The challenge of creating new urban magnets

Narendar Pani | Updated on February 21, 2019 Published on February 21, 2019

Bengaluru’s IT pull   -  SOMASHEKAR GRN

Karnataka’s move to set up industrial clusters across the State can provide employment to people leaving agriculture

Official attitudes to urbanisation sometimes give the impression that they have come a full circle. There was a time when the main purpose of urban policy was to decongest cities and concentrate on housing those who did come to urban areas.

It was only in the 1980s, after the National Commission on Urbanisation, that cities began to be seen as engines of growth. And now the Karnataka government has returned to a priority of decongesting its capital city through the setting up of industrial clusters across the State.

The case for revising the policy towards Bengaluru is a strong one. Since the turn of the century governments in Karnataka have aggressively pushed for the development of the city as a major IT hub.

This high-cost effort has substantially raised the cost of living in the city, particularly the cost of real estate. While the relatively high returns from the global IT industry may have been sufficient to outweigh these rising costs, other small-margin industries have found it difficult to survive.

Many, including several manufacturers of garments for exports, have moved elsewhere. If Bengaluru is going to focus increasingly on being an IT and biotech hub, the Karnataka government has done well to try to develop other locations in the State that can encourage those who leave Bengaluru to stay within Karnataka.

Workers leaving agriculture

The dispersal of industrial clusters will also help address what is arguably the most serious of Karnataka’s problems. Hundreds of thousands of agricultural workers in Karnataka are leaving agriculture. The rural non-farm sector in the State is not quite strong enough to absorb an increase in non-agricultural workers of this magnitude.

And Bengaluru’s ability to absorb them too is diminishing with the city concentrating on higher educated technological manpower. The new industrial clusters built around economic activities requiring workers with lower levels of education, are better placed to absorb the labour being released from agriculture.

The prospects of the industrial clusters may have improved, though, if there were greater precision with respect to their location. Workers tend to gravitate towards points where jobs are available and industries tend to gravitate to points where adequate number of workers of the required skills are available.

The centres that are most likely to grow would be those where there are already processes of agglomeration taking place. The agglomeration need not be focused on the products each industrial cluster would end up concentrating on. All that is needed is that the type of workers that the existing process of agglomeration has attracted should be what the proposed cluster needs.

It is not clear that this exercise has been carried out for all the clusters. There may even be reason to believe that the choice of location has been influenced rather more by administrative and political considerations than economic rationale. It could be argued that when the clusters are set up the workers will migrate towards it.

But workers moving also have to incur the costs of relocation which would increase their expectations of what their wages should be. And in the low-margin labour intensive industries that the clusters are focusing on, every little increase in costs would make another city more attractive. Even if Chittagong is only slightly cheaper than Hubli as a place to produce garments, it could be enough even for capital to focus on the Bangladesh city in a highly competitive global market.

The clusters could also face the risk of being overdetermined. There is an element of serendipity to the development of economic centres. Bengaluru’s garment export industry grew out of the industrial estates that had been set up for the entirely different purpose of housing ancillary units to the public sector giants in the city.

Even its IT industry emerged as a response to a communications revolution on the other side of the globe. The chances of success of the clusters may well have improved if the strategy had concentrated on setting up infrastructure, including information networks, for low cost industries, with the choice of specific industry left to investors. This may over time develop into specialised clusters, but investors’ decisions being based on what the market wants, are likely to be more resilient.

There is the larger, and not always convenient question that governments do not always answer: Why is it that some States like Tamil Nadu can develop private investment-led urbanisation at several points across the State, while other States like Karnataka find it so much more difficult to do so?

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru.

Published on February 21, 2019
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