How Digitalization is Driving Growth Hubs in India

The past is often used to keep non-western cultures and civilizations in a vice-like grip and it comes in useful for imposing limits on visions for the future. - Ziauddin Sardar

In the my previous article, we saw how economic flows drive city development in India. Here, we explore how digital technology is re-balancing city arrangements in growth hubs.

Historically, a market system did not emerge in India as it did in the West. The British, as part of their colonial enterprise, focused on developing vertical trade. They expanded the production of a few specialized primary commodities for export and invested in mines, plantations, and tea gardens, as well as the transport infrastructure to move goods to port cities. They also created facilities for payments that facilitated the reverse flow of goods from port cities to local areas. This is called vertical trade.

In contrast, horizontal trade involves selling industrial or city goods to rural markets and buying provisions from rural areas for the urban middle class. The British did not focus on developing horizontal trade in India; any growth in horizontal trade was a by-product of vertical trade. As a result, an economic system emerged with a dynamic vertical trade and a static horizontal trade.

The imbalance between vertical and horizontal trade had two main effects. First, it led to a highly skewed ratio between cities and villages. For instance, Johnson (in the 1950s) found that, on average, there were 468 villages for every town in India. If India’s urban settlement hierarchy had been balanced like that of the United States, India would have had 47,000 towns, but instead, it had fewer than 2,000.

Second, the spatial pattern of Indian cities and villages evolved differently. India’s system took on a dendritic form, where major port cities acted as the head of the dendrite, and strategic cities and local marketplaces formed the tail. In the West, however, settlements arranged themselves in a symmetrical honeycomb (hexagonal) pattern because a hexagon is the most efficient way to distribute habitations. This arrangement fostered strong economic links between settlements, and both private and public investments led to better development outcomes.

A well-ordered habitation pattern emerges when trade between vertical and horizontal value chains is balanced among settlements at different levels - global, national, district, city, and village. To address the imbalance in settlement patterns, the conventional approach is to identify gaps in the hierarchy and focus on developing high-potential intermediate settlements. The National Commission on Urbanization (NCU) proposed this strategy in 1988.

The NCU pointed out that markets in cities were isolated with weak linkages to their hinterlands. To fill the gaps in the urban network, the NCU recommended the development of certain cities. It identified 329 cities, called Generators of Economic Momentum (GEMs), and 49 Spatial Priority Urban Regions (SPURs) for redevelopment. Developing these GEMs and SPURs would create an ordered network of marketplaces.

Digital technology has opened new possibilities for addressing gaps in urban networks without waiting for the development of intermediate towns. E-commerce digital platforms connect consumers directly with producers or intermediaries, bypassing physical marketplaces. E-commerce delivers goods and some services to consumers’ doorsteps, eliminating the need to visit physical outlets.

The lack of continuity from villages to metropolitan cities no longer matters. Countries no longer need to go through the slow and expensive process of developing missing settlements. In practical terms, a virtual network of markets substitutes for the missing brick-and-mortar stores. Thus, digital technology is one of the key drivers of re-balancing the skewed arrangement of cities and villages in India, particularly in areas surrounding cities, which are becoming growth hubs.

The adverse colonial legacy is finally being shed, and city arrangements are being reshaped for India’s benefit.