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Top 20 cities hold keys to urban growth

8 Aug, 2008, 1326 hrs IST,Shailesh Dobhal, ET Bureau

NEW DELHI: Twenty top boom cities in

India are projected to have their
household income grow at 10% annually
over the next 8 years, and they already
account for 60% of the surplus income
(income minus expenditure) generated at
present.

Even as businesses search for promising

new markets among thousands of
booming small towns that dot the country, they should pause and reassess the
potential of India’s top 20 cities, according to a new study “The Next Urban
Frontier: Twenty Cities To Watch”, co-authored by National Council of Applied
Economic Research’s (NCAER) Rajesh Shukla and Future Capital Research’s
Roopa Purushothaman. The two had also authored the BRIC report.

These 20 cities are divided in three groups: ‘Megacities’ (8 largest cities in terms
of population and overall consumer markets) like Mumbai and Delhi,
‘Boomtowns’ (next set of 7 big population cities with high expenditure per
household) like Surat and Coimbatore and ‘Niche Cities’ (5 cities with relatively
smaller population but above national-average household spend) like Faridabad
and Jalandhar, these cities account for just a tenth of the country’s population,
but generate around 60% of India’s surplus income and around a third (31%) of
disposable income. These 20 cities accounted for just under $100-billion of
consumption expenditure in 2007-08.

Annual household income growth in these 20 cities averaged at 11.2% in the

last three years (2005-08). These cities will maintain double-digit growth
(10.1%) till 2016, the current global economic slowdown notwithstanding. In
comparison, annual household income for rest of India (other than these 20
cities) will grow at a much lower rate of 7.9% between 2008 to 2016.

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Infact, in cities like Mumbai, Delhi, Chandigarh and Surat, where average
annual household income crossed the Rs 4 lakh mark in 2007-08, per capita
income is already roughly equivalent to China’s per capita income in 2007.

By 2016, share of middle class households (defined as those having annual

income between $6,000 and $30,000) in these 20 cities will move from the
current (2007-08) 39% to more than half (55%) and high-income ones (above
$30,000) will triple in the same period (to 13%). More importantly, share of low-
income households (below $3,000) could halve to just 7% by 2016 compared to
16% today.
Such gigantic shift in household demographics will have a huge impact on
demand of everything from daily staples, consumer appliances, gadgets,
apparel, two-wheelers to cars. According to the study, spending gets a 52%
boost as households move into the middle class segment, with durable demand
going up a whopping 84%.

With rapid urbanisation in India, around 45% of India’s population will be urban
by 2050, up from 30% at present, Indian’s cities will add 379-million people in
the next 40 years, more than the entire US population currently.

Within these 20 cities, annual household income varies widely, Chandigarh’s

highest at Rs 4.85 lakh to Kanpur’s just under Rs 1.60 lakh. Income distribution,
over a period of time, too has changed dramatically in certain cities.

Surat, for instance, has seen the number of its middle class households almost
double between 2004-05 and 2007-08. When annual household income (AHI)
was adjusted to city’s cost of living, Surat emerged as country’s most
prosperous city, with adjusted AHI of Rs 4.58 lakh and Chandigarh moves to
number two slot (adjusted AHI of Rs 4.23 lakh).

On absolute consumption expenditure, Mumbai emerged as the country’s

biggest consumer market with Rs 86,140 crore spend in 2007-08 by consumers
on host of products and services, everything from food & beverages,
transportation, housing & utilities, healthcare, apparel, education & recreation,
communication to household & personal products.

Delhi (Rs 66,620-crore), Kolkata (Rs 54,940-crore), Bangalore (Rs 26,160-

crore), Chennai (Rs 26,030-crore), Hyderabad (Rs 21,340-crore), Surat (Rs
17,570-crore), Pune (Rs 13,710-crore), Ahmedabad (Rs 12,370-crore) and
Jaipur (Rs 9,210-crore) make up the top ten on the basis of consumer spends in
2007-08.

“Preparing for changes in urban demand will be a key challenge for both
policymaking and corporate strategy. On the policy front, we need to place
urban development, particularly infrastructure, squarely alongside rural
priorities, recognising in part that both are interdependent. On the corporate
front, we need to challenge the approach to a uniform ‘urban’ India.
‘Boomtowns’ and ‘Niche Cities’ today may be much smaller in terms of their
income and spending weights, but they are growing rapidly. Many of the cities
that have registered the fastest economic growth, along with the highest asset
and financial penetration, over the past five years have been within the
boomtowns and niche cities, not the typical megacities,” states the report.
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