Build New Cities to Create Jobs, Boost?Growth

#Budget2024 is effectively a grand challenge on how the government uses the surplus of Rs 1 trillion. Verdict 2024 has triggered a binary narrative of how government must allocate the surplus. The thesis of higher welfare equals consumption is constrained by conditions. Similarly there are limits to the thesis of capex led growth. Why not revive the idea of 100 new cities? Why not use the bounty as seed capital, design PPP models and build modern habitats which showcase sustainability and propel prosperity.

Shankkar Aiyar | The Third Eye | The New Indian Express | 21 July 2024

“We will initiate building 100 new cities; enabled with the latest in technology and infrastructure?—?adhering to concepts like sustainability, walk to work etc, and focused on specialised domains.”?—?BJP election manifesto, 2014

Budget 2024, to be presented by Finance Minister Nirmala Sitharaman on Tuesday, is effectively a grand challenge on how to spend a bonanza of Rs 1 lakh crore. To appreciate, consider the timeline of events and facts. The interim budget of February 2024 defined revenues and allocations to craft the pathway to a Viksit Bharat a la an advanced economy by 2047. It allocated over Rs 11.11 lakh crore for capital expenditure, expanded welfare payments and promised to reduce fiscal deficit to 5.1 percent of GDP. The balancing act triggered hosannas for economic conservatism.

The political and economic landscape has since shifted. On May 22, the Reserve Bank of India approved a transfer of Rs 2,10,874 crore to the government?—?more than double the sum assumed in the budget, creating headroom for a spend of Rs 1 lakh crore. This was followed by the June 4 verdict and an altered political reality. It is likely that allocation of the trillion-rupee bonanza is informed and defined by the response to the diminished tally.

This has fuelled a binary narrative on how the bounty of Rs 1 lakh crore (and more from higher tax collections) must be allocated. In the blue corner are folks who argue for a response to the cries of distress from the bottom of the income pyramid that influenced the verdict. Those in the red corner advocate a hike in capital expenditure towards infrastructure to boost growth and revenues.

It is argued that expansion of welfare?—?tax cuts for the middle class, a national cash transfer scheme for women, an urban employment scheme and higher payout under PM Kisan Samman Nidhi?—?will prop consumption. Yes, money in the hands of people could spur consumption, but conditions apply. The question is who gets how much. Will a few thousand rupees assuage tax payers? And not all payouts deliver electoral dividends?—?the Maharashtra government’s May 30 gambit, the Namo Shetkari Scheme promising Rs 6,000 as top-up on PM Kisan, didn’t quite deliver.

The statute of limitations also applies to the advocacy of higher infrastructure spending. The allocation of Rs 11.11 lakh crore, higher by 11 percent, is nearly a quarter of the total government spend. The challenge before the government?—?as Nitin Gadkari has often pointed out?—?is not raising resources, but finding the capacity for executing infrastructure projects. There are only so many roads, ports, airports and rail lines that can be added in a year.

Of course, not all boxes are ticked in India’s development paradigm. Consider the state of urbanisation. The 2014 BJP manifesto promised to “initiate building 100 new cities”. Tragically, the idea sputtered as it morphed into the so-called Smart City programme, leaving urban Indians to deal with inadequacies. It is intriguing that the imperative which found bold articulation in the document has not found a place in the development agenda.

Cities spur innovation, the interaction of firms and workers improves productivity and the platform of skill and moolah propels growth. The opportunity to leverage the potential has been waylaid by systemic apathy. India is home to 3,892 census towns?—?habitats and people stranded between definitions left without administrative support. In 2015, Venkaiah Naidu, then the urban development minister, asked states to convert them to “statutory urban local bodies to promote planned urban development”. That was not to be, and millions suffer the consequences of unplanned amoebic urbanisation.

Urbanisation merits urgent investment of political capital. The surplus of Rs 1 lakh crore?—?at least a part of it?—?could be used as seed capital and blended with public-private partnership initiatives for creating new cities. The government could announce a contest, with states pitching in to convert at least one census town. New cities could also be located in the census towns in aspirational districts, or along the new industrial corridors. The new cities need not all be based on census towns?—?Andhra Pradesh Chief Minister Chandrababu Naidu could present an IT-enabled Amaravati. Maharashtra could locate a new hyper-city next to the new airport off the trans-harbour link.

Construction is located at the intersection of rural and urban economy, and can absorb low-skilled labour off farms. It has a multi-dimensional impact across segments of consumption. Revaluation of land engenders transfer of capital and creates prosperity. A contest for new cities across the country will help spread the opportunities wider.

New cities will also lift living standards by affording access to cleaner sustainable solutions in water management, connectivity and walk-to-work ecosphere. The creation of such cities could trigger a demonstration effect across states. India is on the radar of global investors?—?ranging from financial services and manufacturing to global tech capacity centres. Lifestyle options is and will be a key parameter for investors.

The creation of new cities offers an opportunity to blend ease of living, business and governance. A UN study estimates India will add over 400 million dwellers to the urban populace by 2050. Nearly half of India’s billion-plus population will be living in urban areas. It is time to exit undefined agglomerations and create new habitats. If there is one idea with omnipotence?—?social, economic and political?—?it is the need to create new cities.

Shankkar Aiyar, political economy analyst, is author of ‘Accidental India’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’ and ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’.

You can email him at [email protected] and follow him on Twitter @ShankkarAiyar. This column was first published here. His previous columns can be found here.