Taking a dig at India and other countries that believe economic activities must be spread geographically to benefit the poor, a new World Bank report has called for concentration of production, mobility of people and economic integration to lift rural people out of poverty. Population shift from villages to cities is natural and should be encouraged, it said.
This contradicts India's policy of countering migration by setting up industries in backward areas and offering temporary employment through schemes like the National Rural Employment Guarantee Programme.
"The world's most geographically disadvantaged people know all too well that growth does not come to every place at once," said Indermit S Gill, director of the World Development Report (WDR) and chief economist, Europe and Central Asia. "Markets favour some places over others. To fight this concentration is tantamount to fighting prosperity," Gill added.
Giving India's example, where more than 60 per cent of the nation's poor live in the economically backward states, the report calls for policies that promote mobility of people, products and ideas. Instead of worrying about the size of metropolises, the report calls for policymakers to focus on improving the basic infrastructure to make sure these places work well like Tokyo or New York.
Giving example of Mumbai, the report says despite its attempts to discourage inflows of people, who were attracted to economic opportunities, Mumbai has twice as many people as in 1980s. Half of the city's population lives in slums as the government has not created the requisite infrastructure.
The standard practice in cities with limited land is to raise the permitted Floor Space Index (FSI) over time to accommodate urban growth, as in Manhattan, Singapore, Hong Kong and Shanghai. However, the Municipal Corporation of Greater Mumbai went the other way by lowering the permitted FSI, which has resulted in a vicious circle of supply shortages and high land prices.
The report lays special importance on 3Ds -- density (of population closer to economic activity), distance (reducing transport cost) and divisions (less divisions or barriers to trade) -- to make economic hubs.
In India, new economic activity in the industry and services is now concentrated along India's metropolises and coastal cities, increasing the central region's economic distance from density. While people want to move closer to opportunities, mobility has not been helped by ethnic and linguistic divisions, coupled with policies that seek to revive growth in lagging areas through subsidised finance and preferential industrial licensing.
Instead, the government should provide improved education, health and other social services across the country to prepare quality human resource which can migrate to economic hubs for better opportunities, Gill said.
The report criticised India's special economic zones (SEZs), which are not as well located as in China. China has located its SEZs in coastal areas and has promoted migration of its people to these areas as well as foreign investment, and leading to greater connectivity to foreign markets.