Friday, May 7, 2010

MGI report on India's urban growth prospects

The McKinsey Global Institute (MGI) have a highly informative report (pdf of full report here and summary here) on the problems facing Indian cities and suggests a number of initiatives, which it claims if implemented could add 1-1.5% to the GDP growth rate.

It claims that India's urban population could rise from 340 million (30% 0f population) in 2008 to 590 million in 2030 (40% of population) and "cities could generate 70 percent of net new jobs created to 2030, produce around 70 percent of Indian GDP, and drive a near fourfold increase in per capita incomes across the nation". It estimates that Tamil Nadu, Gujarat, Maharashtra, Karnataka and Punjab will have more population living in cities than villages by 2030.

The report finds that across all major quality-of-life indicators Indian cities fall short of delivering even a basic standard of living. It argues that if current investment trends persist, cities could actually become stumbling blocks to the country achieving its ambitious growth projections.

It compares the current quality of life indicators with the basic services standard and the best performers - the current percapita water supply is 105 lpcd, against the basic minimum of 150 lpcd and global best of 220 lpcd; public transport forms just 30% of all trips, against basic standard of 50% and world class 82%; the percapita parks and open spaces area is a mere 2.7 sqm, against 9% and 16% respectively; only 30% of sewerage is treated and 72% of solid waste is collected against the basic minimum requirement of 100% in both; and slum population is 24% of city population.

MGI projects that India "will have to build between 700 million and 900 million square meters of residential and commercial space a year (adding two Mumbais or one Chicago). In transportation, India needs to build 350 to 400 kilometers of metros and subways every year, more than 20 times the capacity building of this type that India has achieved in the past decade. In addition, between 19,000 and 25,000 kilometers of road lanes would need to be built every year (including lanes for bus-based rapid transit systems), nearly equal to the road lanes constructed over the past decade."

About the infrastructure financing requirements, it writes,

"Today, in per capita terms, India's annual capital spending of $17 is only 14 percent of China’s $116 and less than 6 percent of New York's $292. MGI estimates that India needs to invest $1.2 trillion just in capital expenditure in its cities over the next 20 years, equivalent to $134 per capita per year, almost eight times the level of spending today. If India taps into five sources of funding used in cities around the world—monetized land assets, higher property taxes, user charges that reflect costs, debt and public-private partnerships, and formula-based government funding — its largest cities could generate as much as 80 percent of the funding they require from internal sources."


It proposes immmediate tripling of the JNNURM funding and sharing 18-20% of GST with cities in the medium-term, besides percapita transfers of about $20 to Tier 3 and 4 cities. On urban housing, it advocates mandating 25% of area in new layouts above one acre for affordable housing with appropriate incentives; incentives to developers to promote slum development; create national mortgage guarante fund to incentivize lending to low income people; earmark 30% of all newly constructed low income housing to be available on rent etc.

See also MGI rport on China's urbanization prospects (full report here and summary here) for 2025.

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