all major quality-of-life indicators, India's cities fall well short of delivering even a basic standard of living for their residents," the report said.

India now spends $17 per capita on urban infrastructure, compared to rival China's $116.

That figure is clearly inadequate: while it took about 40 years for India's urban population to rise by nearly 230 million in 2008, it will take only half that time to add the next 250 million people, analysts say.

India will, over the next two decades, see an urban transformation the scale and speed of which has not happened anywhere except China, with many cities becoming larger than many countries, in terms of population size and GDP.

"It's going to be one of the most defining changes that we have yet to see," said Roopa Purushothaman at Everstone Investment Advisors.

Poor infrastructure shaves an estimated 2 percentage points off India's economic growth.

"There cannot be high economic growth without a high degree of urbanization," said Ashish Sharma, a principal at consultancy Booz & Co. "There is a clear, positive correlation between the GDP of a country and its degree of urbanization."

FOCUS ON VILLAGES

Historically, India's politicians and policy-makers have focused on villages. Urbanization has largely been a result of existing cities expanding economically and demographically, rather than anything planned, Sharma said.

This largely haphazard growth has created inequity. With more than 500 million mobile phone subscribers, more people in India have access to a mobile phone than a toilet, a "tragic irony," a recent UN report noted.

Lack of affordable housing means India has the largest urban slum population in Asia. Mumbai boasts some of the world's priciest real estate but some 60 percent of its residents are homeless or live in slums.

Foreign firms entering India or looking to expand are scouting locations away from Mumbai and Delhi, Booz's Sharma said, because of poor livability, which drives up costs.

"Our cities are not the magnets that Singapore, Dubai or even Shanghai are. Anecdotally, it's very clear we're losing our edge to these cities because of poor infrastructure," he said.

When it comes to planning, India also lags rival China, which has clear policies, giving its major cities the same status as provinces, and investing ahead of demand.

"China has embraced and shaped urbanization, while India is still waking up to its urban reality and the opportunities that its cities offer for economic and social transformation," McKinsey analysts Richard Dobbs and Shirish Sankhe noted.

The government, which estimates urban areas can contribute about 65 percent of India's GDP by 2012 with improved services, has a 1-trillion rupee ($212 billion) urban renewal project aimed at building and improving infrastructure, revamping archaic land and property laws and making 63 cities and towns self-governing.

But it has little to show since its 2005 launch.

"We have great plans on paper but when it comes to execution, we've faltered. That's also the case with urban development," said Abhishek Kiran Gupta, head of research at real estate consultancy Jones Lang LaSalle Meghraj.

"But the stakes in this case are high."

(Editing by Miral Fahmy and Bill Tarrant)

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