“Pune DeCi” is a designer city started in 2010 and completed by 2016. Just 30 kilometers outside the old city of Pune, about 100 square kilometers of land was acquired. The government of Maharashtra, the state where Pune is located, was a partner in the “Pune DeCi Development Authority” and had a stake of 20 percent in the project for which it supplied all the land which was basically non-prime land. Long term bonds raised the approximately $1 billion initial investment required for the first improvements.
The anchor tenants were Bharat Forge and Tata Motors. Assured that they will be able to draw their workers from the one-million strong new “Pune DeCi” population, they agreed to build their new modern high-capacity factories at the outskirts of the proposed city. These anchor firms were expanding their output since they anticipated that the economy would grow rapidly as new cities were being built. To build these across India, the demand for trucks and the derived demand for forgings would be high, they estimated. That pattern of increased demand for manufactured goods kept pace with the capacity building of manufacturing facilities around the new designer cities.
With the growth of the cities, demand for labor went up. The labor for construction of Pune DeCi came primarily from the agricultural sector which had become highly productive and therefore released labor in non-agricultural sectors such as services and manufacturing. The building of the city thus provided employment and the wage goods required for the labor came from the high productivity farms around. Thus even though the economy of the region was growing at a very fast rate, there was no inflation.
People started living in the new well-designed apartments in high rises located in well-planned neighborhoods littered with parks and other amenities. Pune DeCi grew rapidly as all sorts of service providers moved in, from schools to shopping arcades to banks to bakeries. Manufacturing kept pace with increased demand and thus provided sufficient incomes to the workers who were able to purchase the products of the manufacturing units. The demand for services went up. Thus demand for education provided employment to teachers, who used their incomes to buy housing and food, which provided employment to the construction industries and farmers, and so on.
It is a long story. The title of the story was “Urbanization Demand Led Economic Growth.” Another way to look at it is to consider it the equivalent of a “Marshall Plan” which the US put together at the end of the Second World War for the reconstruction of Western Europe. By aiding in the reconstruction, the US helped build capacity in Europe. But as a side-effect, it provided employment to Americans within America to supply the goods that Europe needed. And when Europe regained its feet, it was a ready market for American goods and services, and became its biggest trading partner.
India needs a Marshall Plan where the urban part helps construct cities for the rural part. In the next bit, I will explore what needs to be done for creating one.
[This is part seven of a ten-part series. The previous part was Land Development.]