India’s high-stakes urban challenge 02-26

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.

APRIL 2010 • Richard Dobbs, Shirish Sankhe, and Ireena Vittal

Source: McKinsey Global Institute

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.

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