India’s industrialization and urbanization grew together in the early 1990s, but have dispersed in the last decade
Conventional wisdom suggests that industrialization and urbanization go hand in hand. Policymakers often adopt an active “industrial policy” to accelerate growth. They also embrace an active “urban policy”, since industrialization without urbanization gets stalled. This has changed.
India’s industrialization and urbanization did grow together in the early 1990s. Manufacturing growth was initially concentrated around the mega cities. But it has dispersed in the last decade. The share of the manufacturing sector in employment, output, and number of enterprises has declined in urban areas. The share of manufacturing has increased in rural areas.
This de-urbanization of the manufacturing sector has been much steeper in the organized sector compared to the unorganized sector. Large-scale manufacturing enterprises, that account for 80% of output, are moving into rural areas in search of lower land costs to remain competitive. However, the unorganized manufacturing sector, that creates the majority of jobs, is still concentrating in cities, in search of better physical infrastructure.
India’s de-urbanization of the manufacturing sector raises potential concerns. Will the manufacturing sector moving away from cities compromise economic growth and job creation? Will low levels of infrastructure investments in rural areas slow down the pace of spatial transformation? Is there a need for a better integration of the rural-urban development agenda, as India proceeds with the next phase of urbanization?
India’s future economic growth may not be in its mega cities, which are already dense, but in its secondary cities, where there is substantial untapped potential.