Urban Development In India

By A. Panagariya, P. Chakraborty & M. Govinda Rao

Below, Arvind Panagariya, Pinaki Chakraborty and M. Govinda Rao give a detailed account of India’s vast need for urban development, and suggest there are important governance issues surrounding the need to bring India into the 21st century.

Rapid growth often concentrates in the existing urban agglomerations. Alternatively, when such growth occurs in areas that were previously rural or semi-urban, it quickly urbanizes them. Urban population in India has come to increasingly concentrate in the class I cities defined as those with 100,000 or more people. The number of these cities rose from just 77 in 1951 to 468 in 2011, with their share in urban population rising from 45% to 70% over the same period. India has three mega cities defined as those having populations of 10 million or more: Mumbai, Delhi, and Kolkata, which were home to 18.4, 16.3, and 14.1 million people in 2011. Given the crucial role of cities and towns as centers of economic activity and agents of economic transformation, the importance of well-functioning life in them and their orderly growth can be scarcely underestimated.

Urban Land Markets

Bigger Indian cities suffer from acute shortage of space. A comparison of Mumbai and Shanghai best illustrates this shortage. In 2009, Mumbai residents on average had just 4.5 square meters of space per person. In 1984, Shanghai suffered even worse space situation with only 3.65 square meters per person. But then the Shanghai Municipality decided to make raising space availability its top priority. It decided to make liberal use of the principal instrument at its disposal: letting space be created vertically by allowing taller and taller buildings. By 2010, the city could boast of having raised the available space to 34 square meters per person.1 The second source of land shortage in the cities around India has been exceptionally low floor space index (FSI), also called the Floor Area Ratio. As technological improvements have made it possible to build safe taller structures, the FSI in most large cities in the CBD [Central Business District] has risen over time. An unintended consequence of the extra low FSI has been the lack of rebuilding of tall buildings built prior to the introduction of the regulation. Recognizing that the FSI would force the loss of several floors if the building were rebuilt, owners have chosen to let the dilapidated building stand even though they run the risk of collapse and it would make perfect economic sense to rebuild it provided the existing floor space were permitted. The third factor adding to the land shortage in coastal cities such as Mumbai is the highly restrictive nature of Coastal Zone Regulations. These regulations forbid construction within 500 meters from the high tide zone. Coastal land is highly valuable for building properties that would attract high-end tourism. It is also a source of high-value housing that can further help relieve the overall shortage of land. Fourth, the presence of overly tenant-friendly rental laws including rent control also adversely impacts the availability of residential and office space. Although reforms have taken place over the last 15 years in several states including Karnataka, Rajasthan, Maharashtra, and the union territory of Delhi, overall the laws still continue to be favorable to the tenant. The reform has typically permitted 4% to 5% rent increase annually. The result is the proliferation of empty flats in the face of massive shortage of rental properties. The fifth factor adding to land shortage is the existence of myriad regulations that limit the supply of land as well as hinder its efficient use. Efficient use of urban land often involves its conversion from one use to another, warehouses may have to be converted into office space, declining factories into housing and agricultural land on the periphery of the city into factory space.

Bigger Indian cities suffer from acute shortage of space. In 2009, Mumbai residents on average had just 4.5 square meters of space per person.

Water Supply, Sanitation and Solid Waste

Despite progress in improving indicators of household amenities such as electricity, tap water, and toilet, the level of achievements as well as future prospects in this area remain gloomy. The problem arises from the delivery of services by the state and local authorities.

Urban water supply in India remains in a deep crisis that threatens to get deeper. Because intermittent supply leads to contamination of water, tap water in India is unsafe to drink without treatment. This has led households to seek costly private solutions including installation of filtering equipment and purchase of bottled water. Those unable to incur these expenditures risk becoming sick more frequently and must later pay in terms of medical costs of treatment and lost workdays due to sickness. Sanitation in Indian cities likewise remains poor. Two major components of sanitation are sewage and waste management. According to the 2011 census, 19.6% of urban households lack toilets within premises and must use public facilities. A study by the Ministry of Urban Development (2010) found none of the 423 cities studied to be healthy and clean. The study rates 190 cities to be in a state of emergency with respect to public health and environment.


In the context of urban development, transportation has two aspects. First, those already in urban areas have transportation needs that must be satisfied. Second, advance building of infrastructure can lead the process of urbanization itself. Conceptually, we can think of transportation needs of the existing urban population at three levels: movement of passengers and goods between cities; movement of workers living on the periphery of the city from their homes to workplace and back; and movement of people within the city from one point to another.

Cities are connected by three alternative modes of transportation: trains, buses, and airplanes. Transportation between nearby suburbs and the city center and within city requires two kinds of services. For travel over longer distances as, for example, between suburbs and the city center or between two opposite ends of the city, rapid transit service is required. At the same time, for shorter distances within the city, a dense network of the service is needed. While basic transportation systems have existed for many years in at least the larger cities of India, rapid transit systems are of a more recent origin and still in the process of being developed in most cities.

According to the 2011 census, 19.6% of urban households lack toilets within premises and must use public facilities.

Slums, Rehabilitation and Development

Urban slums have been a feature of all major cities during the early phase of urbanization. The 2011 census divides slums into three categories called notified, registered, and identified. Slums in the first category are areas that state, union territory, or local governments have notified as slums. Those in the second category are areas that these same entities have recognized but not notified as slums. As per the 2011 census, 63% of 4,041 statutory towns have one or more slums.2 One-fifth of these slums are in Maharashtra alone. India-wide, 13.8 million households representing 17.4% of all urban households and consisting of 64 million people live in slums.

Finally, if the Indian economy grows even 6% to 7% per year over the next two to three decades, as it is highly likely to do, there is bound to be massive rural – urban migration during these decades. Moreover, such migration will concentrate in the larger cities including some new ones that will form in the forthcoming decades. As long as migrants are poor and transportation costly, preventing the formation of new slums nearer the workplace is going to be a losing battle. Conferment of citizenship on illegal migrants is often viewed as a solution to the problem of illegal migrants. But before the system is able to make a decision and process the existing illegal migrants, more of them arrive from a border that remains porous despite tougher enforcement. Given these facts, governments at various levels need to take a long-term approach to the eventual elimination of slums. The objective should be to reduce the incidence of slums on the margin through development of slums and rehabilitation and to take steps that will minimize the creation of new slums. The policy needs to be multi-pronged and adaptable to the specific circumstances of each slum. With these observations as the context, in the following, we briefly summarize various elements of the policy. First, various measures discussed earlier to relieve land shortages must form an integral part of the overall policy package.Second, a well-functioning transportation system including a rapid transit service also forms an important part of the policy to discourage the formation and growth of slums as well as phase out of slums through rehabilitation. Third, it is essential that the ability of the local governments to deliver the basic public services such as water, sewage, electricity, solid waste removal, road connectivity, and streetlights be greatly enhanced. Finally, a proactive policy of rehabilitation from and redevelopment of slums is required.

India-wide, 13.8 million households representing 17.4% of all urban households and consisting of 64 million people live in slums.

Concluding Remarks

We have identified four intimately linked components of urban development: availability of land; provision of water supply, sanitation, and solid waste management; transportation; and rehabilitation and redevelopment of slums. In order for urbanization to proceed smoothly and for urban residents to have healthy lives, economic policy and reforms must be aimed to make progress in each of these four areas. We argue that there are important governance issues surrounding each of these services. In particular, the problems are often local while all the decision-making authority rests at the level of the state. What is required is the creation of entities at the local level that are entrusted with the responsibility to oversee the services, given greater authority and financial autonomy. This structure will also allow the local entities to forge partnerships with private providers as necessary within the framework of regulation administered at the level of the state.

Edited excerpt from State Level Reforms, Growth, and Development in Indian States, by Arvind Panagariya, Pinaki Chakraborty and M. Govinda Rao published by Oxford University Press, Inc. © 2014 Oxford University Press.


About the Authors

Arvind Panagariya is an Indian–American economist, and professor of economics and Indian political economy at Columbia University. He is also the ex chief economist at the Asian Development Bank, and has also previously worked at the World Bank and World Trade Organisation.

Pinaki Chakraborty is an economic adviser to the fourteenth finance commission of India, he is also a professor at the National Institute of public finance and policy, New Delhi. His research areas are macroeconomics, public finance, tax policy, reforms, federalism and intergovernmental fiscal issues.

M. Govinda Rao is a well-known scholar in public finance in India. He is currently a member of the fourteenth finance commission, and has previously been director of the institute for social and economic change. He has also been a member of economic advisory council to the Prime Minister of India.


1. Bertraud, A. (2011). “The perfect storm: the four factors restricting the construction of new floor space in Mumbai.” http://alain-bertaud.com/AB_Files/AB_Mumbai_FSI_Conundrum_Revised_sept_2011.pdf

2. Statutory towns are places with municipalities, municipal corporations, cantonment boards, or notified town area committees.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.