Friday, 20 August, 2010

While packaging is hot in India the urban infrastructure is not

In the last six months we have been basking in the heat exuded by the continuous investment by India’s packaging industry entrepreneurs. The building of large purpose built plants outside the cities and the purchase of not only brand new high capacity machinery but also of high level quality and inspection systems which were and are still considered by some to be luxuries. In other words, the new expansion projects have gone beyond immediate necessity and have entered the realm of what is desirable to compete globally.

My second observation is that when one travels to these new plants in various parts of the country and often through the rubble of new highways, overpasses and metros under construction, it is clear that the urban infrastructure is far behind.

A recent study by David Caploe, the chief political economist at www.economywatch.com highlights both the potential gold mine that is urbanisation in China and India and the underinvestment by India in its cities. Caploe estimates that urban households in India could increase seven-fold to 89 million by 2025 and the markets to benefit most would most likely be transportation and communications, food and health care, followed by housing and utilities, recreation, and education.

Caploe also says, “India has underinvested in its cities; China has invested ahead of demand, and given its cities the freedom to raise substantial investment resources by monetizing land assets and retaining a 25% of share of value added taxes. While India spends US$ 17 per capita on capital investments in urban infrastructure annually, China spends US$ 116. India has devolved little real power and accountability to its cities, but China’s major cities enjoy the same status as provinces and have powerful political appointees as mayors. While India’s urban planning system has failed to address the competing demands for space, China has a mature urban-planning regime — emphasising the systematic development of run-down areas — consistent with long-range plans for land-use, housing and transportation. The starkest contrast between the two countries is that China has embraced and shaped urbanisation, while India is still waking up to its urban reality and the opportunities.”

Of course much of rural India would argue that there is no investment in the rural infrastructure and that the cities already have a much larger and disproportionate share. We thus enter the realm of politics. And although one does not have to buy Caploe’s thesis one has to answer it with some serious investigation of the facts — and a plan. Plans that are both visionary and detailed, let alone with some element of time frames.

Naresh Khanna

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