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Comparison: Growth of Indian and Chinese cities

April 23, 2010

If current trends hold, in 20 years China’s cities will have added 350 million people, more than the entire population of the United States today, totalling almost a billion urban dwellers. Meanwhile India’s urban population would’ve soared from 340 million in 2008 to 590 million in 2030. While China and India are the only two countries in the world to have seen such an unprecedented spurt in urban populations the growth problems the two nations face are very different.

According to a McKinsey report on India and China’s urban centers, Chinese cities seem to have developed in tandem with best-practice cities and countries around the world. In adopting a systematic, formula-based funding mechanism which directly benefits the city, China ensures that urban infrastructure and resources expand with the population growth. This unfortunately is the problem with Indian urban centers says the report which stronglyemphasises that India needs to strengthen funding, governance, planning and housing in order to drive growth.

Governance and funding seem to be the main points of difference between the way urban India and China have and will grow. According to the report, China’s central government has created a system of competition between cities to attract the maximum investment. As a result, Chinese cities go out of their way to constantly attract FDI and improve facilities. China also allows 25 percent of its VAT to be retained directly by the city. Additionally, all Chinese cities use monetization of land and create special purpose vehicles for debt very effectively.

In contrast, India still needs to formulate a systematic method of funding cities. The report estimates that India needs to invest US$1.2 trillion just in capital expenditure in its cities over the next 20 years. This is equivalent to US$134 per capita per year, almost eight times the level of spending today. In order to raise funds for urban development McKinsey suggests five sources – monetized land assets, higher property taxes, user charges that reflect costs, debt and public-private partnerships, and formula-based government funding.

Mckinsey also suggests that governance is another important aspect Indian cities yet need to piece together for sustainable development. To resolve governance issues, the report suggests the creation of  empowered city administrations both at the metropolitan level as well as the city level, with directly elected political leaders at both levels. These people will be solely responsible for the functioning of the city and will be urged to manage the city like they would a company, where social and economic growth is balanced and the generation of profits is vital.

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