Economic Survey flags supply-side gaps hurting India's urban potential

The Economic Survey 2025-26 says India's cities drive growth but suffer from daily stress due to poor planning, overuse of private transport and fragmented governance

India’s cities are not failing, but they are far from reaching their full potential, the Economic Survey 2025-26 said. It described the country’s urban story as one of “unfinished promise”, pointing to long-standing supply-side challenges in land, housing and transport as key sources of urban stress.

 

"India’s urban story is therefore neither one of decline nor adequacy, but of unfinished promise," the Survey stated.

 

While Indian cities have grown rapidly in size, this expansion has not translated into proportional gains in productivity, quality of life or global economic influence.

 

Big cities, limited global impact

 

India’s urban population has risen sharply in absolute numbers. Large metropolitan regions such as Mumbai, Delhi, Bengaluru, Chennai and Hyderabad now rank among the world’s biggest urban agglomerations by population.

 

 

However, the Survey noted that size alone has not helped Indian cities emerge as major global economic hubs. In many advanced and emerging economies, a small number of cities act as critical centres for finance, manufacturing, logistics and innovation. Cities like New York, London, Shanghai and Singapore play this role effectively.

 

"Despite India's economic scale today, its cities struggle to perform this role at the level of established global cities such as New York City, London, Shanghai, or Singapore," the Economic Survey said.   

 

How India defines and experiences urbanisation

 

Under the Census of India, a settlement is classified as urban if it meets three conditions: a population above 5,000, at least 75 per cent of male workers engaged in non-agricultural activities, and a population density of at least 400 persons per square kilometre. Statutory towns notified by governments are also included.

 

India’s urbanisation has been heavily shaped by its largest cities. In 2011, over 70 per cent of the urban population lived in Class I cities, with populations above 100,000. The country’s 52 metropolitan cities alone accounted for more than 42 per cent of all urban residents.

 

Higher growth rates in these large agglomerations have led to rapid expansion, resulting in a top-heavy urban system where development is concentrated in a few centres.

 

At the same time, the Survey noted that India’s urbanisation rate has slowed in recent years. As a lower-middle-income country, India’s share of urban population remains slightly below the average for comparable economies.

 

Planning for expanding metropolitan regions

 

The Survey stressed that future urban development must reflect the growing scale and diversity of metropolitan regions. "Strengthening spatial monitoring systems, adopting harmonised classification tools and integrating core-periphery analyses can support data-driven decision-making," it said.

 

As peri-urban areas become important hubs for housing, industry and logistics, planning frameworks must move beyond statutory city limits. A wider regional approach is needed where economic activity and mobility extend across municipal boundaries.

 

One of the biggest constraints facing Indian cities is weak institutional design. Unlike global cities that enjoy significant administrative and financial autonomy, Indian cities function within complex, multi-layered governance structures.

 

Urban responsibilities are divided among urban local bodies (ULBs), development authorities, state departments and parastatal agencies. Although ULBs exist, key functions such as land use, policing, utilities and cadre management are largely controlled by state governments. This fragmentation limits strategic coordination across transport, housing and economic development, the Survey stated.   

 

Cities drive growth, but remain vulnerable

 

Despite these constraints, cities contribute disproportionately to economic growth. The World Bank estimates that by 2036, nearly 600 million Indians -- about 40 per cent of the population -- will live in towns and cities, up from 31 per cent in 2011. Urban areas are expected to generate almost 70 per cent of GDP.

 

A comparison of major global cities shows that India’s top 10 cities account for just 9 per cent of the population but nearly 28 per cent of GDP. This ratio is significantly higher than in the US, Germany or China, highlighting how critical Indian cities are to national growth. Any infrastructure failure in these centres could have wide economic consequences.

 

Daily strain and the need for civic values

 

The Survey noted that Indian cities face daily pressures, including long commutes, uneven services and overcrowded public spaces. "Restricted density, unclear titles and limited land recycling constrain affordable housing, while transport systems remain overly reliant on private vehicles," it said.

 

While services like sanitation and water have expanded, the focus must now shift to reliability and efficiency. The Survey also underlined the need to strengthen civic behaviour.