View: What ghost cities tell us about India's economy

By Kala S Sridhar & Vishal R

The phenomenon of ‘ghost cities’ — underoccupied or unoccupied property developments — in China has been quite controversial, many pointing out that cities such as Pudong, a district of Shanghai, earlier described as a ghost city, are today bustling, ‘normal’ urban habitations. Be that as it may, China’s ghost city phenomenon has been a result of policy, over-urbanisation and unbridled loans from State-run banks to the urban development infrastructure corporations (UDICs), the special purpose vehicles (SPVs) set up for every city, with not enough residents willing to move in there.

There are a large number of ghost cities in India as well: Ross Island (Andaman & Nicobar Islands), Fatehpur Sikri (Uttar Pradesh), Dhanushkodi (Tamil Nadu), Mandu (Madhya Pradesh), old Goa and Vijayanagar (Karnataka). Causes for these ghost towns include natural calamities such as earthquakes, cyclones or epidemics, and historical reasons such as invasions or wars.

Dhanushkodi was declared unfit for living by the Madras government in 1964, following a devastating cyclone that submerged many parts of the town underneath sand dunes. The 2011 District Census Handbook of Ramanathapuram district mentions that just before the tsunami that struck the Indian Ocean in December 2004, the sea around the town receded, and parts of the submerged town were visible to some local fishermen.

The most recent ghost city to consider here is Amaravati, the capital of the newly carved Andhra Pradesh. Investors set aside huge investments, farmers sold land and bought equipment (read: earthmovers) in the hope that they would get a stake in the booming town’s success — none of which has happened, as the new government is apparently not interested in continuing, even though substantial investments have already been made.

Ghosts Don’t Lie
Policies leading to such situations arising in India have been deindustrialisation, such as the case of the shut Ideal Jawa motorcycle factory in Mysore that closed and never reopened. This could be quite similar to ‘Motown’ Detroit’s downfall in the US. The case of Ideal Jawa also points to the general decline in manufacturing in Indian cities, which have increasingly come to depend on the service industry.

November 2016’s demonetisation drive also has reportedly led to the decline of some towns such as Tiruppur in Tamil Nadu, which depended on the now liquidity-starved knitwear industry. The well-intentioned goods and services tax (GST) also added to the town’s slowdown.

While there is a lot of literature on how cities add to the macroeconomic growth and GDP of a country due to their scale and agglomeration economies, there is much less research on how they can solve problems associated with the slowing of macroeconomic growth/GDP. When there is a general business slowdown, economists talk about monetary policy cutting down interest rates, and increasing government expenditure. Because of their scale and agglomeration effects, cities should be an important driver of resurgent macroeconomic growth in countries battered by slowdown. Yet, very little is talked about cities as important drivers of growth during a slowdown.

The story of ghost cities in India should teach us some lessons on how to make cities engines of growth even during slowdowns. Indian cities have been hubs of services, primarily, following trends in the national economy. However, they have to industrialise and manufacture, to enable faster commuting, facilitate to access the internet easily, and electrify the powerless.

There were many older cities built around manufacturing — Jamshedpur, Durgapur, Bhilai, Bokaro, etc — that continue to be economically vibrant till this day. States should compete, and offer incentives for manufacturing plants to be located in their cities, and not just software firms, hospitality chains and retail outlets.

Dhanushkodi should teach us how we should employ manufacturing or artificial intelligence (AI) to power information about impending disasters, such as cyclones & earthquakes. Weather forecasting has to be further improved to prevent and mitigate urban flooding and its significant after-effects.

Be Good Cityzens
Above everything, policy certainty is needed for cities to enable them to function efficiently as effective land and labour markets. Currently, our cities are constrained with regulations in each of these factor markets. Land regulations are archaic and urban labour markets are nearly dysfunctional, which are problems essentially for manufacturing firms. Entrepreneurial skills, manifesting themselves as startups (focusing on both manufacturing and services), should be encouraged at the city level, as startups are concentrated primarily in urban areas.

One hopes that India’s ghost cities are temporary, and will be converted into economically vibrant nerve centres to support the rest of the economy. The ‘Make in India’ initiative should be actively supported at the city level by unleashing land and labour markets. With these policy initiatives, cities can serve as channels by which economic slowdown can be redressed.

(Sridhar is professor, Institute for Social and Economic Change, Bengaluru, and Vishal is former director, Directorate of Municipal Administration, Government of Karnataka)