Cost of Urbanization in India

According to a new report published by consulting firm Mckinsey,India will need to spend an additional $ 2 trillion or almost one and half times its entire GDP over next 20 years to provide basic services to its urban population. The report projects an urban population of 590 million by 2030, 40% of the country’s total projected population. India currently has an annual capital expenditure of $17 per capita on urban infrastructure. The transport and affordable housing will be the two sectors needing most of the capital. The report says that government would be required to directly construct 60% of the affordable housing stock while 40% can be subsidized from the market. The report proposes that 76% of the over $ 1 trillion operating expenditure for new infrastructure be raised through user charges while 36% of the capital and operating expenditure today is covered by user charges.

In tier I and II cities the 80-85% of expenditure can be covered by their internal revenues including property tax. The report calls for tripling of the Jawahar Lal Nehru National Urban Renewal Mission Fund. The states like Gujarat,Maharashtra,Karnataka and Punjab will join Tamil Nadu in being more urban by 2030.

In 20 years India will have 68 million –plus cities,13 four million plus cities and 6 megacities of over 10 million. Cities will account for nearly 70% of India’s GDP as against 58% in 2008 assuming an average annual GDP growth rate of 7.4% over the next two decades. According to the report it is more cost –effective to provide basic services in densely rather than sparsely populated cities and high –end services like airports are cheaper to run in Tier I cities than in Tier III cities.