Urban revolution: 20 new trendsetters to redifine India by 2030

India is on the threshold of an urban revolution, the scale and speed of which is unprecedented. It took nearly 40 years for the urban population to rise by 230 million but it will take only half this time to add the next 250 million. Cities will be central to India's economic growth. They will generate 70 per cent of net GDP and stimulate a near fourfold increase in per capita incomes across the nation. The economy of some of India's largest metros will become bigger than that of many countries today. For example, the GDP of Mumbai's Metropolitan Region will be approximately $265 billion in 2030, and higher than Portugal's $244 billion in 2008.If managed effectively, urbanisation could add 1 to 1.5 percentage points to India's GDP growth, taking it near the double digit rate necessary to create sufficient jobs for the 270 million additional working-age Indians expected by 2030. But of the country's urban population, 24 per cent live in slums, in which only 30 per cent of all sewage is treated, and about 70 per cent of solid waste is collected. The share of public transport in the overall transport mix has declined to a mere 30 per cent, significantly lower than the basic service standard of 50-60 per cent. India's inattention to its cities could be perilous. The current policy vacuum risks worsening urban decay and gridlock, a declining quality of life for its urban citizens, and reluctance among investors to commit resources to India's urban centres. This effectively risks the country's economic growth, leading to high levels of unemployment, and, in turn, social unrest.The next 20 emerging cities will play an important role in the nation's urban rising. They are Surat, Kanpur, Nagpur, Lucknow, Jaipur, Coimbatore, Kochi, Vadodara, Indore, Ludhiana, Visakhapatnam, Madurai, Bhopal, Patna, Nasik, Asansol, Varanasi, Rajkot and Amritsar. India has the opportunity to shape the evolution of its emerging cities that lie at the cusp of an urban explosion, contrary to the challenge of turning around Tier-I cities. International experience shows that three main areas-urban planning, funding and governance-are instrumental in shaping the evolution and transformation of a city.Plan for an urban surgePlanning is necessary to help link land usage with urban flows to ensure that a city's infrastructure is capable of delivering basic urban services such as water supply, sewage treatment, housing, waste management and storm water drains. Emerging cities should learn from the mistakes of Tier-II cities, many of which suffer from the lack of an integrated 40-year concept plan and a 20-year master plan integrated across sectors. Such plans typically require 12 to 24 months of intense work by city governments with support from specialist agencies. Today, no emerging city in India has a well-analysed 2030 master plan. It is vital for municipalities in emerging cities to create these plans professionally to avoid urban chaos.Invest proactively and appropriatelyIndia's emerging cities will require an average capital investment of $10 billion (Rs 45,000 crore) in urban infrastructure over the next 20 years. This investment is required to fund the infrastructure backlog from chronic underinvestment over time, and to meet future needs across seven dimensions- sewage, sanitation, solid waste management, storm water drains, urban roads, mass transit, and affordable housing. The last two account for a majority of the total urban spend. Raising this quantum of finance is possible. The good news is that 80 per cent of this amount can be raised internally in India's 20 emerging cities. Globally, cities have typically used four levers to raise funds: monetisation of land assets; property taxes and user charges that reflect costs; debt and public-private partnerships; and transparent formulabased on government support. Although it is unusual for Indian cities to monetise land assets, cities could generate up to $58 per capita a year by doing so. Indian cities could systematically increase floor area ratios around central business districts and linked transport corridors, and charge a development fee connected to property prices.Further, cities could generate large sums through the auction of greenfield sites, and charge impact fees on all new infrastructure developments on a per sq ft basis. Another $81 per capita per annum could be realised per year by maximising property taxes and user charges. To date, low tariffs, poor assessment methods, and non-compliance have hindered India's ability to unlock revenues from these sources. India collects only an estimated 0.04 to 0.08 per cent of property values as property taxes-one of the lowest rates in the world. Likewise, in the case of user charges, India needs to recover more. Increasing collections and coverage through use of sophisticated measures, GIS maps and tightening enforcement are possible ways to achieve the stated outcome. India's emerging cities also need to make use of debt and private capital. They could potentially raise up to $26 per capita per year from this stream. So far, poor financial structuring has rendered this revenue stream unviable. Consequently, it has contributed less than 5 per cent to the funding of urban investment.Finally, cities should be allowed to retain 18 to 20 per cent of the goods and services tax, as they generate close to 80 to 85 per cent of total taxes. For example, China allows its cities to keep 25 per cent of the VAT collected. Transform urban governanceIndia has scarcely faced up to the challenge of running cities-one of the most difficult administrative challenges in modern times and continues to rely on outdated leadership and delivery choices. To set urban governance right, India needs to make a few major choices. While India is clear on how to run central and state Governments, and even its villages through the Panchayati Raj system, it has not yet sufficiently articulated the "third tier" of local governance for cities. In 1992, India voiced its preference for a devolved model of local governance through the 74th Amendment to its Constitution, but there has been a gap between intention and implementation. Yet, no state has fully devolved the entire slate of assets and functions to cities. India needs to implement the Amendment in full, and in the long-term, put in place a system that recognises the leadership of cities as a full and legitimate third tier of government.At the municipal level, the choice is whether to continue the current structure; adopt a modified structure that allows for a strong political executive (mayor) supported by a technocrat; or a directly elected mayor. Urban India also needs to rethink how it delivers services- currently under the control of archaic and bureaucratic departments. Emulating well-run cities around the world, India must move to corporatised agencies (BEST, Mumbai's bus and electricity agency is one such example) that have specialised internal skills. The governance of its cities cannot improve unless India builds the necessary technical and managerial depth these structures require. The Ministry of Urban Development estimates that India needs around 40,000 urban planners across its cities, while the number of registered planners is closer to 3,000. The top 60 cities that include these emerging cities, alone are likely to need 650 department and city heads, 4,500 managers, and 15,000 technical staff.Setting up a state-based urban regulator would also be a useful innovation to monitor, measure and benchmark urban service delivery standards. India will be 40 per cent urbanised by 2030 and the next few years provide India's political leaders with the opportunity to shape India's urban destiny.- Shirish Sankhe, director, McKinsey and Company, is the lead author of the McKinsey Global Institute (MGI) Report "India's Urban Awakening: Building inclusive cities, sustaining economic growth." Sunali Rohra is with MGI. Inputs from Shishir Gupta, MGI Global Economics Research Team.Published By: AtMigration Published On: Apr 22, 2011 00:00 IST--- ENDS ---

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Urban revolution: 20 new trendsetters to redifine India by 2030

By 2030, 20 new trendsetters will redefine urban India, growing faster than the national average and contributing almost one-tenth to the GDP. For that to happen, they need $10 billion in the next 20 years, says a study by McKinsey Global Institute.

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