Finetuning industrial nodes: Intent correct, design requires refinement

The decision to develop select cities as industrial hubs is sound, but revisiting the choice of locations could make it a game-changer

On August 28, the Cabinet approved a proposal to create 12 greenfield industrial nodes/cities along the backbone of the Golden Quadrilateral. These cities span 10 states, aiming for balanced regional development to make India a global manufacturing powerhouse. It’s promising that the government is prioritising a few cities to create agglomerations while recognising the role of large firms as anchor investors.

Agglomerations bring entrepreneurs, labour and capital to a geographically concentrated location, creating competition, resulting in faster growth. According to some estimates, China’s per capita gross domestic product (GDP) would have been about 20 per cent lower in a more dispersed growth paradigm. Large firms move with their supply chains, comprising micro, small and medium enterprises (MSMEs), creating ecosystems of economic activity and employment. For example, consider the Tata group’s impact in Jamshedpur or the role of Mahindra & Mahindra, Bajaj Auto, and Hero Honda in the automotive hubs of Udham Singh Nagar and Haridwar.

While the intent is correct, the design of the programme requires refinement — specifically, the rejuvenation of existing industrial cities rather than the development of greenfield hubs, as well as recognising the central role states play in creating productive agglomerations. 

The focus on greenfield cities may stem from the inadequate infrastructure in many existing Indian cities. However, developing cities involves more than just infrastructure. Cities emerge when they specialise in particular sectors. This specialisation happens mostly because of market forces, as in the case of Bengaluru’s IT hub, which flourished due to the abundance of educated youth there or Coimbatore’s textile industry, which thrived due to its legacy.

And it takes time. It took Gurugram 20 years (1991-2011) to become one of India’s fastest-growing cities, with its urban population increasing from 2,00,000 to 1 million, and more than 250 Fortune 500 companies setting up offices there. It took so long despite everything going in Gurugram’s favour: Availability of land, proximity to an international airport, and pool of educated workforce from Delhi. Furthermore, cities don’t exist in a vacuum, they are part of their respective states. There is no evidence in India of world-class industrial hubs existing and thriving in states that have weak growth determinants in terms of physical and social infrastructure — such as road, power, life expectancy, and education levels — or have poor governance (high crime rates and fiscal deficits). Having strong determinants helps cities, as resources like labour and capital flow into them from other parts of the state. The two complement each other and must be kept in mind while choosing cities.

The plan to pick Khurpia in Udham Singh Nagar, Dighi in Pune, and Agra makes sense as they already specialise in automobile, fabricated metal, and leather, respectively; Jodhpur-Pali may also be worth trying, as they are major urban centres; Zaheerabad in Sangareddy is an interesting choice too, given its proximity to Hyderabad. However, the other choices — Rajpura-Patiala, Orvakal, Gaya, Palakkad, Kopparthy, and Prayagraj — seem motivated largely by regional equity considerations, as  they don’t have strong specialisation in any industry. Hence, it would be much better, if the Government of India picked the remaining cities from around 30 industrial hubs that exist (author’s estimate) — such as the automobile cluster in Gurugram, and the chemical cluster in Solan and Surat. Significant investment has already gone into these cities. Consequently, on average, they have grown 40-50 per cent faster than the other parts in their respective states. Though these centres are big — Jamnagar, Surat, and Chennai each accounting between $60 billion and $80 billion (Rs 4 trillion to Rs 6 trillion) in gross domestic product (GDP) in FY20 — they are relatively small compared to hubs in China, such as Chongqing, which produces one-third of the world’s laptops and has a GDP exceeding $350 billion (Rs 25 trillion), or Guangdong, one of the world’s largest producers of textiles and electronics, with a GDP of over $1,500 billion (Rs 105 trillion).

Apart from refining its choice of cities, what else is needed to make them globally competitive? States must address three core challenges cities face on a perennial basis: Financial constraints, lack of rigorous and credible master planning, and instability of city leadership. Municipal revenue as a per cent of India’s GDP has remained constant at 1 per cent since 2007-08, much lower than in Brazil and South Africa, where the ratios are 7.4 per cent and 6 per cent, respectively. Second, cities need a master plan that is granular and credible. Indian cities’ master plans do not have the requisite financing and sequencing of key proposals, making them less credible, resulting in haphazard growth. Lastly, on average, the tenure of a municipal commissioner is 10 months, which is too short to make any meaningful contribution to a city’s functioning.

The GoI has got it right in deciding to develop a small number of cities as industrial hubs. With little finetuning in the selection of cities and support from the states, the plan can prove to be a game-changer for India’s growth prospects.
 

The writers are, respectively, senior fellow and research associate, at the  Centre for Social and Economic Progress (CSEP), New Delhi. The views expressed are personal