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Why India needs big new cities

LiveMint logoLiveMint 26-04-2017 Livemint

The report of the expert committee formed to incorporate Telugu culture and history in the design of Amaravati, the planned capital city of Andhra Pradesh, is expected to be out soon. The Parakala Prabhakar-led committee aims to develop Amaravati into the best city of the century. This is not the first occasion when a grand new city is being built in India or elsewhere. From the Gujarat International Finance Tec-City (GIFT) in India to Songdo in South Korea, numerous masterplans are at different stages of completion. But there is a crucial policy question that often gets neglected: Is developing a new city necessarily a better option than expanding and improving existing cities?

In an article in these pages earlier this month, Pronab Sen argued that the evidence “suggests that allowing existing urban agglomerations to grow may be a more efficient strategy than creating new urban areas”. On the other hand, in his popular book The Rise And Fall Of Nations: Ten Rules Of Change In The Post-Crisis World, Ruchir Sharma criticized India for its inability to create new cities with million-plus populations. Sharma laid out the statistics: Over the last three decades, China has converted 19 of its less than a quarter-million cities into boom towns of greater than a million. India has achieved this feat in just two cities and that too with some help from the redrawing of maps. But if the evidence favours the growth of existing cities over the building of new ones, is Sharma’s criteria useful at all for comparing India and China?

Perhaps both Sen and Sharma are correct. The key lies in understanding the phenomena of agglomeration economies and diseconomies. Concentration of firms and population in an area leads to higher accumulation of knowledge and labour to draw from. It also reduces the transportation costs and lowers the transaction cost in general through the creation of a large enough market. This leads to a rise in productivity and the concentration of yet more people and firms in the locality. The positive externalities in this case are termed agglomeration economies; this has driven urban growth for centuries, if not millennia.

But there are costs to this agglomeration which can be called agglomeration diseconomies. Massive demand for scarce land makes real estate prices shoot up. Traffic gets clogged, the air gets polluted and the crime rate picks up. So clearly, there is an optimal size of the city over and above which the utility for all the residents declines with the increase in every single household. But the net utility is still higher than a newer city unless the latter gains a critical mass of firms and population for the agglomeration economies to show effect.

So, Sharma’s criteria of creating new million-plus cities is a reasonable one because at that level of population, cities become the desired growth engines and can help reduce the burden from other megacities which are well above their optimal size limits. This is not an argument for government intervention to limit megacity sizes but merely one for creating new but big enough cities or turning smaller cities into bigger ones.

In the class of emerging countries, Sharma cites the examples of Vietnam and Mexico among countries that have been able to create a second-city boom. The second-tier cities improved their infrastructure and tapped into their labour cost advantages to attract manufacturing firms which created a virtuous cycle of further concentration of firms and migration of population. The lack of a manufacturing revolution in India because of infrastructural deficiencies and regulatory maladies like employment-unfriendly labour laws has contributed to the under-proliferation of large new cities.

The few attempts that have been made to create new urban areas have been deeply flawed from inception. Take Lavasa, for example. The private developer behind the project has expressed apprehension ( about the growth of slums in the hill city. This fear is economically illiterate as the presence of slums which provide cheap entry into an urban economy indicates the ability of a city, as Harvard University’s Edward Glaeser emphasized in his masterful book Triumph Of The City, to attract the least fortunate. The desire to build what the anthropologist Nicholas Simcik-Arese calls a “secessionary envelope” for the rich ( lacks the vibrancy required to attract firms and generate growth. For similar reasons, Gujarat’s GIFT might end up becoming a white elephant.

There is indeed a constituency for new cities. Governments think of new cities as their projects for subsequent elections, and a number of consultancy and real-estate firms are ever willing to have a share of the pie. But this is not a recent trend. Post-war Europe led the way in the 20th century. India, and indeed other Asian countries, as the architectural historian Michelle Provoost has observed (, learnt some of the wrong lessons from them, like the zoning of urban functions and fascination with car-based mobility. However, what we missed out on learning was the importance of social interactions for the success of a city.

India needs a lot of new, big cities which provide good infrastructure to attract firms and also preserve a space for social interaction among all strata of society. One hopes that Amaravati and other such projects will learn from history.

Does India need a large number of million-plus cities in addition to its handful of multimillion metropolises? Tell us at

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