I was invited to attend a meeting at the Ministry of Rural Development at the Krishi Bhavan in New Delhi on the 7th of July. (Here is a note which I wrote while waiting in the lobby.)

The meeting was chaired by Renuka Vishwanathan, Secretary, Mininstry of Rural Development. Largely the meeting was attended by secretaries from various state governments such as Chattisgarh and Orrisa. There were a couple of people from President Kalam’s office; Dr PV Indiresan, the architect of PURA; Dr PS Rana, Chairman and MD of HUDCO (Housing and Urban Development Corporation); a couple of people from the Council of Indian Industries (CII); and a few others.

The meeting began with an extended introduction by Ms Vishwanathan. She was interested in figuring out the cost of PURA and how she could justify that cost. She stressed that there are various governmental bureaucracies with their existing funding which are already working on all the various components of rural development. What is it that PURA proposes to do which is not being already done?

As the meeting progressed, I realized that what PURA was going to do was to add another complex bureaucratic organization to the already massive one. If bureaucracy was what helped development, India should have been the most developed economy in the history of the universe. If upliftment of villages was what is needed for rural development, surely the rural population would be thriving considering that for decades, village upliftment has been at the core of all public policy.

When after the introductory remarks Ms Vishwanathan requested my opinion, I made my usual point. I asked them to consider the question: Is rural development about the development of villages or is it about the development of the rural population? There is a distinction which we neglect with sad consequences.

A “developed village” is one which does not lack water, electricity, housing, sanitation, telecommunications, good road/rail connectivity, employment opportunities in agricultural and non-agricultural activities, schools, entertainment, medical and health care facilities, well-developed functioning markets, recreation facilities, government services, and a few other things.

To make a village “developed” you need, among other things, money. If money were no object, you can have a developed village in short order. And if you had sufficient money, it would be pretty easy to develop India’s 600,000 villages. Let’s remember that India has more than half a million villages with an average population of 1000 people. Each village can be developed (as defined above) at a conservative cost of Rs 100 crores (or about US$22 million). The per capita cost of developing a village is a modest Rs 10 laks (or US$ 22,000). For 600,000 villages to be developed, you need only about Rs 600,00,000 crores (or US$ 13,200,000,000,000, or $13.2 trillion).

India’s annual GDP is around $600 billion. So $13.2 trillion is about 20 years’ worth of India’s production would have to be fully invested in India’s villages for the villages to be developed. The resources required to do village level development at a modest Rs 100 crores per village is of the order of the annual gross national product of the US.

A bit of arithmetic is all it takes for us to realize that the idea of developing 600,000 villages is nonsense. (Those who refuse to do arithmetic are doomed to speak nonsense.)

Sure, one can quibble with the figures: use Rs 10 crores instead of Rs 100 crores per village. You still end up with US$ 1,300 billion as the cost of making the rural population developed through “village-level” development. When you are talking about trillions of dollars, we just don’t have it.

Why is village-level development so expensive? I call it the “too many, too little” problem. Villages are unable to take advantage of certain economies because they are too many of them and they are too little. They thus cannot gain from agglomeration economies, and economies of scale and scope.

Cities exist because of the density of aggregation is high and this reduces the cost of providing services and infrastructure and the cost of engaging in any economic activity (transaction costs). The presence of lower cost services and infrastruture in cities is made possible by economies of scale and scope. The availability of low cost infrastructure and services coupled with lowered transaction costs makes the population more productive. That is why economic development is both a cause and consequence of urbanization (the dense aggregation of people in cities): you cannot have one without the other.

For India to be developed, India has to be an urban economy. By that I mean, the majority of India’s population — say, 80 percent — has to be in cities and towns, instead of the current only 30 percent. In other words, if you were to look at a developed India somewhere in the future, you would see that India does not have 600,000 small villages any more. Aggregations of 1,000 people (which is what an average Indian village is) is just not consistent with a developed economy. What 600,000 tiny villages is consistent with is dire poverty and which is what we have.

If 600,000 villages is not what we will eventually have (if ever the 70 percent of the Indian population have to move out of poverty), then there is little point in doing village-level development. It makes no sense to behave as if forever rural India will continue to be 600,000 villages. And that is precisely what the government in its myopia is doing. It is attempting to take very very limited resources (orders of magnitude smaller than the required trillions of dollars) and spread it on the “development” of 600,000 villages.

The point I attempted to make at the meeting was that we should be focusing on the development of the rural population and NOT the development of villages. As long as one insists on keeping the rural population in tiny villages, one is dooming them to poverty.

The fatal flaw of PURA is that its object of interest is the village. My model — RISC — avoids developing villages like the plague.

Now back to the meeting. It is possible that resources will be allocated, another layer of bureaucracy will be added, more meetings and reports generated, and the same old cycle of useless spending undertaken. Or maybe the whole exercise will get entangled in bureaucratic red-tape and nothing much will happen and only a little bit of resources wasted.

In the meanwhile, I have hope that other people, working on their own initiative and with a vision of what the future can be, will take India forward. One such person is the chairman of HUDCO, Dr PS Rana. I met with him briefly the next day and I will write about it the next time.