Expectations are high that India will finally realise its full economic potential through a combination of Modi magic, its abundant young labour force and a more liberal policy regime. A recent adjustment in the country’s accounting has led to claims that it may already have replaced China as the world’s fastest growing economy. Yet, if India is to achieve the same sustained success as China, it needs to take a hard look at why its urbanisation process has failed so miserably in comparison.

Four decades ago, these two most populous and poor countries faced similar economic prospects. With the bulk of their labour force stuck in subsistence farming and a relative scarcity of natural resources, the success or failure of their development efforts would be defined by their urbanisation process. In 1980, India was further ahead than China with an urbanisation ratio of 25 per cent ratio compared with the latter’s 20 per cent. Today, China has more than doubled its ratio to 53 per cent, while India’s has edged up only slightly to 32 per cent — and even at that level is marked by more pervasive pockets of slums. Some believe that China may have even reached saturation point.

China’s rapid industrialisation-driven urbanisation process led to a sustained double-digit surge in real wages, which uplifted some 600m rural people out of poverty and accounted for half the country’s 10 per cent annual gross domestic product growth rates from 1980-2010. In contrast, despite its impressive service-sector development, India has not managed to develop a vibrant manufacturing sector and most of its labour force is still mired in low-productivity rural activities.