Why we must invest in our smaller cities

Small cities are surging. Evidence for this has come from many sources, the latest being income-tax collections, which show that towns such as Bhubaneswar and Lucknow are growing much faster than some of the bigger metros.

Tax collections in these two cities are up by 146% and 145% in the three years from 2005-06 to 2009-10. This only supports the belief that India’s growth lies in its small cities and medium-sized towns.

Much of the increase in tax collections comes from individuals whose incomes have gone up. This dispersion of incomes to smaller urban areas is an indication that the India growth story is not confined to Delhi, Mumbai, Bangalore, Chennai and Hyderabad.

Of course, the main reason for the higher tax growth is the small base. Bhubaneswar’s total collection of over Rs1,500 crore is less than 5% of Mumbai’s tax collections.

Yet, to nitpick on detail is to miss the larger point. India’s megalopolises are groaning under the burden of having to absorb large numbers of migrants who seek a livelihood and/or better opportunities. Yet, tens of thousands continue to pour into these cities in search of employment, further straining the stretched infrastructure.

The point is: in relative terms, infrastructure spending will deliver a bigger bang for the buck in smaller cities than in the big metros, especially since the latter can attract more sources of private funding. It would thus make sense to redirect a larger proportion of urban renewal funds to the smaller cities. They have the capacity to grow with good planning, proper funding, and enhanced infrastructure. In the process, they will play an important role in absorbing the rural youths who turn to industry for employment.

This is necessary not just for India’s economic growth, but for inclusive development.

Incidentally, when more than half the globe’s population of 6.8 billion became urbanised last year, it was found that 53% of the urban population resided in small cities (defined as having less than five lakh people).

Current trends indicate that by 2050, over 900 million people will live in cities (55% of the population then), up from today’s 350 million, (or 30% of 1.1 billion).

There is no way the big metros can absorb this almost three-fold increase. It will be the small and medium towns of India to which millions will gravitate in search of a better life. Net-net: the smaller town need a larger share of funding for developing infrastructure.