M10.

1
Structural Change
Manufacturing Services and
Urbanization

Dr. Arvind Subramanian

Chief Economic Adviser, Government of India

E-TEXT
So, I think that this is going to be the toughest session of them all because I
think the the there's a lot of material and the material is a little bit I guess
technical and a bit challenging and and I mean this in the sense of I'm
going to show you a lot of charts and it's going to get a bit you know detail
a bit I'm just wondering whether students out there because although there
are some topical issues here that will make it maybe lively and colorful it's
going to be I think a little bit it's going to require all your attention and all my
energy and the energy that you're going to give me to bounce so I'm going
to feed off your energy so in the first part we're going to do manufacturing
services and urbanization first manufacturing services and then we will do
trade and international trade and internal trade now so I'm actually going to
show you something that I was not see it kind of starts with what I said in
the morning that all structural transformation amongst that have happened
amongst developed countries and also amongst some of the East Asian
countries so in the table chart what you see is you see a employment on
the left hand side and value added a bit on the right hand side and
essentially this is the y-axis everywhere is the share so structural
transformation in economic development basically is about employment
share declining and the dots you see are four different countries differ
countries are shown at the bottom but basically the pattern is very clear
employment share declines in agriculture employment share increases in
services but interesting manufacturing employment share first decreases
increases and then decreases so this is pretty much the historical pattern in
almost all countries and of course the same thing happens in value-added
but you can see that the decline in employment is much sharper which I
showed you earlier slower in the thing but essentially the patterns are the
same so all economic transformation is about declining agriculture
increasing services and increasing manufacturing up to a point in time and
then declining so this is I think a first-order fact about structural
transformation all over the world that we should keep in mind when we as
we go through the session is manufacturing special so Lee Kuan Yew
who's of course the man who created Singapore he came to JNU and gave
a lecture where he said since the Industrial Revolution no country has
become a major economy without being an industrial power right and this I
think we all kind of attack we see that and of course it's backed up by data
all rich countries were become grazed in $24,000 per capita have
experienced manufacturing employment shares greater than 20% so in a
sense you could say that if you can go above 20% there's a good chance
that should become industrial that will become rich the country as a whole
will become rich now this is the date hanger it's not quite what I want to say
it shows a slightly different thing but I'll show it to you in India so and I can
as a small exercise so this is on the x-axis you have per capita GDP of the
state and then all the y-axis you have share it's the big share of
employment in the differences I what was the maximum amount of
Employment achieved in manufacturing as a share of total employment and
what you see is that a very even within India there's a positive slope that is
states that have acquired a high amount of peak employment in
manufacturing tend to be Richard and in in a sense this chart is a variation
of job strictly that but essentially the second point you will see that those
countries that have had very high employment shares peak employment
shares have also gone on to become rich then the question is why is that
what is special about manufacturing that if there's one takeaway from this
lecture this morning or this afternoon on this I want you to take away is the
following in some ways manufacturing services are all labels and these
labels should not be strictly taken as for what they are you have to go one
step behind and say what is it about some of these things about
manufacturing or services that makes them special so it's not
manufacturing per se but there's something underlying about
manufacturing something underlying also about services that potentially
makes them special so that's what I want you to focus on and take away
from this chair from this session now why is manufacturing special I mean
basically manufacturing is special because for a long time we think that it
has a lot of potential to generate externalities for other sectors it has a lot of
potential to lead to scale creation it has a lot of potential to become a
source of exports which itself has a lot of positive benefits and so on
manufacturing seems to have been special because it has had some of
these underlying attributes high productivity lots of potential spillover
benefits to the rest of the economy of ability to become tradable and
therefore you export a lot and you learn a lot by doing that and and also
you can become part of international value-added chain and so on so it's
not so much manufacturing per se but something about manufacturing
that's special and that's why going back to Kaldor going back to Kenneth
arrow and all you know the whole Mullin nobis model was predicated on
you know the fact that we needed to do manufacturing and there was
something special about manufacturing now more recently a Dani Rodrik
has added another dimension a kind of empirical dimension to what makes
manufacturing special and his observation is that essentially manufacturing
provides an automatic ladder for productivity growth and what he says is
that this is the chart that he has this is remember we did convergence this
is unconditional convergence in manufacturing that is if you somehow start
doing manufacturing over time Manufacturing productivity growth will be
more rapid so so in terms of therefore when you think about structural
transformation you have to think about two things one the modern sector
has a higher level of productivity that's right we want to switch away from
agriculture but in addition the modern sector could also be a sector that
almost automatically gets you faster productivity growth so there's
something about manufacturing unlike agriculture that you want to start
doing it it's going to and this is just a kind of empirical observation that you
get a convergence of automatic think of it as automatic productivity growth
in this sector so if you wanted to think about structural transformation
therefore what are the desirable features for a sector to exhibit it must have
a high level of productivity it must give become that automatic ladder to
productivity growth so the first one is a level effect the second one is a
change or a dynamic effect and the third thing is that if you can then get an
expansion of this dynamic sector then you are going to achieve a more
likely to achieve social transformation and what is it that guarantees you
may get expansion one if you can export a lot that means the demand for
that will be unlimited you don't need to be constrained by your domestic
market expansion you get with trade ability and the other thing for
expansion that you nessus is necessary that these sectors should be
aligned with what comparative advantage you have so for example just to
give you an example if a country has a lot of high skill but very few low
skilled labour but if it turns out that you know the sectors that exhibit this
unconditional convergence are the low skill tech skill sectors then unlikely
that there will be expansion so what you need and what you have must be
more in alignment so that's what gives you structural transformation yeah
high level of productivity dynamism which is convergent and the dynamic
sector should expand these are the three kind of features that will get you
structural transformation and it's through this lens rather than through the
lens of manufacturing services that we need to examine underlying sectors
and one of the corollary is therefore is that remember when development
thinking began the whole thing was agriculture versus manufacturing so it
was modern versus traditional traditional was agriculture modern was
manufacturing but now modern could also be services so then the question
is not whether it's manufacturing or aglet Manufacturing Oh services but
what sectors what activities within these sectors we'll get you all these
which have all these desirable features because the more you have then
the more you will get structural transformation now it is through this length
that I want to evaluate we've done this okay so the first thing I want to show
you is this so this is a paper that I've written with a colleague this shows
you what is the value added per worker 1984 2010 constant 2005 rupees
and what is the rate of growth in these sectors so the key point I want you
to take away from this is the following that you see that manufacturing
value-added per worker and this but straightaway you should make the
distinction not all manufacturing is manufacturing not all manufacturing has
all these properties there's a big difference between registered
manufacturing and unregistered manufacturing basically unregistered
manufacturing is not a modern sector at all it is registered manufacturing
that actually has some of these desirable properties you see that
productivity levels in registered manufacturing are like what six and a half
times that an unregistered and register of manufacturing is kind of three
times or four times what it is in the aggregate economy so I'm straightaway
try and make a distinction between registered and it's registered
manufacturing that is so that satisfies the first property high productivity
second property is that convergence we know by definition from Dani
rodrik's work that once you get out of this you get convergence but for me
what is important also is that do you get this convergence within a country
and internationally so for example I think that if you look at some of
agricultural yields and so on you don't necessarily get this convergence
phenomena whereas in manufacturing within India if you somehow get on
to Manufacturing in within India it's likely that you will reach the frontier at
least the frontier within India is not the frontier internationally so
manufacturing does seem registered manufacturing does seem to have this
property of of dynamism now shall we come to the big big problem we
know that registered manufacturing high productivity we know that it's
dynamic but for some reason registered manufacturing has just not been
expanding in India now one data issue that we have to be careful about is
that this is data based on the annual survey of industries now we've had a
revision of the national income accounts where these numbers have
changed for manufacturing gba but the airside data this is still based on
ASI data and when the next ASI data comes out I think this should be
revisited but I'm pretty confident that you will get broadly this phenomenon
that even though manufacturing is a high productivity sector even though
it's dynamic the sector just is not expanding in India or expanding very
slowly just to give you a contrast with Korea this is the same thing the
share of employment manufacturing employment in total employment
exactly the u-shape that you saw and you see that those numbers are per
capita GDP at different levels of employment shares so Korea began poor
this is twelve seventy two thirty six hundred six thousand sixteen thousand
know so I don't seek correlation its causation but we saw the broader
pattern that and so the essential difference between and this is the pattern
I'll show you a China I can show you the China chart as well it's not
dissimilar to this so rising a share of employment is is what in
manufacturing in registered manufacturing that's not happening today now
we come to I'm going to take an aside take an excursion into this
phenomenon of premature deindustrialization so essentially when you think
look at the world today whenever I'm asked this question or India's asked
this question look can we get our manufacturing back this question today
and this question thirty years ago were very different questions because
today you have a lot of technological change robotics and so the
employment possibilities today in manufacturing are very different from
what they were twenty five thirty years ago and shall we see that the signs
are a bit disturbing globally and by disturbing what I mean is that there
seems to be a phenomenon of premature deindustrialization happening so
how do we show that and this is something that I did about five four five
years ago so this is a chart on the x-axis you have GDP per capita and on
the y-axis is employment share in manufacturing so this is for three
different years these are plots for this is just the plot for it's on there but
these are plots for three different years this is 1988 this is 2010 this is the
line of fit for all the countries in the sample what you find is two really
alarming things one what you see is that this curve is shifting downwards
that means that at every point in time now there is less employment than
there was before for the world as a whole this thing is declining and so this
that means that at the same level of income in 2010 the the average
employment share is it's less than it used to be this peak share of
employment is coming now that's the key point that we are now getting
peak employment levels at much so in in 1988 the peak employment share
all the countries or 30% today it's a bit less than 25% so that's the first thing
that's happening so world over and we're getting less and less employment
in manufacturing the second thing that's happening is that notice that the
peak point is also shifting to the left you see the all the curve are going
down and shifting to the left that means that the peak employment shed is
also happening earlier in the development process then later in the
development process that's what you mean by a leftward shift in what used
to happen at say $15,000 per capita is now having appening at 12 or
13,000 dollars per capita also what you see the world over is there's a big
decline in low-skill employment so this is the share of employment in a
broken up between intermediate skill high skill and low skill what you find is
that world over its the share in low skill employment that is coming down
and this is what could have impacts for all countries that are trying to
become rich including a country like India now this is for me also this is
again research that I did four five years ago this is a table of all the states
and says what was the peak employment that this state ever reached when
did it reach it and you can compare different states now straight away these
are ranked by peak employment shares okay notice that the peak
employment share Tamilnadu Delhi Haryana Punjab Gujarat and first you
get a sense of which are the manufacturing states but the second thing is
that these are peak employment shares remember South Korea the peak
employment share was something like 25 percent India the peak
employment shares are being reached at much lower levels of employment
and in most states in India almost most states except a few the peak
employment shells in manufacturing our slowly declining no notice look at
this Tamilnadu reached its peak employment share 2010 Haryana Punjab
2010 so that means that after that they've started declining there's no state
here where I can see where the employment level employment levels in
share of employment in manufacturing is continuing to rise now we don't
know of course what happened in the last two three four years we need to
look at the data but you also see that the poorest states look at the bottom
was the fringe Bihar assignment the poorest states are like is happening
internationally are reaching their peak levels at much lower levels or the
employment share is much lower and they're reaching it at much lower
levels of per capita GDP just to give you a yeah well there are at least that
eighty four eighty eight ninety four twenty ten and so on so 2010 could be
because the peak of the boom and after that it happened but then the still
enough variation eighty four eighty eight ninety four so there's enough
variation in that but some of it could be because after the boom it happens
starts happening everywhere but there's still enough variation among stirs
so this is in fact actually a fairly disturbing sign about manufacturing that
within India so just to give you one example uttar pardesh the per capita
GDP if you look at the I'll tell you what be striking number is here from a
country like Indonesia so to take take India's largest uttar Pradesh yet it's
reached its peak share of manufacturing output at then I'm showing this in
terms of employment at a per capita state domestic product of about twelve
hundred dollars in purchasing power a country like Indonesia attained a
manufacturing peak share of 29% as a per capita GDP of 5800 so other
Pradesh is maximum level of industrial position was about one third that in
Brazil in Indonesia and the decline began at 15 to 20 percent of the income
levels of those countries so not only are you seeing much lower
employment shares you're seeing them at much lower levels of income and
they've started up so this shows that premature deindustrialization which is
now a global phenomenon is also happening within the states of India so in
the case of Gujarat for example it happens it could be that it's just steady at
this level for a long time so you should go and look at the Gujarat chart but
the point is that there may be that it's still the level is still quite high so
maybe that's what's keeping it going but the surprising thing that is even in
Gujarat this was the employment share is now it's possible that if you look
at more recent data some of these numbers will change so you should so
someone should actually update this piece who using the latest ASI data
for example yep usually flourishing ladies enough for normality Victoria now
because of the increasing number of subcommittee activities the informal
sector so the informal employment right so what is that the formal sector
we have the subcontract with activity for more and more - the informal
sectors in order to advise or to responses so that's a good question the two
responses the pattern that I showed you this pattern this pattern also holds
for registered and unregistered combined or that's point number one point
number two is that even if it goes to sup whatever you say gets
subcontracted right the point is that we know from the data if it's
unregistered the levels of productivity are much lower yeah so in that sense
that will not have the same dynamic properties as registered manufacturing
because remember our perspective is we want high levels and rapid rates
of growth of productivity because that's what gives you lasting improvement
in real wages and standards of living now so there's a lot of literature on
why has been manufacturing expanded I don't want to go into all the details
is like there are hundreds and hundreds of papers on this the most III
guess at least in one sense one of the most rigorous papers is a paper by
Chiang kai-shek and Pete kena and what they basically show is that for a
number of reasons total factor productivity growth in Indian manufacturing
could be at least double if some of the distortions and India's labor market
capital markets and land markets could be eliminated but they show that
basically both India and China are there are a lot of distortions which lead
to generally lower levels of productivity and and so that could be another
reason why we could see that see remember that the two attributes that
could lead to employment share rising are one that it's exportable and by
definition all registered manufacturing is exportable so registered
manufacturing meets that property but it's possible that we are doing
registered manufacturing in skill intensive activities and maybe india is not
doesn't have enough skills intense skill intensity in its population so it is
actually true that if you look at the share of value added and in skill
industries and employment that has been rising over time I highlighted this
earlier when we speak about India's precocious pattern of specialization we
do more services than manufacturing that most countries at this level of
development and even within manufacturing we do much more skill
intensive manufacturing and this the reason why this could impede
remember the basic problem is that these high productive dynamic sectors
are not expanding so the argument could be that these require a lot of skill
and maybe we don't have that much skill in our population and that's why it
it kind of becomes an impediment to the further expansion of these centers
now I want to remember what I said was that therefore don't think
manufacturing don't think services think about underlying properties so that
is especially true of services because services is just a label services is just
a label for all kinds of different activities all kinds of different activities some
of them could be capital intensive like telecommunications some of them
could be highly labor intensive like construction some of them could be
tradable again like like IT services and some of them could be completely
non-tradable like construction some of them could be high productive some
of them could be low productive some of them could be dynamic some of
them need not be dynamic so when you think about these broad categories
you should again think about so take for example levels the same analysis
we did for productivity the level of productivity take services for example to
you have real estate and business services basically where the value
added per worker is very high and on the other hand we have something
like construction where the value added is is very low similarly this is
relatively low trade hotels whereas financial services is very high and if you
look at a registered and unregistered manufacturing you can compare them
with the difference of the sector's so again manufacturing and services are
almost kind of not very meaningful categories in order to analyze the
transformation process now do they do these things have the same
property as manufacturing it turns out that maybe service sectors do not
exhibit this convergence and therefore they may not have the dynamic
properties now what you find in India is in the service sector pretty much is
basically what's happening to the registered in manufacturing is happening
in services as well ie that the very productive service sectors are not
expanding and the less productive service sectors are expanding so so I
mean one one possibly remember again real estate is now broken down
into which would have real estate and other business services you will have
to do a greater decomposition to see why that's happening i off hand i can't
give you a very good reason why that's happening it could be the 2010 we
had by that time after the global financial crisis maybe we had a real estate
crash in prices and so on so that could be one reason why this has a
decline but that's a good question I don't know the you know the detail
answer to that but in most other sector you see a similar thing for example
with financial services and insurance between 2000 and 2010 similar thing
happening 2010 remember all the financial services were also badly
affected by the global financial crisis bottom line is that if you do a
manufacturing versus services scorecard and you look at our five attributes
high productivity convergence skill profile matches and tradable what you
find in India the paradox basically is that the high skill sectors high value-
added sectors are not expanding its the relatively lower skill lower value-
added sectors the less dynamic sectors that are expanding and in a sense
this is kind of the dilemma of structural transformation in India that so so
that's why I think the making India program is so important because
essentially it's trying to both increase the share of high productive high
more dynamic sectors like registered manufacturing but until certainly until
2010 which is when we stop the analysis this is kind of the fundamental
dilemma of structural transformation in India there the really dynamic high
productive sectors are not seeing an increase are not attracting resources
and are not expanding as much as they should so in a sense this kind of
encapsulate the Indian structural transformation story yeah questionable
industry you are taking and it's a student I think luck and the second
question that I have is as we all know that India and any other countries are
moving towards are integrating towards global value chains India less show
by duration yeah India is over given the fact that our manufacturing sector
is towards low skill intensive how do you see that it will benefit our global
value thing that we are this is kept at a lower value addition industry
compared to high so the answer is exactly you've asked of you almost
answered your own question because I think it's becoming part of value-
added chains that increases the skill up gradation and value addition you
become part of value-added chains precisely in order to increase that and
that's the part of the the convergence the dynamism that Danny Rodriquez
speaking about it happens partly by becoming integrated with value-added
chains because if you're isolated from so in fact many people would argue
that we have not done this precisely because we have not become part of
value-added chain there's one more point I want to altitude when you
participate in global value chains it's the volume effect also plays a big role
there so even if you're involved in low skill a Lowe's Morgan like china
exactally Apple i pad only do four dollars when the value is 130 150 but
because the volume effect is so much is delicious but over time what tends
to happen is that clear so what you find is that in the development process
if you look at all these East Asian countries including China the pathway to
higher exports and to rapid export growth and overall growth was textiles
and clothing and leather footwell because these were relatively labor-
intensive sectors and it allowed these countries to actually export a lot
produce a lot and grow a lot and in some ways one of the reason why we
are share of manufacturing has been in a constant over time is because
perhaps we did not do at the right time we did not do enough clothing and
textiles we did not do enough leather and footwear so for example these
are charts of the years after takeoff so this is t1 means for every year we
see when did the growth take off and what you find is that remarkably
takeoffs of growth are associated with takeoffs of clothing and leather and
footwear this is kind of a stylized fact look at Korea for example it did a lot
of gathering Footwear China is doing a lot of leather and footwear now the
thing is that if there are some environmental costs good I think we need to
countries take measures regulatory measures to do that maybe some
countries don't do that I don't know and maybe they should but the point is
that the stylized fact is that all these growths transitions in the East Asian
countries have an including Bangladesh look at Bangladesh for example
that orange line ever since they started growing one of the big things that
happened what are one of the vehicles for Bangladesh is structural
transformation has in fact been the clothing sector and of course in the
case of Bangladesh the clothing sector has also led to a rapid increase in
female labor force participation which is now much greater than India's and
the clothing sector has been a real instrument of that so that is why looking
at this last year the government but put together a package to try and
incentivize the clothing sector and in the last budget also something was
announced for the leathers in Footwear sectors I mean it's an open
question whether we can do clothing and think because see the logic of
clothing more clothing and less footwear but both is the following they have
three or four very desirable properties from a development transformation
perspective one they offer rapid opportunity for exports and this is what
these countries have shown to that in clothing especially its highly skilled
unskilled labor intensive and highly a female labor intensive as well so in all
these countries therefore this desirable property of you start you your
comparative advantage is in low skill so you produce a lot of that it's also a
thing where you can export therefore you're not constrained by any
demand constraints and also a lot of women take part so this association is
very strong and that's why I think the government wants to and has been
trying to boost the clothing and and to some extent the leather and
footwear sector now in the leather and Footwear sector it's absolutely true
what what you raise that there are the differences that there are some
environmental issues in leather and footwear and unless I think we get
solve those problems too for example you know higher regulation for
example better regulation then it's possible that growth could be associated
with more environmental costs but the point is that historically the countries
have grown rapidly have actually done a lot of Footwear and leather and a
lot of textiles and clothing question it is also super in discuss with you later
bottom of the right there cool box if you focus on leather oh yeah so uh we
have the data we can do that the problem is remember that leather is very
low value addition so in that sense one should be compose that but we can
check what the graph looks like but it's kind of footwear that you know is
the kind of just as is indexed a controlling see on clothing I've just included
clothes changes just clothing because textile doesn't have the same kind of
properties and that would probably also be true of leather as well and and
so you know we could look into why this is happening you see for example
the jobs per lack of investment in all the industries its highest in the pedals
and leather in Footwear and look at the female jobs per unit of investment
it's very very high in in fact I think for every one new job that's created in
clothing probably 60 to 70% of those go to a women employment so it's
also very good for social transformation improving women's agency and
bargaining power in fact III remember what year and a half ago I went to
one of these clothing factories which is a big exporting Factory clothing
factory and spoke to some of the women there and I mean the women's
one woman aroma vase is saying sube Mera Miya muz ko subeh chai
pilata kyu ki mai kaam krne jata hun or shaam ko sabji kaat ke rakhta hai jb
mai ghr aata hun so this is social transformation in action so for all of those
male chauvinists here don't send your women through clothing don't send
your women to work in clothing factories so so if the potential and
Bangladesh this has been one emits a very strong correlation between the
growth of the clothing sector and and this see the difference also between
Bangladesh in India is that Bangladesh is attracted a lot of FDI in textiles
and clothing it has become part of value-added chains and Indian even
Indian exports is very much not linked to global value-added chains now
situation also in Bangladesh and it is also said there are several studies
which shows differential wages for male and I mean gendered labor so
female labor or the feminization of labor may not necessarily be an
empowering issue okay now let me I have to push back on both your
observations right one I mean the fact that you have Zana plasma type
episodes I mean these are one-off things it doesn't mean that 25 years of
kind of transformation is negated by that point number one point number
two is that it is possible both that female wages are lower than male wages
and possible that female wages have been rising much more than in India
so they're both possible or in other words the wedge between female and
male wages in India could be much greater than in Bangladesh so I think
that's some national pride coming in I think we should think janaganamana
are maybe in in reverse order but I think Bangladesh has done a terrific job
on this in a way that we haven't on the clothing sector so and we have not
from the good experiences you know there's no such thing as I don't think I
know that you all want to think that India does the best in all possible
sectors all the time but sometimes it may not be true so let's learn as well
see the other reason why I think that clothing is seen as a kind of potential
or sector for India is that clothing worldwide is just dominated by China
China has if you look at world exports China probably exports 30 to 40
percent of world exports in clothing similarly a huge amount in Footwear as
well but because Chinese wages have been rising very rapidly you see this
so what has been happening is that we can China's wages in dollar terms
and look at that in India and Bangladesh this is what potentially creates an
opening for India because as Chinese wages rise they became
uncompetitive so a lot of the MDI that was in China has been moving out of
China to other places for example they've moved to Vietnam they moved to
Cambodia they moved to Ethiopia and all these other places and we
haven't been able to attract as much investment in these sectors despite
having lower wages so the question is why is that the case in terms of
appearance China share is 40 percent I was not part of Footwear 40
percent you can imagine one country dominating world things like this all
these sectors face a lot of common challenges so justic saw the problem
labor regulations tax and tariff policy and then the one key thing I want to
show you is that one reason why and we're going to just to prefigure the
trade module that's going to come one of the key reasons is that these are
terrorists faced in other markets for Indian exports so you see for example
Bangladesh faces zero tariffs in the European Union why we face tariffs of
almost 10% similarly in Canada Bangladesh faces zero and look at
Ethiopia which is also now attracting a lot of FDI it faces zero tariffs in these
other markets where as we face pretty high tariffs in in many of these
markets so one strategy therefore to try and boost closing exports would be
for India to try and ask partner countries to reduce the tariffs to our clothing
export and I will talk about that to some extent when you look at the free
trade agreement thing so bottom line is that structural transformation
depends on particular sectors particular attributes of sectors I think in the
Indian case I do think clothing and footwear I think that we lost kind of the
opportunities to do this 25 30 years ago because we did more services
than manufacturing and the question is whether we can the train that left
the station 25 30 years ago can we run after it and back and gain some of
that is the question that we have now so can we quickly move to I want to
take you through urbanization and part here will help me if I make mistakes
so I just want to show you remember that everyone talks about
urbanization being a very important development phenomenon as countries
grow they urbanized and how you manage urbanization is going to be a
very important component a very important determinant of a long-term
development so according to the official data we have about one-third of
India is urbanized but part tells me that if you do this correctly using
satellites and so on it turns out that maybe the urbanization rate is
something more like 42% not popular not one third and you know I think
what is the urbanization is almost a philosophical question like what is a
city you know where do you draw the line it's almost a philosophical
question my friend that I thought you won't say let's nationalize the cities
Israeli so so let's so see many people have said that India is not urbanized
enough but the chart on the Left shows that for the latest data that we have
India is given its level of development it's it's pretty much it may be a little
less urbanized but not a whole lot less urbanized then other countries given
the level of development so this is at a point in time the right hand side
chart shows you how urbanization is proceeded over the course of
development for India China and the US and pretty much it seems like we
are on the trajectory that other countries are broadly followed so the notion
that India is under urbanized I think we need to treat that with a bit of
caution because I think certainly this kind of data is is tricky there is one
very unusual kind of okay sure is where I hope please don't fall asleep I'm
going to say something a little bit technical there's something called Zipz
law Zips law basically says that the second-biggest city will have half the
population of the biggest city the third biggest city will have one-third the
population of the top city and so on and so forth and this is just a an
empirical regularity that they find about cities and the top two charts
basically you have the log of population on the x-axis and the log of the
rank so the top one is a rank and though you do the log of one and it will
take away one half or half or whatever but essentially a country those are
points cities they fall along that line so that second-biggest is half third
biggest is one-third the funny thing about India what you find is that both
the biggest cities and the smallest cities do not conform to zip slaw so
there's something about Indian urbanization about the pattern of
urbanization where the biggest cities are not big enough and the smaller
cities are also not big enough and and this is the puzzle about Indians
urbanization so the law says that if n is the rank of the city the population of
the city will be one upon N relative to the to the one if you want your the
biggest city of population whatever the second city will have half the
population of the biggest city third will have one third the populations bigger
cities like a yeahit's like a long relationship and what you find is that India
doesn't conform and so it's interesting why is it that so it's not that
aggregate urbanization maybe is not enough but the pattern of urbanization
might be very different India and I'm told for example now if you talk to
people who work on who have these employment agencies they say now
that people migration doesn't happen to Bombay because rental costs are
too high so you would rather go to a third year city for half the wages then
you would go to in a Mumbai or Delhi for two or three times the wages
because rentals are so high because land has not been properly allocated
in some ways now Indian cities this is a ranking of Indian selected as per
some infrastructure index I mean Indian cities don't do very well in a global
global ranking New Delhi and Mumbai are placed 47th and 50th this is in
terms of infrastructure quality now the interesting thing is that now more
and more we are getting data to be able to rank you will be the urban local
bodies we're able to rank them in terms of the quality of these cities oh you
see that for example in terms of service provision Chennai and pull a stand
out raunchy and rifle and varnish were our kind of bottom of the rankings
you can also rank them on transparency and so on see they one of the
interesting things is that it turns out that the quality of services that's
rendered in cities is related a lot to associated a lot with how much
resources they have so if you have more staff if you have more own
revenue you tend to provide better services so one question then becomes
which cities generate enough revenue and which cities don't it turns out
that it's not necessarily the case so on the x-axis here you have taxation
powers you can actually rank cities in terms of how much taxation power
they have and in terms of how much revenue they generate it turns out that
there are cities like Mumbai and Pune which are not high on taxation but
then to get fair amount of resources and there are lots of cities here which
do have taxation powers but don't generate too much revenue so but you
cannot say looking at this that what is impeding the raising of resources by
cities is some formal lack of taxation powers it's actually maybe just that
they don't do it they don't want to do it they are unable to do it these are
maybe more likely reasons why they don't generate enough resources so
in is a last year survey apart you made use of satellite data satellite data to
see what is the potential property tax potential of two cities Bangalore and
Jaipur and the results we got were quite striking and essentially what we
found is that you make a path to the expert on this all kinds of sophisticated
technology goes into doing these charts but essentially what we show is
that Jaipur for example could generate ten times maybe even fifteen times
more of the property tax revenue then it actually does just by looking at
what kind of built in area they have similarly Bangalore can collect easily
five six times more than it could this is an example of how you can use
technology to to kind of augment at least estimate what tax potential you
have and so the 14 Finance Commission of course had a lot to say on local
governments they were required to spend the grants on the basic functions
and remember that just as the Finance Commission allocates money
across the states so local bodies they too had to the states have to allocate
to local bodies also giving this thing and that the 14 Finance Commission
said that every state there should be a for every municipality and gram
panchayat there should be a performance grant ie not to give money
completely untied but to have some measure of performance as well of
course one of the Prime Minister's big initiatives is the 100 in our smart
cities and so this is something that's happening if you want to read more
about it you should go to the website follow what's happening there are
some for example gift city in Gujarat is one example of a smart city of
course the the new capital of Andhra Pradesh amravati will also be one of
the smart cities so let's see how this modest city is evolving I don't know a
whole lot about the details of this but if you wanted to teach a course on
this in your classroom the one person you should not invite is me thank you
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