India’s Urban Planning Evolution: Strengthening City’s Role in National Growth

January 31, 2025

Until 1992, the Government of India’s (GoI) role in the governance of urban local bodies (ULBs) was relatively minimal, largely due to the Seventh Schedule of the Constitution, which assigns local governments to the State List. Historically, India’s developmental philosophy prioritized villages over cities, allowing urban areas to evolve on their own with limited state intervention. This approach continued until the 74th Constitutional Amendment Act of 1992, intended to empower ULBs as self-governing democratic units. Despite the positive intentions behind this act, the envisioned empowerment of ULBs did not fully materialize. Various shortcomings in the amendment preserved significant power for state governments, thus hindering genuine local empowerment and necessary reforms.

The Shift in Government Involvement

As urban centers began contributing over 60 percent of India’s GDP, the national government increased its involvement with ULBs, channeling resources through centrally sponsored programs. This renewed focus started gaining traction with the launch of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in 2005. The momentum continued with various other initiatives over the last decade, such as Atma Nirbhar Bharat, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Smart Cities Mission, Swachh Bharat Mission-Urban (SBM-U), Heritage City Development and Augmentation Yojana (HRIDAY), and Pradhan Mantri Awas Yojana-Urban (PMAY-U). Despite the expanded programmatic support, these efforts achieved limited success in driving substantial and sustainable urban reforms.

In addition to programmatic initiatives, GoI introduced model laws like the Model Municipal Law and the Model Tenancy Act for states to adopt, hoping to standardize urban governance. However, state governments largely ignored these guidelines, resulting in minimal reform of urban local governance structures. As a result, the urbanization rate steadily increased, rising from 17.29 percent in 1951 to 31.16 percent in 2011, and further to an estimated 35.87 percent in 2022 according to World Bank data. An intriguing aspect of this urban evolution is the concept of ‘hidden urbanization,’ which suggests that many communities living in urban-like conditions are not officially classified as urban, further complicating policy and reform efforts.

Economic Contributions and Challenges

Urban centers currently house approximately 42.3 percent of India’s urban population, playing a pivotal role in national economic growth. However, many of these cities are facing declining living standards and stagnating economies, which adversely affect their contributions to the national GDP. The deteriorating quality of life in urban areas leads to reduced productivity and hampers economic expansion, posing a significant challenge for national development. Addressing these challenges requires the GoI to take decisive actions.

First and foremost, there is a need to push for long-pending urban reforms and establish mechanisms for greater central involvement in the planning and governance of mega cities. This necessitates constitutional amendments and multi-faceted actions, including the formulation of a comprehensive national policy on urbanization that states must implement. State governments should also develop their own policy frameworks that align with national objectives. Additionally, it is imperative to address the financial vulnerabilities of ULBs, enabling them to maintain their assets and effectively fulfill their functions. Developing financial robustness within local bodies is crucial for them to independently provide essential services and drive economic growth.

Decentralization and Policy Recommendations

Decentralization remains a key aspect of the proposed national urban policy, as recommended by the National Commission on Urbanization (NCU) in 1988. The NCU advocated for the development of Generators of Economic Momentum (GEMS) and Spatial Priority Urban Regions (SPURS) to prioritize urbanization efforts. Although priority cities and SPURS likely to urbanize rapidly have been identified, the recommendations on developing these areas remain unfulfilled. Implementing these strategies could provide a structured approach to optimizing urban growth and development.

Previous programs like the Integrated Development of Small and Medium Towns (IDSMT) aimed at curbing migration to major cities by creating local employment opportunities, but these projects failed due to a lack of reliable migration data and financial resources. To avoid repeating past mistakes, the GoI could identify key towns and cities worthy of focused developmental assistance based on detailed studies of their growth potential. Enhancing data collection and analysis mechanisms could also facilitate more effective urban planning and policy-making.

Financial Reforms and Revenue Sharing

Over the years, specific grants have been provided to cities based on recommendations from the Central Finance Commission (CFC) and State Finance Commissions (SFCs). However, these grants have had limited impact due to the immense infrastructural needs of urban areas. Presently, the GDP contribution of ULBs is less than one percent, a stark contrast to the international standard of 4 to 6 percent. The introduction of the Goods and Services Tax (GST) further impacted the revenue streams of municipalities, exacerbating their financial challenges. For ULBs to function effectively, it is vital for the GoI to share GST revenues with them and align financial resources with their functional responsibilities.

Eliminating unfunded mandates is essential to ensure the financial stability of ULBs. Systematic financial restructuring, driven by accepting the SFC’s recommendations, is necessary to prevent further fiscal strain. In the GST regime, state governments must cooperate and implement these financial recommendations to support the fiscal health of local bodies. Aligning the financial resources and responsibilities of ULBs would enable them to meet the growing demands of urbanization and enhance their capabilities in providing essential services.

The Path Forward

Before 1992, the Indian Government’s involvement in the governance of urban local bodies (ULBs) was limited, largely due to the Constitution’s Seventh Schedule, which allocates local governance to the states. Traditionally, India’s development philosophy prioritized rural areas over urban ones, allowing cities to grow with minimal state oversight. This scenario persisted until the implementation of the 74th Constitutional Amendment Act in 1992, which aimed to give ULBs more self-governing authority. Despite the positive intentions behind this amendment, the expected empowerment of ULBs often fell short. Various deficiencies within the amendment allowed states to retain substantial control, ultimately preventing the genuine local autonomy and reforms that were needed.

The reform was a significant step toward decentralizing power and encouraging local decision-making. However, the execution left much to be desired. The power dynamics between state governments and ULBs continued to favor the states, often stalling or diluting the intended autonomy of local bodies. As a result, the reforms necessary for addressing urban issues, such as infrastructure development, efficient local governance, and public service delivery, lagged. This incomplete devolution underscores the complexity of balancing state and local governance and presents challenges for the future development and management of urban areas in India.

Subscribe to our weekly news digest.

Join now and become a part of our fast-growing community.

Invalid Email Address
Thanks for Subscribing!
We'll be sending you our best soon!
Something went wrong, please try again later