<font color="#ff0000">Special: </font> Defining 'small towns'

The story of emerging city markets is a story of suburbs and satellite towns of big cities

Small towns are not clearly defined in India. We have heard of very large towns described as small towns. In the Indian context, it appears that everything outside the top eight cities is a small town. For marketers, it is not the population but the income distribution and the size of the market (purchasing power) which matters and here again, there are about 10-15 urban clusters that tower above the rest.

When we look at hard data, we find that although there are over 2,000 towns in India, there are about 112 urban clusters, which account for 60 per cent of the urban population of India. These clusters account for more than 70 per cent of the city markets by size. We have estimated the total urban household income to be Rs 18.8 trillion (source: Market Skyline of India, 2008-09). The top clusters account for 71 per cent of the urban income.

Stars and wannabes

<font color="#ff0000">Special: </font> Defining 'small towns'

It is also interesting to note that the East is a laggard in terms of significant city markets, whereas the West (Maharashtra and Gujarat) is the clear leader. The top 10 clusters, namely the alpha cities, are the largest markets and will continue to be so for some time. The next 20 (beta cities) are the ones that are catching up and some of them will emerge as large, attractive markets. Many of them are actually virtual satellite cities of the alpha cities (see table and diagram).

Large markets such as Mumbai, Delhi, Chennai and Kolkata continue to be attractive. Their sheer sizes ensure that even at lower percentage growth, the absolute growth remains very high.

The star clusters for marketers are the high growth (large size) clusters, which consist of Surat, urban Thane (includes Navi Mumbai), Bengaluru, Ahmedabad, Pune, urban North 24 Parganas and Hyderabad.

Cities such as Jamshedpur and Salem have been industrial centres for decades, but seemed to be content giving precedence to newer centres that have grown. Some, such as Indore, have been threatening to make it big for many years, but never quite managed it. Others, such as Kanpur, have somehow lost their way.

The emerging stars are Thiruvallur (Chennai's satellite), Vadodara, Noida, Faridabad, Gurgaon and Chandigarh. These are already established and have attained critical sizes. They continue to grow at a fast pace. With the exception of Vadodara, all the others benefit from the formation of large agglomerations.

Thiruvallur and Kanchipuram are satellites of Chennai; Gurgaon, Noida and Faridabad are part of the NCR; and Chandigarh is part of a cluster comprising Mohali and Panchkula. These are the next Coimbatores and Surats and this is where one can expect significant action and fight for market shares.

Many of these cities were, in the past, specialising in a few sectors and industries; but with growing population and large-scale immigration, they are steadily growing in the range of activities that are undertaken within and in their vicinities.

The bulk of these cities have substandard public infrastructure (since serious urban investment in the past has been limited to state capitals); however, that is changing rapidly as demand is pulling in investments.

These cities are currently much smaller than the top metros but many have per capita incomes that are higher than those in the top metros. Most of them also have sustained double-digit growth. It is only a matter of time before they become important metros in their own right.

The story of the emerging stars is largely a story of the suburbs or satellites of the top Indian cities.

These cities fulfil an important need that the larger city was unable to offer. In the initial phase, they may have been uni-dimensional, but over time, they have gained a distinct character and momentum of their own. The lack of office space in New Delhi, the lack of new residential areas in Kolkata and Chennai and expensive real estate in Mumbai have contributed to the growth of Salt Lake, Gurgaon, Thiruvallur and Navi Mumbai.

Now, all of them are much more than just real estate alternatives to larger neighbours. They are outstripping their bigger brothers in growth and in certain specific market segments, they are already bigger.

The impediments

Why are certain cities falling away after achieving momentum? Clearly, infrastructure, or the lack of it, is the culprit. Pure enterprise, without the backing of planning and infrastructure, can achieve only so much.

Indeed, the growth in India has so far been purely enterprise-led and planning has little to do with it.

Rising incomes are associated with urbanisation and India has been lagging behind on this count. The pace of urbanisation has actually slowed in the country. During 1971-81, the annual average rate of urbanisation was 3.8 per cent, but declined to 3.1 per cent between 1981 and 1991; and to 2.7 per cent between 1991 and 2001.

Urbanisation is only about 30 per cent in India. In contrast, last year, China's urban population crossed 600 million (46 per cent of its population). Moreover, the people living in cities comprised just 20 per cent of the total. According to China's 'Blue Book of Cities', the country has 116 metropolises, with nearly a million people in each. India has just 62.

Indian cities are characterised by some of the worst infrastructure and public services in the world. This is natural, given that we typically spend insignificant amounts to upgrade and maintain urban India.

It also leads to the ridiculous situation of people travelling daily from villages to cities to work. They are forced to do so because the cities do not provide housing and necessary infrastructure to live and work.

India needs its large cities, but even more than big cities, it needs a well spread out network of cities that will enable the rural-urban transition of workforce more effectively.

The writer is president, Indicus Analytics.

Have news to share? Write to us atnewsteam@afaqs.com