25 Apr 11 Urbanisation of India: Huge growth opportunities

An inescapable and only too visible trend is the rapid urbanisation of India. Existing cities are growing rapidly (and haphazardly) in all directions, those that cannot (like Mumbai) are growing vertically, and many villages now resemble towns. Current estimates of “urban” population are in excess of 300 million, and likely to reach 600 million by 2030. As a share of total population, urban dwellers will comprise more than 40% of total population as against less than 30% today.

You might quibble about whether it will be 590 m. or 600 m or 650 million, but the fact remains that urban population will close to double in less than two decades.

Much has been written on this subject, largely focused on the issue as one of impending crisis. Infrastructure is already falling apart, cities have no funds of their own, we do not have the institutions nor capabilities to manage our cities, slums will dominate and lead to social unrest, and so on. No doubt this is all true, and we need to focus our immediate attention on how to create cities that are worth living in.

Having said that, abysmal infrastructure and miserable governance in our cities will not stop them from growing. There will not be near enough jobs in rural areas, and we will see millions of new (and young) residents in our cities and towns. Without detracting from the scale of the problem, let’s try to look at the brighter side. Regardless of the state of infrastructure, a doubling of urban dwellers will transform the Indian economy.

Fundamentally, the reason cities attract migrants is that they provide jobs, which eventually lead to spending power. Further, the change in lifestyle (as compared to rural citizens) will drive demand for numerous products and services.

The biggest opportunity is likely to be in low-cost housing. These new urban Indians will need homes, but will be unable to afford the current (inflated) prices. If businesses can find a way to sell decent homes at affordable prices, there is a huge economic opportunity. Going along with this, construction related inputs – steel, cement, furniture, fittings, tiles, taps, electrical stuff like switches and wiring, and such like will enjoy an unparalleled boom.

Following on from basic needs, people will then need durables, like geysers, cooking stoves, pressure cookers, fans, televisions, etc… leading eventually to higher end products like washing machines, refrigerators and air conditioners. Naturally, this will result in a surge of demand for electricity.

Transportation will be another big need, and given the dismal infrastructure, you can expect demand for two-wheelers and cars to soar (already happening). Never mind the lack of roads – traffic jams are better than not reaching work at all!

Consumer non-durable demand will also grow rapidly, as nuclear families and working women will drive demand for packaged foods, convenience goods, cosmetics, and a variety of household products.

Finally, services such as those provided by restaurants, retailers, laundries, plumbers, electricians, maids, schools, teachers, baby-sitters, beauty salons, gymnasiums, health spas, and many, many other such, will see an unparalleled boom.

There is no doubt in my mind that this urbanisation will create huge economic demand and opportunity. The only question is whether all these consumer benefits will be enjoyed amidst squalor, or a relatively decent living environment.