Cities: Our policy orphans

India’s farm to non-farm transition is being murdered by bad urbanization because cities have unelected or impotent leadership

The speed of an average taxi in Bangalore city is now 7 km/h; most people can walk that fast (so much for the productivity upside of the internal combustion engine). India could give every household half an acre and they would fit into Rajasthan and half of Maharashtra; if we had Singapore’s population density we could fit everybody into Kerala (so much for a land shortage explaining our massive overpricing of land). India’s real estate market has a dangerous 5% difference between rental yields and bank loan rates; in most countries these rates are equal (so much for the relentless pricing discipline of financial arbitrage). 25 crore Indians produce less food than 25 lac Americans (so much for the food security argument that wants to keep people on farms). All these points are connected via labour markets and we’d like to make the case that a) the only way to help farmers is to have less of them, b) our farm to non-transition is being murdered by bad urbanization, c) Bad urbanization is a child of city leadership that is either impotent or unelected. Let’s look at the each point in more detail.

India has too many farmers (250 million) and too many poor farmers (they are about 50% of the labour force but only produce 12% of GDP). The recent farm loans waivers represent what doctors call triage in the ICU; highly invasive treatment done under pressure with unknown but inevitable side effects. But India and Indian agriculture does not have a jobs problem but a wages problem and India’s wages will only sustainably rise when we cross the “Lewisian” turning point that is named after Jamaican economist Arthur Lewis’s hypothesis of critical mass in the farm to non-farm transition (China has crossed the Lewisian turning point with its famous 200 million Chinese new Year weekend migration coming down every year and Foxconn announcing that they will set up a factory 2000 km inland to pay the same wages as outside Hong Kong). The only sustainable way to help farmers is to have less of them by moving many of them into non-farm jobs.

Political imagination wants to take jobs to people but is hard to create jobs in our 6 lac villages; 2 lac of them have less than 200 people. So we have to take people to jobs. But does this mean shoving more people into Delhi, Mumbai or Bangalore or creating 200 new cities? We believe the inevitable migration of people into our 50 cities with more than a million people is being retarded by bad urbanization that has created a big divergence between real wages (what employees care about) and nominal wages (what employers care about). We have hired 16 lac people over the last 15 years largely by moving people from small cities to big ones but this is becoming difficult because we can’t get kids to move (a kid in Kanpur said moving to Mumbai was impossible at Rs 12,000 because khana, rehna aur office jaana nahin banta). Urbanization is unstoppable but the mispricing of land, lack of public transport, poor connectivity to suburbs, and corruption means that India is not realizing the true productivity upside of cities that would make them magnets for evacuating farmers.