Cheap urban rents will bring India the full benefit of labor mobility, which isn’t constrained by Chinese-style hukou, or city registration requirements. Yet the rapid urbanisation that turned East Asia into an exporting powerhouse and created a foundation for mass consumption has eluded the country. Young men migrate to cities for economic reasons, and return to their villages in old age. Apart from cultural factors, availability and cost of housing is the main reason why women and children stay behind, making urbanisation in India both slow and rather “masculine,” as economist Chinmay Tumbe, who has studied migration trends since the 1870s, has put it.

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While the gender ratio of large cities is no longer as skewed as it was in the early 20th century — 500 to 600 women for 1,000 men — it’s still a lopsided 868 in Delhi. For Surat, a major diamond-cutting and textile center on India’s western coast, the ratio is even more unbalanced at 756. Surat is still an exception in that it has a lot of manufacturing. A peculiar facet of rural-urban migration in India, according to Tumbe, is that most of the workers end up in service-industry jobs.

Creaky infrastructure, infuriating red tape, occasionally overvalued currency and lack of meaningful free-trade arrangements have held back the share of manufacturing in the economy to 16% — a modest rise from 5% in 1901. Back then, British colonialists had kept India under-industrialised so they could sell their wares in a market that produced little of its own. Now, it’s a small urban elite — whose own ancestors left villages a long time ago — that’s keeping new migrants employed as chauffeurs, housemaids, condominium security and ATM guards.

The economy is geared to satisfy the top 150 million earners, as Rathin Roy, until recently the director at the New Delhi-based National Institute of Public Finance and Policy, has argued. This depresses the wages that would be generated by becoming good at making what the next 300 million want. In the absence of broad-based income growth, consumers boosted spending by borrowing. When they eventually started to deleverage last year, India faced an acute demand funk, even for 7-cent munchies.

Since then, Covid-19 hasn’t been the only wake-up call. Rapidly deteriorating U.S.-China relations portend sweeping changes in global supply chains, but even in its own neighbourhood, India isn’t competitive in manufacturing. A once-in-a-generation opportunity could slip out of its grasp.

At a furniture store in Ho Chi Minh City some years ago, I saw colourful satin-upholstered sofas whose sides were drab black polyester. This, I was told, was because the sides would take dirt from motorbike tires and must be easy to clean: A Vietnamese family would park the two-wheeler, its most precious possession, next to the living-room furniture to keep it safe at night. Societies that value and make things that workers themselves use lift living standards and labour productivity. No wonder Vietnam, now a hub for Samsung Electronics Co., is winning investments from Inventec Corp., Apple Inc.’s main assembly partner for AirPods, as well as Hon Hai Precision Industry Co., better known as Foxconn.

India must also make more shoes, clothes and toys. To create a permanent urban workforce that will both produce and consume those wage goods, it should also build millions of new homes. – Bloomberg

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