India’s shift from farm to non-farm employment is being held back by poor urban planning and weak city leadership. For example, in Bangalore, the average taxi now moves at just 7 km/h—no faster than walking speed. Yet, the myth of a land shortage persists. If India had Singapore’s population density, the entire population could fit into Kerala.
India’s real estate market is flawed, with a 5% difference between rental yields and bank loan rates—something that’s unheard of in most countries. Meanwhile, 25 crore Indian farmers produce less food than 25 lakh American farmers proving that simply keeping people on farms won’t ensure food security. These issues all connect to labour markets, and it’s time we become cognizant of the fact that the necessary farm-to-non-farm transition needs to be built on the foundation of good urbanization delivered by strong and effective city governance.
India’s overpopulation in farming
With 250 million farmers, India’s agricultural workforce is significantly larger than needed. Although farmers constitute 50% of the labour force, they only contribute 12% of the GDP. The real issue is productivity, not just in farming but across the economy. Wages will only rise sustainably when India crosses the Lewisian turning point, named after economist Arthur Lewis, who argued that wages rise when the farm-to-non-farm employment transition reaches critical mass. Countries like China have already crossed this point.
Migration and Urbanization: The solution to rural poverty
While political discourse often aims to take jobs to people, creating employment in 200,000 villages—where fewer than 200 people live—poses significant challenges. Instead, the focus should be on moving people to where the jobs are. The migration of millions into cities like Delhi, Mumbai, and Bangalore was inevitable and poor urban planning has led to a situation where the cities are splitting at the seams and are degenerating into a state of urban squalor.
Over the past 15 years, 1.6 million people have been employed through migration from small towns to larger cities, but this is becoming harder as cities become more and more unaffordable resulting from an imbalance in supply and demand of the limited infrastructure. While urbanization is essential for boosting productivity, mispriced land, inadequate public transport, and poor connectivity are preventing cities from becoming hubs for displaced farmers seeking better wages. India needs to create hundreds of new cities and generate large-scale employment to accommodate the needs and skills of its burgeoning youth demographic. The creation of new urban centres will provide people with opportunities to move out of farm jobs to gravitate towards jobs that enhance productivity and offer a higher wage premium.
Why Indian cities suffer
Indian cities face three primary challenges. First, state governments are reluctant to give smaller cities the resources they need because they depend heavily on urban economies (e.g., Bangalore accounts for 60% of Karnataka’s GDP). Second, cities lack the ability to generate their own revenue, such as through property taxes. Lastly, the city leadership is unelected. Development authorities and municipal bodies are often controlled and managed by bureaucrats and while local politicians may win elections they lack the authority to make meaningful changes.
While some argue that bureaucratic control protects cities from short-sighted political decisions, the only sustainable solution in a democracy is to establish elected, empowered mayors. It took 70 years to decentralize power from Delhi to state governments, but the devolution of power from states to cities should happen faster. However, this requires state politicians to sacrifice their self-interest—a difficult task for any politician. The key decisions in the coming decade will involve civil service reform and the creation of accountable city leadership.
The missed opportunity in India’s constitution
India’s farm-to-non-farm transition is being delayed by bad urbanization, which stems from the constitutional oversight that left city governance underdeveloped. If the Constituent Assembly were given the chance to review their design today, they would likely modify it to support the urbanization required to meet their goals for education and employment. It’s time for India to make the necessary changes and address this policy orphan, unlocking the potential of good urbanization to create millions of high-wage jobs for its farmers and youth.
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