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India’s high-stakes urban challenge

The country’s cities are expanding explosively. A new report from the McKinsey Global Institute considers how policy makers might respond.

Indias urban challenge article, Indian urban policy issue, Economic Studies

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India’s cities are expanding on a larger scale and at a faster pace than ever before. To date, though, the country has avoided dealing with the hard questions about how best to manage its massive urbanization. The policy vacuum may lead to worsening urban decay, poor quality of life for citizens, and a reluctance among investors to commit funds to projects in India’s urban centers.

A new report from the McKinsey Global Institute (MGI)—India’s urban awakening: Building inclusive cities, sustaining economic growth—finds that a lack of effective policies to manage urbanization could jeopardize India’s GDP growth rate. But international experience shows that India could turn its cities around in a decade. If the country makes and executes the right policy choices, it could boost annual GDP by 1 to 1.5 percentage points, taking the economy close to the double-digit growth it needs to create sufficient jobs for the 270 million people expected to enter the working-age population over the next 20 years.

The report projects that the country’s urban population will soar to 590 million in 2030, from 340 million in 2008. India’s cities could generate 70 percent of the net new jobs created by 2030, produce more than 70 percent of the country’s GDP, and stimulate a near-fourfold increase in per capita income.

These economic trends will unlock many new markets and investment opportunities in, for example, infrastructure, transportation, health care, education, and recreation. In infrastructure, MGI projects that the economy will need 700 million to 900 million square meters of new residential and commercial space a year—equivalent to adding more than two Mumbais or one Chicago. In transportation, India will require 350 to 400 kilometers of new subway lines annually (more than 20 times the subway capacity built over the last decade) and between 19,000 and 25,000 kilometers of roads (nearly equivalent to the amount India has built over the last ten years). Yet India has traditionally underinvested in its cities compared with the countries of other urban centers around the world (exhibit).

Managed poorly, India’s cities will fall further into decay and gridlock, and today’s growth trajectory could even be called into question. Handled well, this urban expansion will be the key to India’s continuing economic success.

Read an executive summary or download the full report at the McKinsey & Company Web site.

About the Authors

Richard Dobbs is a director in McKinsey’s Seoul office; Shirish Sankhe is a director in the Mumbai office, where Ireena Vittal is a principal.

Recommend (61)
  • 15 JUNE 2010
    Satheesh Ramanna
    Chief Executive
    Vishaya Communications
    Mysore, India

    How do we leapfrog into the future? The immediate takeaway from the mobile/Internet revolution is to build Indian cities that run on the net/mobile platforms...

    .
    Satheesh Ramanna
    Chief Executive
    Vishaya Communications
    Mysore, India

    How do we leapfrog into the future? The immediate takeaway from the mobile/Internet revolution is to build Indian cities that run on the net/mobile platforms, wherein interactive data flows seemlessly so that the stakeholders, the local population, governance issues, etcetera, are not caught up with mundane issues like queing up to pay a bill or secure admission in a local school. Piloting a public-private partnership model that enhances e-governance initiatives with private entrepreneurship is being tried out at a tier II city level at Mysore, wherein data from businesses and people alike are segregated and a city portal is being modelled (www.mysorecity.net) with verticals that ease our day-to-day living. It is also proposed to link up the site with MYSOREONE, a government initiative to pay all bills at one place. Disbursement of information is on a pull/push mechanism through Web/SMS to the huge database of subscribers.

    The challenges are huge and require the government and industry to buy-in and move forward and make the road ahead suitably lit with the application of available technology.

    .
  • 27 MAY 2010
    Col Jagdish Jamwal
    Advisor
    ASCI
    Hyderabad, India

    The problems of Indian Cities have been analysed correctly but the proposed roadmap of the MGI report seems to be fragile....

    .
    Col Jagdish Jamwal
    Advisor
    ASCI
    Hyderabad, India

    The problems of Indian Cities have been analysed correctly but the proposed roadmap of the MGI report seems to be fragile. The way forward is to evolve good governance PPP framework for realising the basic civic ameinities of the cities.

    .
  • 27 MAY 2010
    Lakshmi Murthy
    Consultant
    HR Professional
    Mumbai, India

    ...growth needs to be inclusive of agricultural technology growth, else spiralling food prices take away the momentum gained.

    .
    Lakshmi Murthy
    Consultant
    HR Professional
    Mumbai, India

    The development in power generation has be four times faster than the other infrastructure development. Only then the cities will able to sustain and grow, else it will be a mess like we are facing at Gurgaon, Hyderabad, and Pune.

    Also, growth needs to be inclusive of agricultural technology growth, else spiralling food prices take away the momentum gained.

    .
  • 19 MAY 2010
    Ankur Gupta
    Senior Associate
    Synechron
    Pune, India

    ...The problem lies in excessive concentration of skilled labour in Tier 1 cities. So we need to convert Tier 2 cities to Tier 1 and should also start creating new cities with modern infrastructure and facilities....

    .
    Ankur Gupta
    Senior Associate
    Synechron
    Pune, India

    It’s high time for India to create more global cities which can cater to the growing demand of skilled labour. We are not in a position to sustain our growth with the current infrastructure. The problem lies in excessive concentration of skilled labour in Tier 1 cities. So we need to convert Tier 2 cities to Tier 1 and should also start creating new cities with modern infrastructure and facilities. This slipshod urbanization that, when too concentrated to specific cities, will have to be curbed in order to make Indian cities truly global cities.

    .
  • 19 MAY 2010
    Jasabanta Choudhuri
    Internet Correspondent
    Self Employed
    Kolkata, India

    ...when we look at the enormity of the task ahead in order to furbish our cities and realise that it is all but an impossible task, we should perhaps see it as a story of a missed opportunity when we...

    .
    Jasabanta Choudhuri
    Internet Correspondent
    Self Employed
    Kolkata, India

    The money that came to India from globalization in the past decade had created an opportunity that was not matched by a corresponding effort by the political bosses and administration to create the best of breed infrastructure in India. Some of these Yojnas by successive governments, which have cost us millions of crores of rupees, are not even properly audited for results. So when we look at the enormity of the task ahead in order to furbish our cities and realise that it is all but an impossible task, we should perhaps see it as a story of a missed opportunity when we foolishly destroyed value.

    .
  • 19 MAY 2010
    Anup Kumar Debnath
    Senior Healthcare Analyst
    Datamonitor
    Hyderabad, India

    ...public-private partnership business along with the government will determine the future of India....

    .
    Anup Kumar Debnath
    Senior Healthcare Analyst
    Datamonitor
    Hyderabad, India

    India does not have a proper policy to handle infrastructural developments. Although tier-two cities are growing in India, government has to act to distance corruption from such cities. Moreover, public-private partnership business along with the government will determine the future of India. The other key area of concern is the healthcare system in India. Being the second largest populous country in the world, India still lacks a proper healthcare structure, which needs lot of attention.

    .
  • 18 MAY 2010
    Adiya Sarin
    Consultant
    CB Richard Ellis
    Delhi India

    What we need are “new cities”. Start from scratch, instead of draining money into the existing urban chaos that are cities are....

    .
    Adiya Sarin
    Consultant
    CB Richard Ellis
    Delhi India

    What we need are “new cities”. Start from scratch, instead of draining money into the existing urban chaos that are cities are.

    Hundreds of master-planned cities with a 50-year future outlook need to be planned immediately to 1) ease the pressure of existing centers 2)create new centers of growth and 3)ensure the spread of overall economic growth.

    .
  • 15 MAY 2010
    Manoj Kaul
    EVP
    Reliance Communications
    Mumbai India

    Most Indian cities are in shambles. Those which are not are on the way to becoming so....

    .
    Manoj Kaul
    EVP
    Reliance Communications
    Mumbai India

    Most Indian cities are in shambles. Those which are not are on the way to becoming so. And if the migration from villages to cities continues at the current rate, India will become a very large slum country. We will have dozens of Mumbai-like cities where a handful of extremely rich will live in secluded condos and highrise office spaces suurounded by millions living in oceans of slums and shanties. The so called rise of India as an economic superpower is a big farce.

    .
  • 12 MAY 2010
    Rakesh Tripathi
    Sr. Oracle Applications DBA
    Tata Consultancy Services
    Norwich, United Kingdom

    ...I would think India possibly needs making voting mandatory (and potentially look at e-voting) to force a political upliftment.

    .
    Rakesh Tripathi
    Sr. Oracle Applications DBA
    Tata Consultancy Services
    Norwich, United Kingdom

    Interesting read. In my view, the key challenges that dog India are corruption and the political will to improve/change. All other challenges can be considered to be derivatives of these key twin issues. Corruption can be best dealt with via much needed judicial reforms which requires political will to reform—in that sense, these are interdependent ills. Thus, at the heart of all the problems is having political reforms. I would think India possibly needs making voting mandatory (and potentially look at e-voting) to force a political upliftment.

    .
  • 11 MAY 2010
    satya lakshmi
    Faculty Member-Exams
    ICFAI university
    Hyderabad India

    Indian urbanization woes have a direct link to lack of self-sufficiency in villages and lack of educational and employment opportunities for both skilled and unskilled labor....

    .
    satya lakshmi
    Faculty Member-Exams
    ICFAI university
    Hyderabad India

    Indian urbanization woes have a direct link to lack of self-sufficiency in villages and lack of educational and employment opportunities for both skilled and unskilled labor. Urbanization needs a clear cut policy that moves beyond building flyovers; a policy that integrates water, roads, sewerage, and housing, and brings about a systematic change, is the need of the hour. A clear policy with relevant regulators will invite investments, without which nothing much can be done.

    .
  • 2 MAY 2010
    Vinay Saran
    Senior VP
    Hindusthan National Glass & Industries Ltd
    India

    If India is to move forward, it has to tackle its corruption and debilitating practice of keeping politics first.

    .
    Vinay Saran
    Senior VP
    Hindusthan National Glass & Industries Ltd
    India

    If India is to move forward, it has to tackle its corruption and debilitating practice of keeping politics first.

    .
  • 30 APRIL 2010
    Prabhakar Yadav
    Governance and OD Consultant
    GHK Consulting Ltd
    Bhopal, India

    ...City development plans should be given a legal status and ULBs should earmark a percentage of their budgets for implementation of the plan.

    .
    Prabhakar Yadav
    Governance and OD Consultant
    GHK Consulting Ltd
    Bhopal, India

    It is a general phenomenon that most of the cities and states are currently unable to utilize the available funds for developing cities. The primary reason for this is a lack of capacity and vision. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has certainly done a lot in this regard, but leaves a lot left to be desired.

    As mentioned in the report, one of the most important enablers is governance which so far has not been the priority of the cities. A uniform organizational structure, defined work processes, a robust citizen charter, recruitment of trained and skilled manpower, and creating specialized urban administrative service (on the lines of IAS, IPS) are a few immediate priorities that need to be taken up in order to improve service delivery. Accountability of staff is near zero as there is no proper performance management system in place. Administrative reforms under JNNURM do talk about this, but so far nothing has been done in this effect.

    The 74th Constitutional Amendment Act (CAA) clearly mentions that all the parastatal agencies be merged with Unified Legislative and Budgets (ULBs). Currently, no state in India has effectively transferred the funds, functionaries and functions to the ULBs. The idea of the metropolitan board sounds exciting. An alternative idea could be to increase the ULB jurisdiction to cover the entire metropolitan area (Ex. Greater Hyderabad) which will ensure convergence. Also, a lot of focus needs to be on the operation and maintenance. City development plans should be given a legal status and ULBs should earmark a percentage of their budgets for implementation of the plan.

    .
  • 29 APRIL 2010
    Neville Bhasin
    Project Coordinator
    Krohne Marshall
    Pune, India

    Water is central to the future of urban development. A major weakness of this report is the lack of adequate attention to this sector....

    .
    Neville Bhasin
    Project Coordinator
    Krohne Marshall
    Pune, India

    Water is central to the future of urban development. A major weakness of this report is the lack of adequate attention to this sector. No doubt another McKinsey report has looked at the emerging water challenges, but there should have been linkages to the urban space. Can share case study and concept paper if afforded an opportunity to do so.

    .
  • 27 APRIL 2010
    Yogesh Gandhi
    Associate-Communications
    L&T Infotech
    Pune India

    ...The real solution is not in developing a myopic solution in terms of bigger, better, and faster cities; but in a more even distribution of population and resources across rural and urban landscapes.

    .
    Yogesh Gandhi
    Associate-Communications
    L&T Infotech
    Pune India

    The long-term, sustainable growth of India as a nation depends on cohesive and inclusive growth of its urban and rural landscape. Indian cities, across tiers, are facing the double whammy of problems associated with rapid urbanization and a rising population. The real solution is not in developing a myopic solution in terms of bigger, better, and faster cities; but in a more even distribution of population and resources across rural and urban landscapes.

    .
  • 27 APRIL 2010
    Gauhar Siraj
    Director
    Indo Brasil Trade Associates
    Delhi, India

    There seems to be a disconnect between the expectation, policy, and execution in India. As long as the blind spot of corruption is not addressed, India will always be a laggard....

    .
    Gauhar Siraj
    Director
    Indo Brasil Trade Associates
    Delhi, India

    There seems to be a disconnect between the expectation, policy, and execution in India. As long as the blind spot of corruption is not addressed, India will always be a laggard.

    The politicians rule the roost with stupendous impunity, forcing the nation as a whole to either be content with meek complaints (as each policy disaster unfurls) or hope for miracle solutions.

    In all this, only those that have access to political power and/or financial muscle succeed. The rest just get by like they have been for the last over 60 decades.

    If and when corruption in political circles is controlled in India, success of policies and growth will come about in a smooth manner. The Chinese did it and so can the Indians, but not without cleaning their Augean stables.

    .
  • 27 APRIL 2010
    Poonam Narkar
    Urban Designer-Planner
    Independent
    San Francisco, CA USA

    ...what seems to be lacking is a comprehensive approach to urban planning. What also seems to be lacking is the commitment to high quality work and attention to detail in the execution of infrastructure and construction projects...

    .
    Poonam Narkar
    Urban Designer-Planner
    Independent
    San Francisco, CA USA

    It is true that India has a lot of catching up to do and some efforts are being taken towards that. But what seems to be lacking is a comprehensive approach to urban planning. What also seems to be lacking is the commitment to high quality work and attention to detail in the execution of infrastructure and construction projects, at least from what is seen in Mumbai. To make Indian cities world-class, it is going to be very crucial that the bar is raised way high and mediocrity not be accepted. There is no dearth of talented, creative, and smart people in the country, but the system is faulty. Good governance is the key to positive change and it’s time that the government makes some systemic changes.

    .
  • 26 APRIL 2010
    Prem Chetwani
    Analyst
    Northern Trust
    Bangalore India

    There is a huge blockage seen, when it comes to money flow in India. Efforts need to be done at grass-root level by enhancing microfinance activities and streamlining the flow...

    .
    Prem Chetwani
    Analyst
    Northern Trust
    Bangalore India

    There is a huge blockage seen, when it comes to money flow in India. Efforts need to be done at grass-root level by enhancing microfinance activities and streamlining the flow so that it can boost both operating and capital expenditure in India.

    .
  • 25 APRIL 2010
    Anurag Mishra
    Student
    IMT-G
    Delhi India

    ...This focus on the urban sector is more of a leadership issue than a policy-making one. India has always had a good administrative brain but the problem lies with the willingness and modus operandi of political parties.

    .
    Anurag Mishra
    Student
    IMT-G
    Delhi India

    Well raised points about the urban India. The development of urban India together with the succeeding rural India development is certainly indicating the potential of India as a world growth accelerator. This focus on the urban sector is more of a leadership issue than a policy-making one. India has always had a good administrative brain but the problem lies with the willingness and modus operandi of political parties.

    .
  • 25 APRIL 2010
    Avik Chattopadhyay
    CEO - India Operations
    Saffron Brand Consultants
    Mumbai, India

    ...India has to look at itself as whole—not just the head or the hands... the torso and the feet. The feet will carry India into tomorrow....

    .
    Avik Chattopadhyay
    CEO - India Operations
    Saffron Brand Consultants
    Mumbai, India

    India lives outside its 64 cities. India has to be built outside the 64 cities. India needs small and medium industries and employment outside the 64 cities. India needs roads, water, electricity, education, and healthcare outside the 64 cities. India has to look at itself as whole—not just the head or the hands... the torso and the feet. The feet will carry India into tomorrow. I do not believe in the froth of the cities as defining India. India is too mature and solid a civilization and entity to fall into that typical trap. India is defined by her towns, villages, panchayats, And the 64 cities too.

    .
  • 25 APRIL 2010
    Sanjeev Himachali
    HR Professional
    www.sanjeevhimachali.com
    India

    ...At first glance, this report appeared to be very scary and intimidating, but after reading it a second time, it looks challenging and achievable....

    .
    Sanjeev Himachali
    HR Professional
    www.sanjeevhimachali.com
    India

    I have always believed that the type of socio-economic growth that India has witnessed in the last 60 years—particularly after the introduction of economic reforms in 1991—has been exemplary and does qualify the country to be in a league of developed nations. But only if the population of the country would have been in the range of 650-750 million people. All efforts and development plans are appearing miniature for growing population. At first glance, this report appeared to be very scary and intimidating, but after reading it a second time, it looks challenging and achievable. It is a challenge that needs to be converted into an opportunity for the prosperity of the nation and its people. There are few more things that India needs to ensure to achieve and sustain the required growth. They are:

    1) Political stability for the next twenty years.
    2) Ability to visualize the challenge and prepare a road map to achieve the same by the government of India and its political leaders. And,
    3) Peace in the region. Any war with neighboring countries or instability within the country due to regionalism or self-interests of political leaders will deter the growth plan.

    .
  • 24 APRIL 2010
    Nikhil Deo
    Manager
    Bekaert
    Pune, India

    ...Actually, India should improve its rural infrastructure and support to farmers so that this exploding pressure on urban infrastructure is eased away....

    .
    Nikhil Deo
    Manager
    Bekaert
    Pune, India

    The important question is, should India follow the same model as other developed countries having entirely different economies—and ultimately end up with the same problems? Actually, India should improve its rural infrastructure and support to farmers so that this exploding pressure on urban infrastructure is eased away. That is the only way India remains away from the problems developed countries are facing today. Still, the point made in the article that, India should put greater resources for urban development is true beyond doubt. And it’s not only investment, but vision for future, long-term planning, and most importantly, and most frequently what India lags: effective implementation of the plan.

    .
  • 23 APRIL 2010
    Sarabjeet Singh
    CEO
    Let Me Know
    Mumbai India

    I hate to disagree with you, Rakesh, but I think we are decades-far away from public being involved in any kind of private-public partnership....

    .
    Sarabjeet Singh
    CEO
    Let Me Know
    Mumbai India

    I hate to disagree with you, Rakesh, but I think we are decades-far away from public being involved in any kind of private-public partnership. Though the new theories say that public, being a critical stakeholder, should have equal participation in all decisions relating to public policy and community development, we are far from reality. Where are the forums? Moreover, do people believe in the public systems? Organizations like Janagraha are talking about citizen advocacy and intervention and they have had some progress in Bangalore but it will take several decades before we achieve those goals.

    .
  • 23 APRIL 2010
    Kalika Bansal
    Asst. Professor
    Amity Global Business School
    Ahmedabad, India

    ...Indian planners have always followed a gradualistic and cautious approach and that has paid in terms of avoidance of any kind of major crisis....

    .
    Kalika Bansal
    Asst. Professor
    Amity Global Business School
    Ahmedabad, India

    The authors have raised very valid points. Looking at the current international environment where developed countries have started recognising the fact that developing countries like China and India would be the engine of world growth, Indian policy makers have to be very, very aggressive. In order to sustain the growth momentum, the Indian government has to meet the challenges due to growing urbanisation and hence the resultant investment requirements. Apart from attracting higher foreign investment, this process itself will lead to higher growth because of the multiplier effect. Indian planners have always followed a gradualistic and cautious approach and that has paid in terms of avoidance of any kind of major crisis. India has to further augment her strengths by honing the skills of its professionals and has to overcome her weakness by strengthening the infrastructure base and the governance practices.

    .
  • 23 APRIL 2010
    Pradeep Deo
    Director
    Midas Suzamaan Consultants
    bhopal, Madhya pradesh, India

    Even if the cities will grow, it will grow in population and not in productivity, unless these youths who are migrating from rural to urban have an oppprtunity for skill development...

    .
    Pradeep Deo
    Director
    Midas Suzamaan Consultants
    bhopal, Madhya pradesh, India

    Even if the cities will grow, they will grow in population and not in productivity, unless the youths who are migrating from rural to urban have an oppprtunity for skill development. Skill development institutes need to be set up in rural areas (and not in urban locations), so that when youth migrate to urban areas they will be gainfully employed and thus the country’s productivity will increase. Otherwise, as rightly said in the report, “India’s cities will fall further into decay and gridlock, and today’s growth trajectory could even be called into question.”

    .
  • 23 APRIL 2010
    Sarabjeet Singh
    Let Me Know
    Mumbai, India

    The comparison of India with other growing and established economies clearly shows the lack of any government efforts in urban infrastructure development....

    .
    Sarabjeet Singh
    Let Me Know
    Mumbai, India

    The comparison of India with other growing and established economies clearly shows the lack of any government efforts in urban infrastructure development. The major cities across India are getting worse everyday with the increasing traffic, pollution, irregular supply of water and electricity, and lack of good transport facilities. The private sector is doing some of its part but serious government intervention and policy changes are needed immediately.

    .
  • 23 APRIL 2010
    Ekta Relan
    Global Brand Manager
    Unilever
    Mumbai, India

    The modernisation and infrastructure development in urban cities of India is inevitable and is happening. The important point here is the pace....

    .
    Ekta Relan
    Global Brand Manager
    Unilever
    Mumbai, India

    The modernisation and infrastructure development in urban cities of India is inevitable and is happening. The important point here is the pace. The growth explosion of India depends on how fast can this happen given that it is already a decade late. The need for this should have been predicted and planned. It just reflects poor urban planning. Thus, now, it all depends on whether this can now be turned around soon enough to still participate in the ongoing growth momentum and positivity towards the BRIC markets or India may lag behind in the BRIC race.

    .
  • 23 APRIL 2010
    Rakesh Chopra
    Member of Board
    Indian Railway
    New Delhi, India

    Nothing is truer. A small awakening no doubt is seen to be gaining a momentum in the form of metros, roads, and railway expansion....

    .
    Rakesh Chopra
    Member of Board
    Indian Railway
    New Delhi, India

    Nothing is truer. A small awakening no doubt is seen to be gaining a momentum in the form of metros, roads, and railway expansion. Thus a vision is becoming clearer, though the sooner it is the better it will be. This will in turn force the policy changes to roll out. Considering that India is a Democracy well accepted and established, people’s consent in the change is necessary, which means changes in the the style and culture, too. The last economic meltdown has shown, though, that the middle class vortex is churning in India towards this.

    .
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