I have an article in this month's Pragati that examines the challenges facing Indian cities. It advocates that more than improvements in municipal governance, the need of the hour is massive public investments in civic infrastructure coupled with efforts that seek to increase willingness to pay among users of civic services. It also argues that even with enabling policy frameworks, private sector can be only marginal player in the process of city building, atleast at this stage.
See a contrarian take by Harsh Gupta here.
Sunday, July 17, 2011
Saturday, July 16, 2011
The call for austerity - cure worsens the disease?
Carmen Reinhart and Ken Rogoff, the foremost historians of macroeconomic crises, have an excellent article in Bloomberg, where they express concern at the high debt overhang among developed economies.
Their magisterial examination of the history of financial crises and the relationship between growth and public liabilities found that when the debt-to-GDP ratio exceeds 90% in case of developed economies, it starts having adverse impact on long-term growth and macroeconomic stability. And this level has either been already breached or is fast approaching in most developed economies.
They cast doubt on the arguement of advocates of fiscal expansion, who claim that the ultra-low interest rates justify another round of stimulus despite the high public debt ratios. They argue that market interest rates can change dramatically in a few months with disastrous cascading consequences, whereas debt reduction takes years. Further, as the Japan example shows, high debt overhang, even without high interest rates, can hinder growth.
Though this analysis cannot be faulted, the implied solution - reining in debt with austerity and tax increases - is fraught with even bigger dangers. As I blogged earlier this week, expansionary fiscal consolidation holds limited promise. It contracts private domestic demand and the GDP. This should not come as a surprise since private consumption and business investment, which form the predominant source of growth in the absence of government spending, remains abysmally weak and shows no signs of revival. The only other remaining source of growth, external trade, too holds little promise and in any case cannot provide the thrust for recovering from such a bad crisis in case of large economies. See this and this.
Without private sector consumption and investment recovering, any contraction in government spending will only push the economy further down the recessionary path. The knock-on effect on the revenues side of the fiscal balance will be disastrous.
As has been well documented with the impact of the Great Recession on the US government deficit, the biggest concern during a recession is the reduction in government revenues and the resultant widening of fiscal deficits and debt-to-GDP ratios. In other words, the prescription turns out worsening the disease!
Paul Krugman has this concise response to the two most frequent arguments that deficits will drive up interest rates - government borrowing crowding out private borrowers and driving up rates, and fears of government's solvency frightening off investors and increasing the cost of borrowing.
Update 1 (17/7/2011)
The two big concerns for conservatives who advocate fiscal contraction are fears of high borrowing costs (bond-vigilantes) and high-inflation. These two concerns go against all standard macroeconomic models of economies stuck in slowdowns with interest rates at the zero-bound. Moreoever, they have been proved as wildly misplaced both from experience till date and from all available long-term forecasts.
In fact, quite to the contrary, all evidence points to a period of persistent low interest rates and low inflation (so much so that some economists, including the IMF, have called for raising the inflation target). This points to deflation, accompanied by Japan-style deep recession, as the greater danger now.
As to why the fiscal contraction story continues to grip the imagination of opinion makers, Paul Krugman points to Robert Kutter. They argue that this line of reasoning supports the interests of creditors, with significant exposure in bonds, loans, and cash. Mike Konczal calls it as "wealth and income defense". These rentiers have an interest in keeping inflation down and they positively benefit from a deflationary environment. Unfortunately, these run exactly opposite to the interests of workers and others.
Update 2 (3/9/2011)
Excellent op-ed in the Times which points out how Argentina, faced with similar high unemployment rate and a sovereign default, rebounded not with austerity but with massive fiscal expansion. For a start, the government intervened to keep the value of its currency low. It then increased taxes to finance a New Deal-like public works binge, increasing government spending to 25% GDP from 14% in 2003. It also strengthened its social safety net - the Universal Child Allowance, started in 2009 with support from both the ruling party and the opposition, gives 1.9 million low-income families a monthly stipend of about $42 per child, which helps increase consumption.
The Washington Post writes that a downturn in Europe deepened by choking off government revenues and increasing the demand for public services, could put struggling countries such as Spain and Italy at risk of missing the very deficit-reduction targets that budget cuts and other austerity measures were meant to achieve.
Their magisterial examination of the history of financial crises and the relationship between growth and public liabilities found that when the debt-to-GDP ratio exceeds 90% in case of developed economies, it starts having adverse impact on long-term growth and macroeconomic stability. And this level has either been already breached or is fast approaching in most developed economies.
They cast doubt on the arguement of advocates of fiscal expansion, who claim that the ultra-low interest rates justify another round of stimulus despite the high public debt ratios. They argue that market interest rates can change dramatically in a few months with disastrous cascading consequences, whereas debt reduction takes years. Further, as the Japan example shows, high debt overhang, even without high interest rates, can hinder growth.
Though this analysis cannot be faulted, the implied solution - reining in debt with austerity and tax increases - is fraught with even bigger dangers. As I blogged earlier this week, expansionary fiscal consolidation holds limited promise. It contracts private domestic demand and the GDP. This should not come as a surprise since private consumption and business investment, which form the predominant source of growth in the absence of government spending, remains abysmally weak and shows no signs of revival. The only other remaining source of growth, external trade, too holds little promise and in any case cannot provide the thrust for recovering from such a bad crisis in case of large economies. See this and this.
Without private sector consumption and investment recovering, any contraction in government spending will only push the economy further down the recessionary path. The knock-on effect on the revenues side of the fiscal balance will be disastrous.
As has been well documented with the impact of the Great Recession on the US government deficit, the biggest concern during a recession is the reduction in government revenues and the resultant widening of fiscal deficits and debt-to-GDP ratios. In other words, the prescription turns out worsening the disease!
Paul Krugman has this concise response to the two most frequent arguments that deficits will drive up interest rates - government borrowing crowding out private borrowers and driving up rates, and fears of government's solvency frightening off investors and increasing the cost of borrowing.
Update 1 (17/7/2011)
The two big concerns for conservatives who advocate fiscal contraction are fears of high borrowing costs (bond-vigilantes) and high-inflation. These two concerns go against all standard macroeconomic models of economies stuck in slowdowns with interest rates at the zero-bound. Moreoever, they have been proved as wildly misplaced both from experience till date and from all available long-term forecasts.
In fact, quite to the contrary, all evidence points to a period of persistent low interest rates and low inflation (so much so that some economists, including the IMF, have called for raising the inflation target). This points to deflation, accompanied by Japan-style deep recession, as the greater danger now.
As to why the fiscal contraction story continues to grip the imagination of opinion makers, Paul Krugman points to Robert Kutter. They argue that this line of reasoning supports the interests of creditors, with significant exposure in bonds, loans, and cash. Mike Konczal calls it as "wealth and income defense". These rentiers have an interest in keeping inflation down and they positively benefit from a deflationary environment. Unfortunately, these run exactly opposite to the interests of workers and others.
Update 2 (3/9/2011)
Excellent op-ed in the Times which points out how Argentina, faced with similar high unemployment rate and a sovereign default, rebounded not with austerity but with massive fiscal expansion. For a start, the government intervened to keep the value of its currency low. It then increased taxes to finance a New Deal-like public works binge, increasing government spending to 25% GDP from 14% in 2003. It also strengthened its social safety net - the Universal Child Allowance, started in 2009 with support from both the ruling party and the opposition, gives 1.9 million low-income families a monthly stipend of about $42 per child, which helps increase consumption.
The Washington Post writes that a downturn in Europe deepened by choking off government revenues and increasing the demand for public services, could put struggling countries such as Spain and Italy at risk of missing the very deficit-reduction targets that budget cuts and other austerity measures were meant to achieve.
Friday, July 15, 2011
The coming coal crunch
It is now becoming increasingly apparent that fuel scarcity is arguably the biggest constraint facing Indian power sector. The situation is alarming in case of thermal power plants, where a large number of plants are scheduled to become operational over the coming 3-4 years.
The Coal Ministry has forecast coal shortfall to be 104-121 mt by end-2012 and 200 MT by 2016-17. This comes on the back of Planning Commission deciding to reduce the 11th Plan (2007-12) annual production estimates from 680 mt to 630 mt (486 mt from CIL, 81 from captive mines, and rest imports). However, this revised coal production target too appears difficult to achieve, with more realistic estimate being 592 mt.
The capacity addition expected based on coal linkage provided by Coal India Limited (CIL) itself is about 40 GW in the 2011-14 period. Assuming an 85% plant load factor (PLF), this would require about 200 mtpa of additional coal, whereas the incremental coal availability, assuming an 8% production growth, would be just around 73 mpta, leaving a whopping deficit or an average PLF of 40% for these new plants.
This leaves generators of all kinds with no option but to blend large quantities of imported coal. The inevitable cost escalation will adversely affect their profitability. Since NTPC has the largest exposure to CIL, it is naturally among those most likely to be affected by the coming deficits.
Since the contract agreement of standard PPAs, especially the tariff-based bids, excludes fuel supply from force majeure provisions, the entire cost escalation may have to be borne by the generator. Much the same would be the fate of private IPPs who won bids under Case I bids, whose tariffs are already determined. The profitability of merchant power plants, seen no long ago as an extremely profitable business opportunity, too will come under severe strain.
A significant number of generators who won Case I bids in recent years do not have firm coal tie-up for a major share of their coal and rely on spot purchases. This exposes them to severe risks on coal availability and coal pricing. Merchant power plants without coal tie-ups are even more vulnerable, being exposed to both fuel and price volatility.
Further, though the CIL issued Letter of Assurances to generators, many of them have not been converted into firm contractual Fuel Supply Agreements (FSAs). This means that while supplies of coal to these plants are on for now, in the absence of a firm FSA, CIL is not bound to maintain a minimum supply round the year. This has shaken up investors who face the risk of developers defaulting on their debt repayment commitments.
In light of all these developments, it is not surprising that, as the Businessline reports, investor interest in private generation is petering out. In any case, this reduction in investor interest was inevitable since the surge in power sector lending of recent years had left many banks with portfolios excessively exposed to the power sector. In order to re-align themselves to their regulatory commitments, they were already paring down lending to power sector.
All these problems comes even as CIL grapples with its failure to increase production capacity (it produces 80% of the country's coal production). Ading to the woes, the Ministry of Environment and Forests' (MoEF) refusal to accord clearances has left an estimated 203 blocks with combined reserves of 600 mtpa and potential generation capacity of 130 GW in limbo. The MoEF in 2009 had categorised these 203 coal blocks as "no go" mining zone. The Coal Ministry has been demanding permission to mine at least 90% of these 203 blocks to meet the ever widening demand-supply gap of the dry fuel.
None of these include the big risk posed by the worsening finances of State Electricity Boards, whose accumulated losses have crossed Rs 55000 Cr. These losses are certain to rise further when distribution losses are 25-30% and more than 20% of electricity is given free to farmers. Saddled with such huge debts, discoms are not likely to venture into spot market purchases, except when faced with an electoral season. This will add to the woes of an already volatile and deficient spot market.
In recent weeks, the government has also started cracking down on developers who though allocated coal blocks had not started developing them. A panel set up by the Coal Ministry has recommended issuing warnings to 29 coal and three lignite blocks allocatees, apart from the cancellation of 14 coal blocks and one lignite block to six PSUs, including NTPC and three private firms for failing to develop the mines.
Update 1 (26/1/2012)
The Economist writes,
The Coal Ministry has forecast coal shortfall to be 104-121 mt by end-2012 and 200 MT by 2016-17. This comes on the back of Planning Commission deciding to reduce the 11th Plan (2007-12) annual production estimates from 680 mt to 630 mt (486 mt from CIL, 81 from captive mines, and rest imports). However, this revised coal production target too appears difficult to achieve, with more realistic estimate being 592 mt.
The capacity addition expected based on coal linkage provided by Coal India Limited (CIL) itself is about 40 GW in the 2011-14 period. Assuming an 85% plant load factor (PLF), this would require about 200 mtpa of additional coal, whereas the incremental coal availability, assuming an 8% production growth, would be just around 73 mpta, leaving a whopping deficit or an average PLF of 40% for these new plants.
This leaves generators of all kinds with no option but to blend large quantities of imported coal. The inevitable cost escalation will adversely affect their profitability. Since NTPC has the largest exposure to CIL, it is naturally among those most likely to be affected by the coming deficits.
Since the contract agreement of standard PPAs, especially the tariff-based bids, excludes fuel supply from force majeure provisions, the entire cost escalation may have to be borne by the generator. Much the same would be the fate of private IPPs who won bids under Case I bids, whose tariffs are already determined. The profitability of merchant power plants, seen no long ago as an extremely profitable business opportunity, too will come under severe strain.
A significant number of generators who won Case I bids in recent years do not have firm coal tie-up for a major share of their coal and rely on spot purchases. This exposes them to severe risks on coal availability and coal pricing. Merchant power plants without coal tie-ups are even more vulnerable, being exposed to both fuel and price volatility.
Further, though the CIL issued Letter of Assurances to generators, many of them have not been converted into firm contractual Fuel Supply Agreements (FSAs). This means that while supplies of coal to these plants are on for now, in the absence of a firm FSA, CIL is not bound to maintain a minimum supply round the year. This has shaken up investors who face the risk of developers defaulting on their debt repayment commitments.
In light of all these developments, it is not surprising that, as the Businessline reports, investor interest in private generation is petering out. In any case, this reduction in investor interest was inevitable since the surge in power sector lending of recent years had left many banks with portfolios excessively exposed to the power sector. In order to re-align themselves to their regulatory commitments, they were already paring down lending to power sector.
All these problems comes even as CIL grapples with its failure to increase production capacity (it produces 80% of the country's coal production). Ading to the woes, the Ministry of Environment and Forests' (MoEF) refusal to accord clearances has left an estimated 203 blocks with combined reserves of 600 mtpa and potential generation capacity of 130 GW in limbo. The MoEF in 2009 had categorised these 203 coal blocks as "no go" mining zone. The Coal Ministry has been demanding permission to mine at least 90% of these 203 blocks to meet the ever widening demand-supply gap of the dry fuel.
None of these include the big risk posed by the worsening finances of State Electricity Boards, whose accumulated losses have crossed Rs 55000 Cr. These losses are certain to rise further when distribution losses are 25-30% and more than 20% of electricity is given free to farmers. Saddled with such huge debts, discoms are not likely to venture into spot market purchases, except when faced with an electoral season. This will add to the woes of an already volatile and deficient spot market.
In recent weeks, the government has also started cracking down on developers who though allocated coal blocks had not started developing them. A panel set up by the Coal Ministry has recommended issuing warnings to 29 coal and three lignite blocks allocatees, apart from the cancellation of 14 coal blocks and one lignite block to six PSUs, including NTPC and three private firms for failing to develop the mines.
Update 1 (26/1/2012)
The Economist writes,
"By the year to March 2017 domestic coal production will meet only 73% of demand, leaving a gap of some 230m tonnes, almost five times the level of 2012. Include other industries that use coal, such as steel, and some analysts calculate that India’s total imports by 2017 could reach some 300m tonnes. That is on a par with the current exports of Australia, or those of Indonesia, South Africa and Canada combined."
Thursday, July 14, 2011
Debt Contagion Fears - Is Italy next?
Here is a grapical representation of European national debts, with countries sized in proportion to their respective sovereign debts.
Notice that, excluding Greece, Eurozone's third largest economy, Italy, has the highest debt-to-GDP ration among these economies. And as expected, exacerbated by domestic political uncertainty, markets appear to be forming expectations about Italy following Greece, Ireland, Portugal and Spain into the troubled periphery of Eurozone, thereby completing the complement of PIIGS.
Admittedly, Italy's banks never speculated in a property bubble and are sound, its budget deficit at 4.6% of GDP looks low when compared to the sinners, and unlike other PIIGS Italian own more than half the country's debt. But as interest rates rise and with economy not likely to get back into high growth path anytime soon, it does not require much for the markets to tip the balance against Italy. And the indications look ominious.
As this Bloomberg ticker shows, the cost of insuring Italian sovereign debt against default have zoomed to its highest ever.
Italy is the largest issuer of government bonds among Eurozone economies and its 10-year Bond yields shot up alarmingly, again to its highest in recent history. And if rates exceed 6%, Italy will start experiencing the same repayment and new debt raising problems as others.
A contagion spread to Italy would make Greece and Portugal look like boy-scouts. As the Timess reports, European banks have total claims and potential exposures of 998.7 billion euros to Italy, more than six times the 162.4 billion euro exposure they have to Greece. European banks have 774 billion euros of exposure to Spain and 534 billion euros of exposure to Ireland. American banks are also more exposed to Italy than to any other euro zone country, to the tune of 269 billion euros. American banks’ next biggest exposure is to Spain, with total claims estimated at 179 billion euros.
Update 1 (28/9/2011)
List of "Who Gets Smashed If Italy Goes Bust".
Notice that, excluding Greece, Eurozone's third largest economy, Italy, has the highest debt-to-GDP ration among these economies. And as expected, exacerbated by domestic political uncertainty, markets appear to be forming expectations about Italy following Greece, Ireland, Portugal and Spain into the troubled periphery of Eurozone, thereby completing the complement of PIIGS.
Admittedly, Italy's banks never speculated in a property bubble and are sound, its budget deficit at 4.6% of GDP looks low when compared to the sinners, and unlike other PIIGS Italian own more than half the country's debt. But as interest rates rise and with economy not likely to get back into high growth path anytime soon, it does not require much for the markets to tip the balance against Italy. And the indications look ominious.
As this Bloomberg ticker shows, the cost of insuring Italian sovereign debt against default have zoomed to its highest ever.
Italy is the largest issuer of government bonds among Eurozone economies and its 10-year Bond yields shot up alarmingly, again to its highest in recent history. And if rates exceed 6%, Italy will start experiencing the same repayment and new debt raising problems as others.
A contagion spread to Italy would make Greece and Portugal look like boy-scouts. As the Timess reports, European banks have total claims and potential exposures of 998.7 billion euros to Italy, more than six times the 162.4 billion euro exposure they have to Greece. European banks have 774 billion euros of exposure to Spain and 534 billion euros of exposure to Ireland. American banks are also more exposed to Italy than to any other euro zone country, to the tune of 269 billion euros. American banks’ next biggest exposure is to Spain, with total claims estimated at 179 billion euros.
Update 1 (28/9/2011)
List of "Who Gets Smashed If Italy Goes Bust".
Wednesday, July 13, 2011
Tuesday, July 12, 2011
The contraction with "expansionary fiscal consolidation"!
The big macroeconomic debate of our times is over whether economies facing the Great Recession should indulge in more fiscal and monetary expansion or should embrace fiscal austerity and monetary contraction.
Advocates of more stimulus point to dismal economic conditions - aggregate demand slump, lack of business confidence, idle capacity, depressed business investments, high unemployment rates etc - and argue that the economy would remain in a deep recession in the absence of expansionary policies. The zero-bound in interest rates, they say, only exacerbates the problems.
The Austerians point to the huge build up of public debts across most developed economies and demand immediate steps to bring them down to sustainable levels. They also see dangers of an inflationary spiral and even asset bubbles unleashed by the extended expansionary monetary policy. They also fret at bond-vigilantes driving up interest rates.
In recent months, they have pointed to the work of Alberto Alesina and Silvia Ardagna (pdf here, earlier version here) who examined episodes of all large fiscal policy stances, both stimuli and adjustments, in OECD countries from 1970-2007. They found,
This has repeatedly been invoked to justify "expansionary fiscal contraction" or "expansionary austerity", where fiscal consolidation will result in increased growth. It is argued that fiscal consolidation by way of spending cuts or tax increases today will, by reducing the expectations of the need for a larger and disruptive fiscal adjustment later, raise household and business expectations about their future incomes and thereby stuimulate private consumption and business investments.
They also argue that if current fiscal policy can influence agents' expectations about interest rates by signalling to them about the government's resolve, by way of fiscal stabilization, to rein in public debt, "they can ask for a lower premium on government bonds". Further, aggregate demand components sensitive to real interest rates too get a boost if such credible expectations about fiscal stabilization and lower future interest rates are conveyed. They forecast a possible consumption/investment boom if such expectations can be credibly conveyed. This study has also been used to justify the preference of tax cuts over government spending if stimulus is deployed.
A recent paper by IMF economists Jaime Guajardo, Daniel Leigh, and Andrea Pescatori have examined the dataset used by Alesina and Ardagna and find that their findings may have been compromised by the bias within the examples used. The IMF economists drew a distinction between fiscal consolidations motivated by a desire to reduce budget deficit and those responding to prospective economic conditions. They focussed on the impact of short-term fiscal consolidation arising out of only the former and found
As Paul Krugman writes, the Alesina and Ardagna findings are muddled by reverse causation - they mistake the rise in revenues and/or fall in expenditures that generally follows fiscal consolidation (since safety-net spending falls or government prunes down expenditures) to claim that economic expansion follows all spending cuts and/or tax increases.
Advocates of more stimulus point to dismal economic conditions - aggregate demand slump, lack of business confidence, idle capacity, depressed business investments, high unemployment rates etc - and argue that the economy would remain in a deep recession in the absence of expansionary policies. The zero-bound in interest rates, they say, only exacerbates the problems.
The Austerians point to the huge build up of public debts across most developed economies and demand immediate steps to bring them down to sustainable levels. They also see dangers of an inflationary spiral and even asset bubbles unleashed by the extended expansionary monetary policy. They also fret at bond-vigilantes driving up interest rates.
In recent months, they have pointed to the work of Alberto Alesina and Silvia Ardagna (pdf here, earlier version here) who examined episodes of all large fiscal policy stances, both stimuli and adjustments, in OECD countries from 1970-2007. They found,
"Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions."
This has repeatedly been invoked to justify "expansionary fiscal contraction" or "expansionary austerity", where fiscal consolidation will result in increased growth. It is argued that fiscal consolidation by way of spending cuts or tax increases today will, by reducing the expectations of the need for a larger and disruptive fiscal adjustment later, raise household and business expectations about their future incomes and thereby stuimulate private consumption and business investments.
They also argue that if current fiscal policy can influence agents' expectations about interest rates by signalling to them about the government's resolve, by way of fiscal stabilization, to rein in public debt, "they can ask for a lower premium on government bonds". Further, aggregate demand components sensitive to real interest rates too get a boost if such credible expectations about fiscal stabilization and lower future interest rates are conveyed. They forecast a possible consumption/investment boom if such expectations can be credibly conveyed. This study has also been used to justify the preference of tax cuts over government spending if stimulus is deployed.
A recent paper by IMF economists Jaime Guajardo, Daniel Leigh, and Andrea Pescatori have examined the dataset used by Alesina and Ardagna and find that their findings may have been compromised by the bias within the examples used. The IMF economists drew a distinction between fiscal consolidations motivated by a desire to reduce budget deficit and those responding to prospective economic conditions. They focussed on the impact of short-term fiscal consolidation arising out of only the former and found
"Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects...
Based on the fiscal actions thus identified, our baseline specification implies that a 1 percent of GDP fiscal consolidation reduces real private consumption by 0.75 percent within two years, while real GDP declines by 0.62 percent... Our main finding that fiscal consolidation is contractionary holds up in cases where one would most expect fiscal consolidation to raise private domestic demand. In particular, even large spending-based fiscal retrenchments are contractionary, as are fiscal consolidations occurring in economies with a high perceived sovereign default risk."
As Paul Krugman writes, the Alesina and Ardagna findings are muddled by reverse causation - they mistake the rise in revenues and/or fall in expenditures that generally follows fiscal consolidation (since safety-net spending falls or government prunes down expenditures) to claim that economic expansion follows all spending cuts and/or tax increases.
Monday, July 11, 2011
The rural-urban divide in governance
Where do India's political and administrative energies get spent? What is the ratio of distribution between rural and urban Indias?
The McKinsey Global Institute (pdf here) estimates that cities will provide the overwhelming share of economic growth (70%), new jobs (70%), and tax revenues (85%) by 2030. It may be therefore appropriate to illustrate this with the following Venn Diagram.
However, the prevailing political and therefore administrative paradigm in India suffers from an excessive rural-focus. Villages are the central focus of our attention. Another Venn Diagram represents the distribution of our administrative bandwidth.
The commonest justification for this rural focus is that India lives in its villages (nearly 70% of the population lives there) and rural growth should be the priority. However, there is growing evidence, here and here, that urbanization and urban growth are among the most potent rural economic growth and poverty reduction strategies.
The McKinsey Global Institute (pdf here) estimates that cities will provide the overwhelming share of economic growth (70%), new jobs (70%), and tax revenues (85%) by 2030. It may be therefore appropriate to illustrate this with the following Venn Diagram.
However, the prevailing political and therefore administrative paradigm in India suffers from an excessive rural-focus. Villages are the central focus of our attention. Another Venn Diagram represents the distribution of our administrative bandwidth.
The commonest justification for this rural focus is that India lives in its villages (nearly 70% of the population lives there) and rural growth should be the priority. However, there is growing evidence, here and here, that urbanization and urban growth are among the most potent rural economic growth and poverty reduction strategies.
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