Wednesday, June 10, 2015

Govt of India's new-found pro-urban bias "lacks" policy perspective, is misplaced

By Our Representative
A top American thinktank has suggested that Government of India’s unprecedented insistence in favour of urbanization as the only panacea for achieving a higher growth rate is highly premature, as it emanates for lack of analysis of ground realities by policy makers. In a recent study, Yukon Huang, senior associate at the Carnegie Asia Programme, has underlined there is complete lack of “incentive” for rural people in India to shift to the urban areas.
Huang’s observation comes in the wake of well-known pro-Narendra Modi economist Arvind Panagariya in an official blog saying that the Government of India's emphasis on a fresh law to quicken up land acquisition and Make in India campaign are directed towards triggering migration of workers from rural to urban areas in search of jobs.
Quoting a study, Panagariya had said, “Indian farmers and their children recognize the superior prospects that faster-growing industry and services can offer… 62 percent of all farmers say that “they would quit farming if they could get a job in the city.” Panagariya is vice-chairman of Niti Ayog, the new Modi avatar of the Planning Commission.
Doubting this may ever happen given the current limitation of India’s policy framework, Huang says, “If India is to achieve the same sustained success as China, then it needs to take a hard look at why its urbanization process has failed so miserably in comparison”.
He adds, “China’s rapid industrialisation-driven urbanisation process led to a sustained double-digit surge in real wages, which uplifted some 600m rural people out of poverty and accounted for half the country’s 10 per cent annual gross domestic product growth rates from 1980-2010.”
In contrast, he says, “Despite its impressive service-sector development, India has not managed to develop a vibrant manufacturing sector and most of its labour force is still mired in low-productivity rural activities.”
“The reason why India has failed and China succeeded”, says Huang, is that the difference between the productivity of rural and urban areas in India is very low: “The ratio of incomes gives a sense of the relative differences in productivity between the cities and countryside. For China, this ratio is 3.2 – highest in the world.” But in India the ratio is 1.6, “one of the lowest for emerging market economies.”
Pointing out that when urban productivity is “only moderately higher than in rural areas, and cities do not offer such a magnet of higher earnings”, Huang says, this clearly suggests that on an average, China’s “urban workers are more than three times as productive as rural workers and are being compensated accordingly.”
Huang says, “Four decades ago, these two most populous and poor countries faced similar economic prospects. With the bulk of their labour force stuck in subsistence farming and a relative scarcity of natural resources, the success or failure of their development efforts would be defined by their urbanisation process.”
In fact, he points out, “In 1980, India was further ahead than China with an urbanisation ratio of 25 per cent ratio compared with the latter’s 20 per cent.” However, today, “China has more than doubled its ratio to 53 per cent, while India’s has edged up only slightly to 32 per cent — and even at that level is marked by more pervasive pockets of slums.”
In yet another indicator, Huang says, despite a sharp growth of the urban areas, China’s mega-cities have seen nearly seven-fold in US dollars over the past decade, which is not as high as that in India. In India, “property prices in Beijing and Shanghai are still only half those of their Indian counterparts of New Delhi and Mumbai”.
This suggests, says the scholar, that in India, “the incentive for rural workers to migrate to the cities is much less than in China, and this is accentuated by the relatively higher cost of living in Indian cities due to exorbitant property prices.” He adds, “Inflated property prices coupled with other factors — notably logistical bottlenecks — put Indian manufacturers at a cost disadvantage in competing in global markets despite their lower wages.”

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