Day: February 13, 2022

India needs new cities for it to urbanize at a rapid rate. These new cities have to be deliberately created. They would be “mega Indian new cities” or MINCs.  Since the government has no understanding of this matter, it has to be an entrepreneur’s job. The idea has to be fully defined and the plan for implementation created.

Vision: Create 20 new cities across India, each with a (final) capacity of 10 million residents. They will account for 200 million people in 20 years. Begin the project in 2025 and complete it by 2045. Land for a fully-developed city will need to be allocated at the start but brought into development over the 20-year life of city construction. On average, each city will grow by half a million every year, for a total of 10 million at completion. Each city will be high-density by design. Around 1,000 sqkm in land area, population density will be 10,000 per sqkm. (Mumbai population density is 20,000 per sqkm.)

The current Indian cities have grown randomly over the last century and are a total mess. Urban planning has advanced a lot over the last half a century or so. People’s knowledge of how cities should be planned has grown, and there have been tremendous advances in construction technologies. Today’s urban designers will design cities that are as different from the cities their counterparts did 100 years ago as today’s airplane designers differ from their counterparts of a century ago.

The new designed cities will be more efficient and more beautiful than current cities. Cities are engines of growth. The new cities will be more efficient, cleaner, greener “engines” — they will use less fuel, run cleaner and require very little maintenance.

Parks and recreation areas will be designed into each neighborhood; transportation links set in place (some below ground), underground utilities (water, waste disposal, etc.) will be done before the above ground facilities — in short, the infrastructure will be future-proof.

The new cities will catalyze economic growth. Construction of residential and commercial buildings, factories, transportation facilities like subways and airports — all of which will require labor and machines.

If the average annual per capita income of the residents of new cities is $5k more than that of residents of old cities, then each 1 million people in a new city will add $5 billion per year to the GDP. At full capacity, the additional annual aggregate income of 200 million will be (200m x 5k) $1 trillion. Note that the $1 trillion is over and above what it would have otherwise been.

Is $5k per capita average additional income per year reasonable? Yes, because people in urban areas are more productive in general, and because people in the presently dysfunctional cities are unable to produce as much as they are capable of. People living in modern cities across the world are highly productive and there is every reason to believe that Indians can also reach a higher level of productivity than they currently do in poorly constructed cities.

The land needed for new cities is currently held by the public — but of course controlled by the central and various state governments. If they were to grant the land for green-field urban development, the cities would generate the wealth that would be needed to pay for the development. See “Land Value Capture”[1] below.

Suitable financial instruments can be created for monetizing the increase in the value of the land as the cities grow to their full size. This value can be distributed to the people annually, after paying off part of the cost of the development. This will be the foundation for Dhan Vapasi.

Proposal

This is a coordination problem. An entrepreneur has to produce this. The primary function of an entrepreneur is to see an opportunity that others have overlooked. He has to aggregate the under-utilized resources and create the product that has a higher value than the value of the uncombined inputs. The factor owners — land, capital — are paid their dues from value created.

Here are a few steps:

• Create an institution for “21st Century Modern Indian Cities.
• Hire the best brains in the world to come up with a blueprint for the whole project. Time: about six months
• Present the blueprint to the central and state governments.
• Get large institutions as partners.
• Start building the cities.

This is a combination of super-sized RISC and Dhan Vapasi.  Just getting a big idea off the ground w0uld be worth doing. Paul Romer has done a lot of thinking about this. And of course there are fabulous urban planners. And people who know how to finance mega projects.

The problem is that India lacks entrepreneurs who have grand vision and the courage to make things happen. Someone who is able to do this will make a huge difference to the world.

NOTES:

[1] See Value Capture and the Property Tax. Also, Martim Smolka on YouTube – Value capture as a land based tool to finance urban development.