The Indian Economy Blog

May 14, 2007

Pune Deci

Filed under: Business — Atanu Dey @ 8:52 am

“Pune DeCi” is a designer city started in 2010 and completed by 2016. Just 30 kilometers outside the old city of Pune, about 100 square kilometers of land was acquired. The government of Maharashtra, the state where Pune is located, was a partner in the “Pune DeCi Development Authority” and had a stake of 20 percent in the project for which it supplied all the land which was basically non-prime land. Long term bonds raised the approximately $1 billion initial investment required for the first improvements.

The anchor tenants were Bharat Forge and Tata Motors. Assured that they will be able to draw their workers from the one-million strong new “Pune DeCi” population, they agreed to build their new modern high-capacity factories at the outskirts of the proposed city. These anchor firms were expanding their output since they anticipated that the economy would grow rapidly as new cities were being built. To build these across India, the demand for trucks and the derived demand for forgings would be high, they estimated. That pattern of increased demand for manufactured goods kept pace with the capacity building of manufacturing facilities around the new designer cities.

With the growth of the cities, demand for labor went up. The labor for construction of Pune DeCi came primarily from the agricultural sector which had become highly productive and therefore released labor in non-agricultural sectors such as services and manufacturing. The building of the city thus provided employment and the wage goods required for the labor came from the high productivity farms around. Thus even though the economy of the region was growing at a very fast rate, there was no inflation.

People started living in the new well-designed apartments in high rises located in well-planned neighborhoods littered with parks and other amenities. Pune DeCi grew rapidly as all sorts of service providers moved in, from schools to shopping arcades to banks to bakeries. Manufacturing kept pace with increased demand and thus provided sufficient incomes to the workers who were able to purchase the products of the manufacturing units. The demand for services went up. Thus demand for education provided employment to teachers, who used their incomes to buy housing and food, which provided employment to the construction industries and farmers, and so on.

It is a long story. The title of the story was “Urbanization Demand Led Economic Growth.” Another way to look at it is to consider it the equivalent of a “Marshall Plan” which the US put together at the end of the Second World War for the reconstruction of Western Europe. By aiding in the reconstruction, the US helped build capacity in Europe. But as a side-effect, it provided employment to Americans within America to supply the goods that Europe needed. And when Europe regained its feet, it was a ready market for American goods and services, and became its biggest trading partner.

India needs a Marshall Plan where the urban part helps construct cities for the rural part. In the next bit, I will explore what needs to be done for creating one.

[This is part seven of a ten-part series. The previous part was Land Development.]

11 Comments »

  1. [...] May 12, 2007 « Alan Blinder on Off-shoring Pune Deci » [...]

    Pingback by The Indian Economy Blog » Land Development — May 14, 2007 @ 9:03 am

  2. is this mungerilal?
    get back to real work, chump.

    Comment by andiron — May 14, 2007 @ 6:55 pm

  3. i agree with andiron. these recent daydreams are embarrassing for the site.

    Comment by j. yin — May 15, 2007 @ 6:48 am

  4. Atanu: Marshall Plan was more than urbanisation-led; its primary advantage was that it was a reconstruction effort, not a development effort in an area with ‘legacy’. Much of Europe was not only destroyed physically. there were also inadequate food. Some countries in Europe, those with colonies, could have afforded their own revival but others could not. That the US created jobs in its own country while helping the reconstruction effort is probably not debatable, but the Marshall Plan was a time-limited offering. In some ways, without that time limit, who is to say it would not have become like the relationship between Indian Cotton – Lancashire Cotton Mills – Indian buyers-at-high-prices kind of circle of ‘virtue’?

    I expect you will address things in your later posts.

    PS: I couldn’t help but laugh at the Mungerilal reference! You have to agree it is funny, although hard to imagine how dreaming of construction projects may be classed as ‘haseen sapne’.

    Comment by Shefaly — May 16, 2007 @ 1:56 pm

  5. Atanu, most of what you are proposing has to be policy driven – ie by babus. If, after laying the basic infrastructure, the city is allowed to develop on it’s own, the city will surely end up as another slum, just like a typical city in the country.

    There are few models cities around the globe for what you are proposing – Las Vegas, Chicago and most major cities are in fact bad models to study from and to emulate. Smaller cities in Europe and US – Portland, Oregon, and, a much smaller, Glendale (outside Phoenix) comes to mind – compact cities (enables public transportation) with controlled growth with lot of greenery and open spaces. These cities have very controlled growth but are also expensive to live in because of upfront building costs and continued high taxes.

    Most of the real estate companies, local or otherwise, are driven by same economics that produce inefficient buildings and neighbourhoods. I am not sure our babus are up the challenge.

    Comment by Chandra — May 17, 2007 @ 12:10 am

  6. Chandra, i believe what the author speaks will never be achieved by our dear govt. It will happen only if the private sector takes it up. If we trust our govt to do something, it will end up looking like our airports.

    Dont be disheartened by all these politicking. The same happened in aviation, airports, telecom, insurance etc. Look at the dynamism in each of those industries today. Something similar will happen to our urban areas too. Relax and watch the fun.

    The next 5-10 years will be the most exciting in India’s history.

    Cheers

    Comment by Full2njoy — May 17, 2007 @ 5:46 am

  7. Right on the mark, Full2njoy — cheers. :)

    Comment by Brown Sahib — May 17, 2007 @ 7:42 am

  8. Full2njoy, personally iam not too “excited” about what’s coming to India in next 5 to 10 years. In fact, iam watching the events shaking my head. What we are doing is simply copying the western development model of building automobile driven, throw away societies.

    Would you see Tata’s Rs 1 lakh car as a positive for India ? I don’t. Why do we want to waste so much of hard earned foreign currency (through exporting IT services), in importing oil ? India has 1.2 billion people with land 1/3 of US. DO we want to choke our cities with cars ? Do we want to lay asphalt roads on our precious lands ? We should be building a purely public transport driven society. I would immediately have a tiered pricing for petrol. Rs 200 per litre for private 4 wheelers. Rs 50 for others. How about that ?

    Aviation: Why do we need extreme energy guzzling aviation sector ? Why waste money on buying expensive boeings and expensive fuel ? We can make our train system world class (It already is for the most part given the size of the network). Are our people so busy that they can’t afford an overnight journey in trains ? I don’t think so. It’s not worth the sheer energy/money waste. For any emergencies, you can have a very small aviation sector, but not “Air deccan” style mass-aviation. I don’t see that as a positive.

    The throw away culture is just beginning to enter India. Plastic trash everywhere. Disposable everything. Positive ? you might argue it’s “free market” that’s driving this. It’s free as long as you assign externality of pollution a zero cost.

    The wiser side of american crowd are lamenting the extreme car / aviation driven transport / consumption culture that has locked American economy into massive energy consumption. Why are we repeating exactly the same mistakes ?

    Comment by Madhav — May 17, 2007 @ 11:13 am

  9. By the way, iam all for competitive markets and private property rights. But, we need to let the market forces operate within broader policy choices. For example, discourage private automobile ownership through high petrol prices for private 4-wheelers, but encourage market forces to compete within the public transportation sector. Let Tata’s come in to our cities and run the city transport, and let the government buses compete with it. Let Tata’s use their capital to create “Tata Transportation services”, How cool would that be ?

    Comment by Madhav — May 17, 2007 @ 11:31 am

  10. [...] [This has been parts eight and nine of a ten-part series. The previous part was Pune DeCi.] [...]

    Pingback by The Indian Economy Blog » The Future Past — May 19, 2007 @ 11:30 am

  11. As someone living in Pune, I’m amused to read this fanstasy about a dream city being completed in 6 years; it has taken more than 3 years to build 3 flyovers on a single road (the university road). The deadlines for the project’s completion just kept getting extended, and the latest one is June 30 2007. Of course, no one will be surprised if its extended again.

    Comment by JD — June 20, 2007 @ 11:49 am

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