• Research & Analysis Services I Academic I Market & Industry I Government Policy I
Future of Indian Cities: Unlocking Urban Potential by Overcoming Challenges

Future of Indian Cities: Unlocking Urban Potential by Overcoming Challenges

Delhi will become London in a year

Mumbai will become an ideal city, even Shanghai will take note of its development”.

These were the exact statements made by some of our ministers in their speeches and are often heard, but is it really possible? On the one hand cities like Shanghai are renowned as the epicenter of finance, research, science and technology, tourism, and culture, while Delhi is known for its high pollution and traffic congestion.

Union Finance Minister, Smt. Nirmala Sitharaman, during the Budget Session 2022, stated that by 2047, 50% of India’s population is expected to reside in urban areas. With the current population itself, India grapples with problems like congestion, water supply, and public transit and given the current pace of city development, handling this future boom will be challenging and can potentially lead to strain on the urban infrastructure.

So, the question is how India, with the world’s 2nd largest urban community, can be replanned to fulfill the potential of urbanization. This article will provide insight into the future of Indian cities examining the current urban demographics, the challenges faced, policy overviews, and expert recommendations for replanning of cities.

NITI Aayog’s executive summary on cities as engines of growth highlights how cities in India occupy a central position in propelling India’s economic growth. Some of the key findings of the paper are:

  • Cities in India only occupy 3 percent of the nation’s land, but their contribution to the GDP is around 60 percent.
  • Firms in a city twice as large as the other introduce 17.5% in product innovation, 9.9% in process innovation, and 21.2% in R&D.
  • NSSO’s PLFS report suggests cities have 16% higher monthly salaries.

The data indicates that agglomeration economies are significantly present in India. Agglomeration economies occur when production costs drop due to the clustering of economic activities. This clustering allows new businesses to benefit from these reduced costs without needing to join large organizations. Many cities still struggle to serve as engines of economic growth and are inefficient in handling dense populations.

In India, the factors responsible for the under-utilization of agglomeration benefits are as follows:

  • Inadequate Integration of Urban and Infrastructure Development:

Several cities fail to provide a better lifestyle to a major chunk of the urban population because of inadequate infrastructure. Whether it’s housing or basic amenities, our cities lag behind those in other countries.

One key issue is the Floor Space Index (FSI), a parameter used in urban planning to determine the permissible construction density on a plot of land. It ranges from 1 to 4 in major Indian cities, much lower than in other global cities. While this is kept low in India to manage population density, it actually hampers both population management and urban development. Some might suggest simply increasing the FSI, but this requires proper infrastructure, like roads and drainage systems, which many of our cities currently lack.

  • Inadequate governance structure:

One problem that stands out in our politics is the lack of decentralization of power. In China, over 50% of the budget is allocated to local levels, while in India, only 3% goes to local governments. One reason for India’s centralization could be the belief that the country might not survive without a strong central authority at the time of independence. However, 75 years later, it’s time to shift towards greater decentralization.

The issue of cleanliness would be best addressed at the local level. However, in our country, political power is concentrated at the state and central levels, leaving local officials with little authority.

Out of 2 crore government employees, only 20 lakh work at the local level, unlike in China and the United States, where over 50% of government employees are local. In India, most political power remains with the state and central governments, which have no accountability for city issues.

  • Logistics Infrastructure:

Whether it is Bihar’s Rs 1700 crore bridge collapse or Bengaluru Road which can be removed by hand, it does signify the condition of logistics infrastructure in India. Cities like Mumbai and Bengaluru once relied on buses as their sole public transportation, now see bus services at a 10-year low with delayed orders for new buses. Vehicle loans at low interest rates work in favor of the population, significantly increasing the sales of private vehicles, resulting in congested roads, and prove to be against SDGs.

On an average a Bengaluru commuter spends 250 hours a year in traffic.

However, time is not the only thing that is being lost, according to traffic expert M.N. Sreehari, the city faces a loss of RS. 20,000 crores annually. In addition to economic costs, traffic also affects mental health which increases stress levels.

  • Policy and regulatory constraints:

One significant law in India that exemplifies these constraints is the Urban Land (Ceiling and Regulation) Act (ULCRA), 1976. This law was intended to prevent urban land from being concentrated in the hands of a few and to ensure it was distributed more fairly. However, it often caused bureaucratic delays and limited the availability of land for development. Even though ULCRA was repealed in 1999, its effects still linger in some urban land markets.

Similarly, the Rent Control Act restricts the amount of rent that landlords can charge tenants. With this motive, the Mumbai Rent Control Act, of 1947 was passed but it resulted in poorly maintained rental properties and fewer available rental units since the landlords won’t get the market rate. As a consequence, there are now over 500,000 empty houses in the city.

But when it comes to implementing masterplans for old and new cities, the politicians in our country don’t have any incentive to do so and solve the problems of the public. To win a seat, all they need is the highest number of votes, leading them to focus on vote bank politics.

Now that we understand the current challenges that act as a hurdle for both old and new cities, we must ask: is the government addressing these issues through policy implementation?

Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) was launched on June 25, 2015, in 500 selected cities across India, covering around 60% of the urban population. The mission aims to enhance basic infrastructure and implement urban reforms, focusing on water supply, sewerage, drainage, green spaces, non-motorized transport, and capacity building in these cities.

On 1st October 2021, AMRUT 2.0 was launched, subsuming AMRUT 1.0 after 5 years. It aims to promote a circular water economy through a City Water Balance Plan (CWBP), focusing on recycling treated sewage. The mission also seeks to reduce non-revenue water, strengthening urban finance.

As of March 2023, the total outlay for AMRUT 2.0 is Rs. 2,99,000 crores with the Central outlay being ₹76,760 crores for five years, and the rest of the amount is to be mobilized by the States and cities.

How much funds have been allocated?

As of June 20, 2024, the AMRUT dashboard reports that ₹83,357 crore has been dispersed. This funding has enabled the provision of 5,866,237 tap connections and 3,749,467 sewerage connections. Additionally, 2,412 parks have been developed, and 6,278,571 LED lights have been replaced. These achievements include contributions from both States and cities.

What is the reality?

A NITI Aayog report states that currently, 31% of urban households lack piped water, 67.3% aren’t connected to a sewerage system, and the average urban water supply is 69.25 liters/day per person, far below the required 135 liters.

Air quality in AMRUT cities and other large urban areas continues to worsen. The National Clean Air Programme was launched in 2019 since AMRUT 2.0 focuses only on water and sewerage, leaving air quality concerns from AMRUT 1.0 unaddressed.

What went wrong?

As discussed earlier, local bodies are hardly involved in the implementation of a policy, the same happens with the AMRUT scheme where the central committee is headed by the Secretary of MOHUA, and the State-level high-powered committee, headed by the Chief Secretary, consists solely of non-elected members. People’s representatives are completely missing, in violation of the 74th constitutional amendment.

Smart Cities Mission (SCM)

It is a Centrally Sponsored Scheme, launched in June 2015 to transform 100 cities by providing essential infrastructure and a sustainable environment to enable a decent quality of life through “Smart Solutions.”

The scheme has two components:

  • Area-based Development: Focuses on the renewal, upgradation, and development of urban areas using sustainable and smart technologies.
  • Pan-City Solutions: Implements ICT solutions across various sectors, including e-governance, waste management, urban mobility, and skill development.

A Special Purpose Vehicle (SPV) under the Companies Act, 2013, led by a bureaucrat or an MNC representative, was established to oversee the initiative.

What is the status of the SCM?

Initially set for completion by 2020, the mission has been extended twice, with the new deadline now June 2024. As of June 2026, the Urban Ministry’s dashboard shows that the total outlay for 8,010 SCM projects has decreased from the expected ₹2 lakh crore to ₹1,64,063 crore, 17.9% less than projected. The dashboard indicates that 7,152 (89%) projects worth ₹1,43,601 crore are completed, while 858 (11%) projects worth ₹20,462 crore are still ongoing.

Challenges Faced by the Smart City Mission

  • Lack of Clarity in Definition: When we hear the smart cities, we have unrealistic expectations that arise from the fact that there is no clear definition.
  • Flawed City Selection Process: Choosing cities through a competitive process overlooked India’s diverse and ever-changing urban realities. The scheme focused on developing less than 1% of a city’s area, leaving many areas out of the development plan.
  • Inadequate Funding and Scope: According to McKinsey, improving liveability in Indian cities by 2030 requires USD 1.2 trillion. The SCM’s budget of ₹1,67,875 crore over nine years is just a fraction, only 0.027%, of what’s needed for urban development in India.

Other government schemes for the motive of urban development mission include:

  • Pradhan Mantri Awas Yojana (PMAY) – Housing for all (Urban)
  • Swachh Bharat Mission (SBM)
  • Heritage City Development and Augmentation Yojana (HRIDAY)
  • Deen Dayal Antyodaya Yojana – National Urban Livelihood Mission (DAY-NULM)

Despite government efforts to implement various projects, challenges such as inadequate funds and lack of coordination between different levels of government hinder progress. These issues undermine the goals of urbanization.

Policy Suggestions

As we come to the end of the article, let’s consider what policy the experts believe can reshape Indian cities:

  • Modernization of Building-Bye laws

Building bye-laws are a set of rules and guidelines established by local, regional, or national authorities to govern the construction and maintenance of buildings. Although the Town and Country Planning Organization (TCPO) has already implemented model building-bye laws in 2016, effective and modern resolutions are lacking. Execution of these laws is flawed, as we can often see incidents similar to the Twin Towers establishment in Delhi, which violated building-bye laws.

  • Transit-Oriented Development Policy

Whether it is Mumbai’s local or Bengaluru’s traffic, a city becomes ineffective when transit measures are not taken properly. This policy integrates land use and transport planning to create a liveable environment in dense cities. The Central government already introduced the Transit-Oriented Development (TOD) policy in 2015, followed by several states.

  • Transferable Development Rights

Similarly, NITI Aayog introduced Transferable Development Rights (TDR) in Mumbai and Delhi in 2020. Implementing this law will simplify land acquisition for city development by granting landowners development rights instead of monetary compensation.


The rapid urbanization projected for India by 2047 requires a comprehensive approach to truly harness the potential of agglomeration economies. Despite the significant contributions of cities to India’s GDP and innovation, there still exist critical issues that hamper growth. Several government initiatives show great promise but have fallen short due to several reasons. It can’t be denied that these missions have made progress, yet substantial gaps remain, particularly in providing basic amenities like water supply and improving air quality.

In the end, the vision of turning Indian cities into world-class urban centers should not be just limited to ambitious statements but rather a concerted effort to address the policy issue. With the right strategies and effective implementation, Indian cities can indeed become engines of economic growth and innovation.

Tejasaw Kumar

Mr. Tejasaw Kumar is a Research Intern at Tatvita Analysts. He is pursuing his Graduation from Dr. B. R. Ambedkar School of Economics, Bangalore.

Leave a Reply

Your email address will not be published.