Reaping India's urban dividend and how

India's economic transformation since the unleashing of reforms has been breathtaking. Domestic industry has become globally competitive across an array of sectors, the financial system has shown its resilience through the current meltdown, the services sector is world class, and in infrastructure, private sector response has been overwhelming.

Yet severe distortions persist: primary among these is that urban incomes are growing at least six times faster than rural incomes, with the trend set to worsen in the foreseeable future. As a result, over the next few decades, 300-400 million Indians are likely to migrate to urban areas—with devastating consequences. To understand that, just look at Mumbai: 80 per cent of its 18 million people already live in slums or slum-like conditions. In short, deteriorating urban conditions will defeat the very purpose for which economic reforms were adopted: to improve incomes and quality of life of its citizens.

If addressed, the challenges of urbanisation could convert a potential nightmare into a dividend. Urbanisation could be the tool to distribute wealth more equitably, provide access to goods and services across a wider spectrum of our population, enhance productivity, and improve the quality of life (especially housing) at an affordable cost.

At the heart of addressing the challenges of urbanisation is the challenge of radically improving the governance framework that addresses a number of key bottlenecks: fundamental among them is that quality of service is directly linked to viability. Clean water, clean air, clean streets, etc., are services that are to be paid for. In this regard, a leading politician once said: "… the problem is not the unwillingness to pay, but rather an unwillingness to charge."

Concurrently, we need a two-pronged on-the-ground strategy. First, we need to establish employment-generating townships around select urban centres with mass transport connectivity and the full complement of infrastructure services (physical and social). A case in point: The initiative of the Gujarat government to establish Gujarat International Finance Tec-city (GIFT) between Gandhinagar and Ahmedabad, with all state-of-the art infrastructure and connectivity to the two cities. It is expected to generate close to 1 million jobs on full occupation.

Second, re-zone urban conglomerations to improve service standards, property classification and rating, and induct private players to augment and improve services. A decentralised approach to the management of urban local bodies (ULBs) would make the tasks manageable and amenable to quicker on-the-ground results. In this context, the use of the funds in schemes such as the Jawaharlal Nehru National Urban Renewal Mission for viability gap funding or as an annuity support mechanism would enable ULBs to improve services whilst ensuring that the pricing of services is consistent with the conundrum of willingness to charge.

A Greek philosopher once said that unplanned success will eventually result in a downfall. The reforms have brought unheralded prosperity largely to the urban population. A large number of our rural brethren, then, will move to urban areas. If we can prepare the ground to meet their aspirations, we end up with an urban dividend that will fulfil the vision of the reform programme. If we fail, we would have to deal with an urban nightmare that will wreck the foundations of the reform agenda.

— The writer is the MD, Infrastructure Leasing and Financial Services