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Monday, July 30, 2007

Urbanization makes sense. It makes clustering possible and allows for knowledge innovation and talent concentration

Time to rewrite notions about rural India: Report The Times of India 30 Jul 2007
MUMBAI: Is there really something called the urban-rural divide? If a new report by Roopa Purushothaman, currently chief economist at Future Capital Holdings, is to be believed, it is time to dump that age-old notion and work towards understanding the integration between urban and rural India.
Titled Is Urban Growth Good for Rural India?, the report says "Changes in India's consumption and production patterns need a more nuanced understanding of the integration between urban and rural India, rather than falling back on traditional myths about the urban-rural divide".
It all boils down to a warped understanding of what is rural India really all about. Says Purushothaman, "There are several things about rural India that aren't true anymore. For one, we often confuse rural India as an agricultural economy. What we don't see is that the non-farm economy is driving growth in rural GDP." In 2000, the rural economy accounts for 42% of total manufacturing output and 27% of services.
Interestingly, as opposed to popular notion, the rural economy in India has grown significantly compared to the urban economy. Says Purushothaman, "We see a peculiar trend of the urbanization rate slowing down." While this may not necessarily be a bad thing, the trend can be attributed to factors like lack of adequate infrastructure that makes it impossible for a city to support an influx of people. Challenging labour policies also sometimes make it difficult for people to move into cities.
But urbanization makes sense. It makes clustering possible and allows for knowledge innovation and talent concentration. "It helps one take advantage of economies of scale and allows for big-ticket convergence of production," she adds. Another interesting thing is that the spending gap between urban and rural India is starting to narrow down now.

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