Trunk Economics | August 2024Finding new geographic slivers, urban hubs
Anyone who’s tracking India’s economy would have noticed the preponderance of two phrases—short-term and long-term—in the multitude of analyses that has followed this year’s mid-summer Union Budget. The grouse, among many, is that the government’s tax decisions will shave away well-earned returns from across asset classes (mainly property). Critics have spared no punches to take the government to the cleaners on how the new short-term capital gains and long-term capital gains tax rates come hard on the hard-earned savings and investments of millions of middle class Indians.
While this will continue to dominate discussions, there’s something in the Budget that, perhaps, deserved greater attention. Tucked away in paragraphs 64 and 65 in finance minister Nirmala Sitharaman’s 165 paragraph speech was something about the government’s intention to “facilitate development of `cities as growth hubs’. She talks about “creative brownfield redevelopment of existing cities with a transformative impact”.
There is no gainsaying the fact that the finance minister has hit the right notes on this. Harnessing India’s middle class, including the neo-middle class, will come from the recognition to ensure that this economically vibrant group remains engaged and its potential is fully realized.
One way of recognising that a wide range of economic and policy reforms must be put in motion is to realise at the outset that the development process encompasses more than readily visible economic metrics.
Taking a granular view
It is, therefore, crucial to take a granular view of where growth and market opportunities are emerging, and how businesses can tailor investment decisions to capture a share of the pie, and governments can prioritise development efforts to spur industrialisation and job creation over the next 10 to 15 years. Given India’s rapidly changing urban and rural economic landscape, the involvement of the states is indispensable to uncover new geographic slivers of opportunity such as northeast India and Uttarakhand.
There is ample evidence to show that under-prepared urbanisation can hurt economies badly. Currently, 30 per cent of India’s population lives in cities and towns.
This will rise to 60 per cent in the next 10-15 years. History has shown that in every country it takes years for the proportion of urban population to reach 30 percent of the total, but the jump from 30 per cent to 60 per cent is quite rapid. The evidence about India's growth prospects spreading to newer destinations beyond the glitzy metros is quite encouraging. For instance, global capability centres (GCCs) are increasingly evaluating Tier-II towns to expand their operations, influenced by the reverse migration seen during the pandemic and the cost arbitrage offered by such relatively under-penetrated markets. A CBRE research report states that about 22 per cent of GCC centres were set up in tier-II cities, driven by the availability of existing and fresh talent, during the first half of 2023.
Creative urbanisation
This is the right time to be `creative’ in urban planning, as the finance minister has pointed out. And it is not just about roads and town planning. As an illustration, the entrepreneurship ecosystem, particularly for start-ups, ideally should be very friendly. Setting up a business should not require going through the rigmarole of multiple procedures. Multiple modes of transport should complement each other. The likelihood of a traffic jams should be remote.
But, here’s a caveat. This process should not be subjected to the pitfalls of myopic short-termism. The focus should be about adapting the fruits of technology through urban development models that are scalable, profitable and, importantly, ecologically and socially more sustainable. The green shoots are visible. Let several new Gurgaons, Bangalores, and Noidas blossom across India’s rich landscape. The gains here are all long-term, traversing generations.
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