Unshackling India’s Cities: How to improve urban areas to drive job growth
Published January 04, 2025
Executive Summary
As per the 2011 Census, India had more than 8,000 cities, 50 of which have a population in excess of 10 lakh. Urban areas in India accounted for 36% of India’s population and 70% of GDP. A very important advantage of cities is that (all around the world) they generate more and higher paying employment than rural areas. India needs to generate more jobs, and cities will be vital for this purpose.To do so, India needs to focus on four main areas:
Infrastructure in Indian cities is inadequate, out of date, or non existent. Local government spending on city-level infrastructure is extremely low. Cities struggle to provide even basic infrastructure like water, sewage and waste management, public transport, etc. Much more investment is needed in these areas. These investments will create jobs and also improve quality of life for the residents.
Stringent and restrictive land use policies in India have hindered development. Heavy restrictions on vertical development mean large urban sprawl, and a milder impact of the agglomeration externalities that cities enjoy. Loosening these restrictions will allow economic activity to be more concentrated, free up land for other uses and increase the agglomeration externalities.
Urban governments in India have limited powers, which makes it difficult for them to build infrastructure and implement policies to attract better jobs. State governments have a lot of control in the functioning of local governments, while elected leaders like corporators and mayors get to exercise far less authority. Giving local governments more authority will allow them to invest in infrastructure, deregulate land-use policies and shape the development of the city to increase job creation.
Local governments in India are also strapped for finances. Though they are allotted revenue by the state governments, it tends not to devolve a lot. Meanwhile, their own raising capacity is also very limited, owing to their inability to generate enough tax. Bettering their ability to raise more money will increase infrastructure investments and allocate resources effectively.
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