May 12, 2019The Intersectioneconomicspublic policy

Relocating state capitals will boost growth and employment

The Union government can create fiscal and other incentives to encourage state governments to shift their capitals to brown- or green-field locations.

Mint This is from The Intersection column that appears every other Monday in Mint.

Soon after quick counts showed that Indonesian President Joko Jokowi” Widodo had won his second term, he announced that his government will move the country’s capital out of Jakarta. A few locations on the island of Kalimantan (formerly Borneo) are being considered, as they are centrally located in this vast archipelagic country that stretches over 5,000km east to west, and 1,720km north to south.

The government estimates it will take 10 years to accomplish and will cost $33 billion; environmentalists are horrified of the damage building a new city in the rainforests would cause, but President Jokowi is convinced that for Indonesia to advance it should have an administrative centre that is separated from economic, business, trading and services centre”.

Jakarta’s city centre was planned to support a population of 500,000. Today, over 10 million people live in the city, and another 20 million in the sprawling outskirts. Economic losses from its horrible traffic alone are estimated at $7 billion a year, while the city is sinking a few inches every year due to rampant groundwater extraction. While Indonesia has been planning to move its capital out of Jakarta from the days of Soekarno for political reasons, Jokowi’s decision recognizes facts on the, well, fast sinking ground.

Other than the geological bit, Jakarta’s situation is similar to that of India’s big cities. They are over-polluted, over-priced, gridlocked, ugly, running short of water and have long exceeded the ability of municipalities to govern them. Instead of relieving the sheer demographic pressure on them, India’s response is to pour concrete, steel, funds, trucks, buses, cars and, now, smart sensors into them.

To be sure, greater investment in public infrastructure and services is necessary, but that merely nibbles at the problem. We need lots of new cities, but independent India has built only a handful.

Narendra Modi’s 2014 agenda correctly identified building 100 new smart cities as a solution to this problem, but when it came to delivery, this revolutionary proposal turned into a disappointing, incremental programme to upgrade the infrastructure of existing cities under the Smart Cities initiative. The task of building new cities—some brownfield and some greenfield—remains unattempted. Similarly, once the dust clears on the jobs crisis in India, we will find that we need to create 20 million jobs every year for a decade or more. No amount of tweaking with existing policies—from labour laws, to skill development, to Mahatma Gandhi National Rural Employment Guarantee Act and basic income—will get us there.

One good way to create millions of new jobs, especially ones that can absorb the surplus labour in rural areas, is to build new cities. But how? Unless there is an economic basis for their existence, few people and businesses will want to move there. That’s where Jokowi’s decision makes sense—moving the political and administrative centre to a new location will provide the new city’s economy with a strong starting point. It’s not just the ministers, civil servants and government employees who will move. An entire economic cluster will move. If Indonesia goes through with Jokowi’s plans, it would follow Malaysia and Myanmar in shifting to purpose-built capitals. However, unlike Putrajaya, which is too close to Kuala Lumpur and Naypyidaw, and whose remoteness is intentional, Indonesia plans to create a well-connected urban centre hundreds of miles away from Jakarta.

India should do the same with our state capitals. The Union government can create fiscal and other incentives to encourage state governments to shift their capitals to brown- or green-field locations. Mumbai, Bengaluru, Hyderabad, Chennai, Jaipur or Lucknow, for instance, will continue to thrive even if the state government offices move out. Their respective states will benefit from a new urban engine powered by government.

Of the 50 states in the US, 32 have their capitals in a city different from the biggest one. New York and Los Angeles might be the biggest cities in New York state and California, but the state capitals are located in Albany and Sacramento. Many of those decisions might have been made on the basis of geographic equity, but they also spread out the economic centres and avoid overcrowding.

It is fashionable to criticize purpose-built capitals like Washington DC, Canberra and Putrajaya as being boring and sterile. However, that is merely an expression of preference—those who prefer to live in more exciting places have elsewhere to go. The policy objective of building new state capitals is to create millions of new jobs and economic hubs, and decongest old cities. To the extent that people in power have to live in these new cities, it is likely that they will be better designed and better managed than existing ones. If we can get 20 states to move their capitals, we would begin to address our economic challenge.

There are many more The Intersection columns here

Shifting capitals has a bad reputation in India thanks to one Muhammad bin Tughlaq. That 14th century sultan who sought to move his capital from Delhi to a more central Daulatabad was criticized for being far ahead of his times. Seven centuries later, the idea is overdue, at least in our states. Let’s not forget that the National Capital Region, one of the country’s major economic hubs, owes its existence perhaps inadvertently and, in part, to a British viceroy’s decision to move the colonial capital from Kolkata to a brownfield site that became New Delhi.

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