Livable Cities Are the Key to India’s Growth

India’s 2026 economic survey highlights the pivotal role of cities in driving economic growth and raising living standards, a priority now reflected in the government’s fiscal policy. To transform urbanisation into an engine of prosperity, the recently announced national budget introduces the government’s City Economic Regions program, allocating 50 billion rupees ($525 million) to strengthen urban infrastructure and support development in each selected city.

By concentrating talent, capital, and enterprise, cities fuel innovation, productivity, and growth. South Korea and China are striking examples: during its industrialisation from the early 1960s to the 1990s, the share of South Korea’s urban population soared from roughly 27% to nearly 80%. China’s urbanisation rate increased from roughly 20% in 1980 to about 50% by 2010.

In India, however, the virtuous cycle of urbanisation and prosperity appears to be breaking down. Between 1971 and 2000, the urban share of the population rose from 20% to 28%, and cities’ share of national income increased from 38% to 52%. While urbanisation has continued to rise since then, reaching 35% in 2024, the urban economy’s share of net domestic product has plateaued around 53% (though the last official estimate dates to 2012). This suggests that urban per-capita income growth has lagged behind that of rural areas.

Indian cities’ struggle to generate stronger productivity gains can be traced to the poor and deteriorating quality of urban services and conditions. Bengaluru, for example, is the world’s second-most congested city, while Loni, Byrnihat, and Delhi rank among its most polluted.

In response to growing urban dysfunction, Indian policymakers have long recognised three key priorities: more funding, effective local governance, and greater planning transparency. Yet implementation has been limited because the political system remains unprepared for the reforms these goals require. Given how central cities are to India’s economic future, this lack of follow-through is no longer tenable.

Several practical reforms are needed. The first is to increase the financial resources available to cities. Municipal revenues in India amount to less than 1% of GDP, far below those in developing countries like Brazil and South Africa. These shortfalls inevitably undermine the quality of urban services.

Funding increases may be challenging, but spending efficiency is also essential. Sanitation is a case in point: evidence from several Indian cities shows that higher spending alone does not necessarily translate into better outcomes. The Municipal Corporation of Greater Mumbai, for example, spends nearly three times the recommended per capita benchmark on solid-waste management. Despite this, its Swachh Survekshan report cards show Mumbai scoring as low as 30–50% on some indicators such as waste segregation and public sanitation, while neighboring cities such as Navi Mumbai and Pune have achieved near-perfect scores on the same measures.

Governance reforms are equally important. Municipalities are currently led by frequently transferred commissioners and politically weak mayors. India’s 73rd and 74th Constitutional Amendments were meant to empower local governments by giving them greater control over public services, finances, and decision-making. But more than three decades later, that promise remains largely unfulfilled, because strengthening municipal authorities implies weakening state-level control, leaving state governments with little incentive to cede power. But progress is still possible, even within these constraints.

One such step is ensuring greater administrative stability. The average tenure of Indian municipal commissioners, who oversee cities’ day-to-day functioning, is just ten months. Such rapid turnover undermines policy continuity and makes it harder to implement long-term infrastructure projects or pursue institutional reforms. Extending commissioners’ time in office would go a long way toward improving urban governance.

The structure of city administration matters, too. Noida, for example, is administered by the New Okhla Industrial Development Authority, which operates under the Uttar Pradesh state government and oversees land use, infrastructure, and urban services. Neighboring cities like Gurugram, by contrast, are often held back by fragmented governance and poor infrastructure coordination. The results speak for themselves: Noida ranked 14th in India’s Swachh Survekshan 2023 cleanliness survey, while Gurugram placed 140th, despite facing similar urban pressures.

Urban planning is another area in urgent need of reform. Much of India’s infrastructure development has been characterised by urban sprawl—unplanned, low-density expansion that creates vast inefficiencies and weighs on productivity, especially in large cities.

There are notable exceptions. Despite having an estimated population of more than nine million, Ahmedabad has some of the lowest congestion levels among large Indian cities and remains relatively affordable, with a price-to-income ratio of around 8, about one-fourth of Mumbai’s.

Gujarat, for its part, uses land pooling—implemented through town-planning schemes—to prevent the kind of disorganised sprawl seen in states that rely heavily on private developers. By reorganising fragmented landholdings into serviced urban areas, Gujarat has facilitated more orderly and efficient urban expansion.

The lesson for policymakers is clear: the quality of urban life can be markedly improved through practical, feasible reforms focused on spending efficiency and administrative stability. Such measures would enable cities to assume their rightful role as the engines of India’s development. In pursuing urban reform, we should not let the perfect become the enemy of the good.

Shishir Gupta is a senior fellow at the Centre for Social and Economic Progress in New Delhi. Utkarsh Patel is a fellow at the Centre for Social and Economic Progress in New Delhi. Rishita Sachdeva is an associate fellow at the Centre for Social and Economic Progress in New Delhi.

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