Can agglomeration logic still help our people-dense, infra-scarce cities?

Urban agglomeration has long been assumed to lead naturally to growth, but India's failing infrastructure and environmental stress tell a different story

In urban economics, “agglomeration” is the stuff of dreams. When firms, workers, and ideas cluster in dense, dynamic cities, they reap the rewards of shared infrastructure, pooled labour, and innovation. Economists from Alfred Marshall to Edward Glaeser have lauded these “agglomeration economies” as engines of productivity and growth. For some time now, several Tier-I cities in India have followed this agglomeration logic. Bengaluru drew in tech firms and engineers, Mumbai concentrated finance, media, and ambition in a few square kilometres, and Delhi pulled together politics, bureaucracy, and everything in between.

 

In theory, this clustering should have supercharged productivity — and perhaps for a while, it did. Now, as Bengaluru stalls in traffic, Mumbai strains under a housing crunch, and Delhi suffocates under smog, it raises the question: Is this still the logic of agglomeration at work?

 

Urban India contributes over 60 per cent of the country’s gross domestic product (GDP) and this figure is projected to reach 70 per cent by 2030. Metros such as Delhi, Bengaluru and Mumbai continue to attract capital and labour. The government, for its part, promises smart cities, clean energy, and high-speed rail. It all sounds rather agglomerative. Yet, daily congestion in Bengaluru stretches 190 km. A study by the Institute for Social and Economic Change in Karnataka estimated that traffic congestion cost Bengaluru ₹1,170 crore in lost productive hours. The city’s metro system, still incomplete, serves only a fraction of its swelling suburbs. Pune, one of India’s most liveable cities on paper, lost a third of its carbon-sequestering green cover in a decade. In Bhubaneswar and Nagpur, rising heat is already taking away 10-13 per cent of informal workers’ productivity.

 

The crux of the issue is that agglomeration isn’t just about piling more people into cities. It’s about the quality of interactions. Urban productivity grows when people can collaborate, move, and learn. However, if commutes exceed two hours, housing costs eat half your income, and heatstroke threatens your daily wage, those benefits vanish.

 

A 2024 study on the municipal performance of Indian cities underscored how poorly equipped many urban centres are to support effective agglomeration. Of the 152 municipalities assessed, only 94 had data available on development planning, and just 59 of those had updated, GIS-based plans. Only 37 municipalities had an active mobility plan, and a mere 16 had full coverage under a town planning scheme. While 113 municipalities reported having qualified town planners, fragmented and inconsistent planning frameworks continue to undermine the very systems that make urban density productive rather than chaotic. India is thus experiencing a form of partial agglomeration where firms and skilled workers still cluster, but are undercut by failing infrastructure and environmental stress. 

 

To translate urban density into productivity, Indian cities must address their own limitations. The Asian Development Bank’s recent findings make this clear: Wage elasticity with respect to population and density — a measure of how much people benefit from agglomeration  — in Indian towns is just 1–2 per cent, a fraction of the 4–6 per cent observed in more advanced urban economies. This gap reflects not just a lack of infrastructure, but a deeper absence of coordinated, future-facing urban strategy. Cities need robust urban data systems that can support real-time decision-making, from land use planning to service delivery. Planning processes must shift towards flexible, scenario-based approaches that anticipate demographic shifts, climate risks, and economic transformation.

 

Equally crucial is the need to consolidate fragmented governance structures; many Indian cities are constrained by jurisdictional overlaps that undermine integrated planning across housing, transport, and environment. Finally, spatial planning must directly support labour mobility and economic inclusion, ensuring that people not only live and commute in cities, but are meaningfully connected to jobs, services, and networks of innovation.

 

Among its Asian peers, Singapore exemplifies successful agglomeration, where integrated land use and transport planning have turned density into productivity and liveability. Its mass rapid transit system carries over 3 million passengers daily, supported by the early adoption of congestion pricing and a compact urban design.

 

Similarly, Ho Chi Minh City in Vietnam has demonstrated strong agglomeration effects, with labour productivity nearly double that of Hanoi, driven by concentrated industrial zones and strategic infrastructure investment. These examples highlight how urban concentration can yield significant economic gains.

 

What we may be witnessing in most Indian cities today is a phase of deglomeration, not because they have reached the limits of success, but because they have yet to fulfil the basic promise of agglomeration. The clustering of people, jobs, and services was expected to enhance productivity, foster innovation, and unlock new economic opportunities. These outcomes have been uneven at best. The foundations required to make density work such as reliable infrastructure, coordinated planning, and effective urban governance have often been missing. As a result, many cities have become dense without becoming dynamic. To move forward, a different approach is needed. Indian cities must pursue what can be called re-agglomeration: A deliberate reimagining of urban growth that focuses on quality, resilience, and equity. The classic agglomeration curve, long assumed to lead naturally to growth, may now need a second chapter that is shaped by careful design.

 

The author is chair, Institute for Competitiveness. With inputs from Meenakshi Ajith