MEDS 042: Block-1 (Unit 02) – Urban Industrialisation

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 UNIT 2: URBAN INDUSTRIALISATION

2.1 Introduction

Urban industrialisation refers to the concentration and expansion of industrial activity within urban areas, playing a transformative role in economic growth, employment generation, urban form, and infrastructure development. It is both a cause and consequence of urbanisation, where cities evolve as centres of production, innovation, and consumption. In developing countries, the dynamics of industrialisation are closely linked with national development strategies, trade liberalisation, and global investment flows.

2.2 Industrialization and Growth

Concept of Industrialization

Industrialization is the process of developing industries in a country or region on a wide scale. It involves a structural shift from agriculture-based to manufacturing- and service-based economies.

Link with Urban Growth

  • Urban Expansion: Industrial zones attract rural-to-urban migration, expanding city boundaries.
  • Infrastructure Development: Industries drive investment in roads, power, housing, and services.
  • Economic Multipliers: The industrial sector generates backward and forward linkages with other sectors like construction, services, and trade.

Benefits

  • Increased productivity and income levels
  • Export promotion and foreign exchange earnings
  • Diversification of economic base

Challenges

  • Environmental degradation
  • Urban congestion
  • Inequality and informal employment

2.3 Phases of Industrial Development

Industrialisation is not linear; it evolves through various historical and policy-driven phases.

a. Pre-Independence (Colonial Phase)

  • Concentration of industries around port cities (e.g., Mumbai, Kolkata).
  • Resource-based industries like jute, cotton, and steel.

b. Post-Independence (1947–1980s)

  • Focus on import substitution and public sector enterprises (Five-Year Plans).
  • Development of industrial estates and core sector industries.

c. Economic Liberalisation (1991 Onwards)

  • Deregulation and privatisation
  • Entry of MNCs and expansion of the service sector
  • Rise of Special Economic Zones (SEZs) and export-oriented industries

d. Contemporary Trends

  • Growth of IT and high-tech industries
  • Smart manufacturing (Industry 4.0)
  • Increased emphasis on sustainability and green industry

2.4 Perspectives on Size Structure of Firms

Firm size has implications for employment, innovation, efficiency, and regional development.

Micro, Small, and Medium Enterprises (MSMEs)

  • Dominant in terms of number and employment share
  • High flexibility but limited capital and scalability

Large-Scale Industries

  • Capital intensive and technologically advanced
  • High economies of scale, but less employment-intensive

Determinants of Firm Size

  • Market access and competition
  • Technology and capital availability
  • Policy incentives and taxation
  • Labour regulations

Urban-Rural Disparity

Large firms prefer urban agglomerations, while small firms often operate in peri-urban or informal sectors due to cost advantages.

2.5 Agglomeration and Industrial Clusters

Agglomeration

The spatial concentration of industries in urban areas due to shared infrastructure, markets, and labour pools. It results in cost savings and knowledge spillovers.

Types of Agglomeration:

  • Urban Agglomeration: Large metropolitan areas with diverse economic functions
  • Industrial Agglomeration: Concentration of manufacturing units in specific areas

Industrial Clusters

A group of interconnected firms, suppliers, and associated institutions in a specific field, often geographically concentrated.

Examples in India:

  • Tirupur (textiles), Ludhiana (bicycles), Pune (automobiles), Bengaluru (IT)

Benefits

  • Innovation and technology transfer
  • Specialised labour markets
  • Shared services and reduced transaction costs

Policy Support

  • Cluster Development Programs (e.g., MSE-CDP by Ministry of MSME)
  • Infrastructure investment and skill development initiatives

2.6 Foreign Direct Investment Flows

Definition

FDI refers to cross-border investments by companies or individuals to establish business operations or acquire assets in another country.

Role in Urban Industrialization

  • Brings capital, technology, and global business practices
  • Encourages competition and innovation
  • Boosts infrastructure and urban employment

FDI Trends in India

  • Liberalised sectors: manufacturing, electronics, automobiles, logistics
  • SEZs and industrial corridors (e.g., Delhi–Mumbai Industrial Corridor)
  • Urban hubs: Delhi NCR, Mumbai, Bengaluru, Hyderabad

Challenges

  • Regulatory hurdles and land acquisition issues
  • Uneven regional distribution
  • Environmental and labour concerns

2.7 Industry and Employment

Employment Generation

Industry is a major source of both direct and indirect employment. While large industries may be capital intensive, MSMEs remain labour intensive and vital for inclusive growth.

Types of Employment

  • Formal Employment: Job security, contracts, social benefits
  • Informal Employment: Casual, unregulated work with low wages

Urban Labour Market Dynamics

  • Migration from rural areas fuels urban labour supply
  • Skills mismatch and underemployment in urban industries
  • Women and youth face unequal access to industrial jobs

Government Interventions

  • Skill India Mission
  • Production Linked Incentive (PLI) schemes
  • Labour law reforms to balance protection and flexibility

2.8 Let Us Sum Up

Urban industrialisation is a dynamic process shaping the economic geography of cities. It accelerates growth, generates employment, and fosters innovation. However, it also brings environmental and social challenges. Understanding the phases of industrial development, size and structure of firms, FDI patterns, and employment dynamics is essential for designing inclusive and sustainable industrial policies. Spatial clustering and policy support for MSMEs and industrial infrastructure will continue to play a key role in shaping India’s urban industrial future.

2.9 Keywords

  • Urban Industrialisation-The expansion and concentration of industries in urban regions.
  • Industrialisation-The process of shifting an economy from agriculture to manufacturing.
  • Economic Growth-An increase in a country's production and consumption levels over time.
  • MSMEs-Micro, Small, and Medium Enterprises that contribute to inclusive employment.
  • Agglomeration-Spatial concentration of industries for economic efficiency and synergy.
  • Industrial Cluster-A group of related businesses in a specific area benefiting from proximity.
  • Foreign Direct Investment (FDI)-Cross-border investment to establish or expand business operations.
  • SEZ (Special Economic Zone)-Designated zones offering tax and regulatory incentives for industries.
  • Formal Employment-Regulated jobs with contracts, benefits, and worker protections.
  • Informal Sector-Unregulated employment without formal contracts or social benefits.
  • Employment Multipliers-The additional jobs created indirectly due to industrial activity.
  • Labour Migration-Movement of workers from rural to urban areas in search of industrial jobs.
  • Skill Development-Training and education aimed at improving workers' employability.
  • Industrial Policy-Government strategies to promote and regulate industrial growth.
  • Industry 4.0-The current trend of automation and smart technology in manufacturing.

 

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