The primary economic premise of India’s strategy is that infrastructure investment today will create productivity gains in the long-term. The National Infrastructure Pipeline (NIP) and PM Gati Shakti initiatives have been designed to deliver on this premise by creating innovative methods for organizing, planning, and executing supply chain projects.
However, despite these initiatives, a significant gulf exists between how projects are initially conceived and how they ultimately operate.
Most projects are still under construction, and project completion rates reflect a relatively low level of productivity. Issues related to land acquisition, regulatory approvals, and coordination failures continue to inhibit project momentum. As a result, there are patterns of cost overruns in construction, as opposed to exceptions.
At a steady rate, India will see an economy that is estimated to grow between 6.8% and 7.2% next fiscal year. The country seems to be on an upward path with strong growth from domestic demand, infrastructure improvements, and international confidence in Indian markets.
The productivity gap: urbanisation without returns
However, there is a gap between what the macroeconomic data indicates and what is being experienced on the street. India’s cities (where nearly two-thirds of GDP is produced) are projected to generate 75% of GDP by 2030; yet they are struggling with significant congestion, flooding, pollution, and housing stress – features that define urban life year after year.
The disparity between urban economic productivity and quality of city living forms the basis of India’s urban paradox; as the economy grows, urban centres producing this growth are being rendered less productive and less viable for families to live.
The disparity indicates that urbanisation over time has typically been successful in raising economic levels because of productive opportunities created when people located near each other. A report found that on average a 1% increase in the level of urbanisation leads to almost a 4% increase in per capita output (i.e., income) due to better job matching, more efficient infrastructure development, and more innovation.
Unfortunately, while India has experienced rapid urban growth with the population projected to be nearly 600 million in 2036, the continued rapid expansion of its cities has been mostly unplanned and reactive to the needs of people living in them.
Rather than being proactive about anticipated growth, cities are playing catch-up with their development.
Infrastructure is added reactively once systems are stressed. Roads are widened after congestion peaks; drainage is upgraded after flooding has occurred; housing is added without coordination with transport and employment centres. Retrofitting cities costs more than the planned investment that would have otherwise occurred, previous infra-structure development would have been more cost-efficient had the cities anticipated growth.
Economists describe this situation as a “productivity trap”, where density that was supposed to create efficiency instead creates congestion and economic losses.
Fragmented governance and weak city finances
Indian city’s governance is opposed to the way all global cities are constructed under one leadership.
Indian cities govern through numerous agencies overlapping one another, 20-30 to be exact, with no single authority responsible for the outcomes of multiple developments within their boundaries. Municipal corporation; development authority; water corporation; state departments are all functioning in “silos” causing co-ordination failures and delays in responding to needs.
Most cities are still unable to control their urban sector (i.e., planning, water supply, and land use) despite the 74th amendment was attempting to empower local government authorities.
This fragmented governance is further complicated by their weak financial position.
Urban local authorities are in charge of providing basic amenities to their citizens but contribute less than one percent of total tax collection in India. The majority of property tax systems are either outdated or not adequately enforced, with low collection percentages and large coverage gaps. Increasingly, as a result of GST implementation, local governments see a further loss of autonomy through loss of their most important taxing powers.
As a result, municipalities must depend on transfers from state or central governments, usually through conditionally funded programmes. While many of these programmes fund new infrastructure projects, most do not provide for ongoing maintenance and as a result, cities lose new assets more quickly than they create them.
Cities must provide services, but they do not have the authority nor financial resources to serve their citizens effectively.
Infrastructure gaps, housing stress and environmental costs
The urban infrastructure narrative in India presents a very complex and dissimilar set of results.
Significant urban infrastructure improvements through large metro rail and water supply projects, have occurred, yet many of these projects do not improve the functioning of most day-to-day economies. Urban commuting times have grown longer and last mile connectivity continue to lag behind. For example, in Bengaluru/India, commuters experience substantial productivity losses from congestion-related commuting delays.
Continuing to favour the automobile over pedestrians and public transit in urban planning compromises the majority of Indian citizens.
Urban local authorities are in charge of providing basic amenities to their citizens but contribute less than one percent of total tax collection in India. The majority of property tax systems are either outdated or not adequately enforced, with low collection percentages and large coverage gaps. Increasingly, as a result of GST implementation, local governments see a further loss of autonomy through loss of their most important taxing powers.
As a result, municipalities must depend on transfers from state or federal governments, usually through conditionally funded programmes. While many of these programmes fund new infrastructure projects, most do not provide for ongoing maintenance and as a result, cities lose new assets more quickly than they create them.
Cities must provide services, but they do not have the authority nor financial resources to serve their citizens effectively.
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Why India’s growth story depends on fixing its cities
The urban infrastructure narrative in India presents a very complex and dissimilar set of results.
Significant urban infrastructure improvements through large metro rail and water supply projects, have occurred, yet many of these projects do not improve the functioning of most day-to-day economies. Urban commuting times have grown longer and last mile connectivity continue to lag behind. For example, in Bengaluru/India, commuters experience substantial productivity losses from congestion-related commuting delays.
Continuing to favour the automobile over pedestrians and public transit in urban planning compromises the majority of Indian citizens.
To accomplish this requires much more than minor upgrades or tiny changes. It will take improved municipal finance resources, integrating fragmented governance structures, as well as proactive, innovative planning of , infrastructure rather than just repairing outdated facilities. Cities must be treated, not only as administrative units, but as being critical to Economic Policy Development.
The gap between economic growth versus urban function cannot continue indefinitely.
If India’s cities do not manage to function properly, India’s overall economic performance will eventually suffer.
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