In India, a cautionary tale of private-sector urbanization

Lavasa, India

As you pass the last of the dusty, forlorn hamlets and begin the steep climb along hairpin curves carved into the newly reforested hillsides, then over the crest and down toward the town of pastel-colored buildings arrayed along the lake below, you might think you are in Italy, not India.

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Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.

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( / Courtesy of Lavasa ) - Work on Lavasa, India’s first planned hill city, has been shut down over political charges of environmental harm.

In fact, you are entering one of this country’s biggest and boldest development projects, the first of five new urban villages to be nestled among 23,000 acres of hill country between sprawling Mumbai and the booming industrial and high-tech city of Pune. When construction is completed more than a decade from now, 300,000 people are expected to live and work and study here, with an additional 2 million visiting each year.

The master plan, created by HOK of St. Louis, calls for 60,000 homes, rental apartments and retirement bungalows, half a dozen hotels, a glitzy convention center, a hospital, schools and colleges, recreational attractions, offices, shops and enclosed malls, all tied together by networks of roads, water and sewer lines, public transit and high-speed broadband connections. The total cost is expected to exceed $10 billion, virtually all of it private investment.

If India is going to continue to climb up the economic ladder, expanding old cities, and creating new ones like this, is crucial. Every country that has achieved middle-income status has done so by moving large numbers of people away from low-productivity farming and into urbanized areas where they can earn the higher incomes that come with specialization, trade and economies of scale.

A recent study by McKinsey & Co. found that India’s urban areas will have to absorb 250 million new residents during the next 20 years. That’s the equivalent of relocating 83 percent of the entire U.S. population. Only China has experienced urbanization of this scale and speed.

While China’s authoritarian system of governance has been well-suited for forcing and managing such a transformation, India’s might be the worst. City governments have limited power, no independent taxing authority, poorly trained public officials and absolutely no tradition of urban planning. Even minute land-use decisions are made by huge state governments whose political fortunes are tied to placating rural rather than urban voters.

As a result, basic urban infrastructure and services have failed to keep up with the influx of villagers migrating to cities. In the biggest cities, the majority of the population lives in overcrowded slums that squat next to gleaming new office towers and apartments. Even seemingly modern new edge cities, such as Guragaon outside of Delhi, have sprung up overnight without municipal sewer and water systems, let alone a rationale street plan.

Perhaps the biggest obstacle to further urbanization, however, is the challenge of assembling large parcels of land for development. Indian land records are a mess. And laws make it difficult, if not impossible, to buy agricultural land for any other use. A political backlash developed in the wake of stories of villagers conned into selling out at below-market prices by unscrupulous land aggregators. Everyone knows it’s better to hold out for tomorrow’s higher prices, driving land values in major Indian cities to some of the highest in the world.