Creating central towns with urban facilities for 100 or so villages in each tehsil will prevent wastage of national resources on ‘model villages’ and ‘smart cities’
The Narendra Modi government has launched an ambitious programme for both rural and urban development. In his budget speech, Finance Minister Arun Jaitley said, “The Prime Minister has a vision of developing ‘one hundred smart cities’ as satellite towns of larger cities by modernising the existing mid-sized cities. To provide the necessary focus to this critical activity, I have provided a sum of [Rs.] 7,060 crore in the current fiscal.” For rural areas, Mr. Modi in his Independence Day speech urged each Member of Parliament to make one village of his or her constituency a ‘model village’ by 2016. After 2016, two more villages should be selected and after 2019, at least five model villages must be established by each MP in his/her area.
These are wise programmes, but if they are launched without due diligence, they may end up in enormous wastage of national resources. Here are some thoughts on how these programmes can be made effective.
An urban India
It should be clearly understood that it is an iron law of economics (without a single exception) that as countries get richer, the share of agriculture in GDP, employment and land use declines over time. If India aims at achieving affluence over the coming decades, it must be prepared for massive urbanisation. Our statistical analysis shows that in an affluent India, by 2050, more than 80 per cent of the population will be in cities. Rural population will decline from about 833 million in 2011 to about 260 million in 2050, while in urban areas, the population will increase from 377 million in 2011 to about 1,200 million in 2050. Thus, India in the future will live in towns and cities and not in villages. The choice before India is whether it will let urbanisation proceed in an unplanned manner as it has been doing until now or plan in advance and create smart towns and cities.
For rural development, one often hears of providing urban facilities to rural areas. The word “Rurban” is often bandied about. However, it should be understood that modern urban areas require many complex facilities which cannot be made available in a very small scale. In India, with 6 lakh villages, the average population of a village is only about 1,000. It is generally difficult even to provide basic facilities for health and education in rural areas as teachers and doctors are simply not willing to live in these villages without adequate facilities for their families. Creating model villages is thus going to be difficult. As villagers get educated and leave for towns, the so-called model villages may become half-deserted.
Model village clusters
One possible solution is to build model village clusters similar to what was done in Chitrakoot in Madhya Pradesh. In this approach, for 100 or so villages in each tehsil, a central town with a population of about 50,000 will be created with urban facilities. This town will accommodate teachers, doctors, agricultural extension workers, agro-industries, etc. These will be created on the lines of Special Economic Zones — with their own modern rules on land, labour, transport, education, health, etc. The town will be managed by rural communities that it will be serving along with representatives of the urban community in the new town. The town’s infrastructure will be developed along the principles of sound urban development before the inflow of residents begins.
Where will the funding for urban development come from? As has been the case in China, it will come from the capital gains due to land conversion accruing to the new urban authorities rather than landowners. The landowners will be compensated handsomely. Compensation will be two-three times the value of their land through a combination of lump sum payment and annuities and with guaranteed employment for all stakeholders. The value of land will be determined not by the so-called market value — which is difficult to determine partly because of paucity of land transactions and partly because of the black money in many of these transactions — but by the present value of income stream generated from the land concerned. Assuming a rate of time discount of 5 per cent per year and increase in land productivity of 2.5 per cent per year becomes a robust method for determining the value of land for compensation. When the land is converted to urban usage with horizontal growth allowing buildings of 10-15 floors, its value will increase by 15-20 times. Assuming that half of the land acquired will be auctioned to the private developers at market prices, the town authorities will earn handsome capital gains which should be sufficient to develop the necessary infrastructure with all modern amenities. The town thus developed will serve the cluster of villages and provide jobs for many migrants from the villages.
Thus the Prime Minister should urge parliamentarians to develop such model village clusters, one every year, so that in 10 years’ time, the entire country can be covered.
Self-financing of smart cities
The same principle can apply to the development of smart cities. These cities will be “smart” not only in terms of Information and Communications Technology but also in the design of urban physical and social infrastructure and modern policy regime on business climate and governance. These cities would, for example, allow FDI in retail which will not displace any shopkeepers but become a magnet for new inhabitants.
The economic base of these cities will be hubs for knowledge production and knowledge marketing. Starting with 100 such smart cities in the next five years, some 800 such cities may be built over the next 40 years covering all the district towns. The principle of land conversion and auctions for part of the land acquired will be the same as in the village clusters mentioned above. The infrastructure development of these smart cities will thus be largely self-financed through capital gains from land conversion and they would emerge as model cities which will accommodate nearly 400 million new urbanites between now and 2050. Thus, both the ideas of rural development and of urban development are basically sound but they need some forward planning to be effective.
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