and that requires millions of skilled people. yet finding even a crane operator is oftentimes a challenge. even as demand for skills increases, the supply side response is lagging far behind. india churns out 350, 000 engineers every year, but barely a quarter of them are employable. we have 7000 itis, but their curriculums are woefully outdated. 24. there is an incentive issue in skill training. skill development is a quintessentially merit good where the societal cost benefit calculus is higher than the individual cost - benefit calculation. the private sector will be reluctant to invest in skills since workers can migrate with their skills. this was the understanding that prompted the government to launch the ambitious national skill development programme as a ppp initiative to train 500 million people by 2022. several states are also allowing vocational training institutions to be set up as ppp initiatives as well as not - for - profit societies. 25. to conclude, we need to focus a lot more on improving productivity across a broad range of areas in order to raise the growth rate as well as the quality of growth. fourth challenge : managing urbanization 26. historically, there has been a strong correlation between urbanization and economic growth across countries and across time with the causation possibly running both ways. empirical studies show that middle income countries reach about 50 per cent urbanization and high income countries typically have 70 – 80 per cent urbanization. china ’ s rapid growth bis central bankers ’ speeches over the last two decades, for example, ran concurrently with an increase in urbanization rate from 32 per cent in 1997 to 50 per cent in 2010 consistent with its low middle income status. in india, we are behind on urbanization. in the twenty years since the start of reforms, the proportion of urban population increased from 26 per cent in 1991 to just about 31 per cent in 2011. 27. accelerating growth, therefore, presents two tasks from the urbanization perspective. first, the rate of urbanization has to pick up pace so as to move people up the productivity ladder, and second, we have to manage the pressures of urbanization proactively. 28. the costs of unplanned urbanization are already very visible in terms of the huge strains on infrastructure and sanitation, pressure on utilities and inadequate and low quality social service provision. our cities are clearly unprepared for the influx of migrants on the scale that it is occurring and the result is slums and squat

##ter settlements. unplanned urbanization has also entailed other problems ranging from crime, law and order, pollution, congestion and environmental degradation. 29. expanding urban infrastructure demands huge resources. isher judge ahluwalia and others have estimated that investment requirements for urban infrastructure over the twenty year period 2012 – 2031 would be about 40 trillion which translates to an annual average investment of about $ 100 per capita. mobilizing resources of this order is obviously a big challenge and will call for more effective taxation, efficient project planning and implementation, innovative urban governance and much greater sensitivity to embracing the migrants into the urban ecology. fifth challenge : bridging the infrastructure deficit 30. it is widely acknowledged that infrastructure deficit is by far one of the most binding constraints to accelerating growth. even so, our efforts to bridge the deficit have fallen way short of the task. the eleventh five year plan projected investment in infrastructure of $ 500 billion but the final expenditure is likely to fall well short of that. the twelfth plan doubles the projected investment over the five year period 2012 – 17 to $ 1 trillion which means that annual investment in infrastructure has to increase from the current level of 6 per cent of gdp to over 10 per cent. 31. given its fiscal compulsions, the government will clearly not be able to mobilize resources of this order. the twelfth plan projections call for 50 per cent of the projected investment to come from the private sector and much of the project implementation to happen in the ppp mode. 32. infrastructure investment, therefore, poses three sub - challenges : mobilizing the necessary resources, reforming regulations and contractual arrangements and efficient project planning and execution. 33. let me make a comment here on the reserve bank ’ s efforts to support infrastructure financing. infrastructure requires long - term finance, and it should ideally be funded by long term sources like insurance and pension funds. since these markets in india are still not deep enough, the burden of financing infrastructure is falling on banks. banks cannot expand lending for infrastructure beyond a point because of exposure risks. in financing infrastructure, banks also face an asset - liability mismatch problem since their liabilities are largely short - term whereas infrastructure funding is typically long - term. 34. in order to support infrastructure financing by banks, the reserve bank has relaxed regulatory norms to the extent prudential limits would permit. these include higher exposure norms in respect of single borrowers and borrower groups, permitting banks to invest in infrastructure debt funds ( idfs