Introduction

India’s urban population is expected to rise dramatically from 400 million to 800 million over the next three decades. This rapid growth offers vast opportunities for economic advancement and enhanced global standing, but simultaneously exerts tremendous pressure on infrastructure, financial resources, and institutional frameworks. According to a World Bank study, India requires an estimated ₹70 lakh crore by 2036 to address its urban infrastructure shortfall—an amount far exceeding current investment capacities.

Financial Roadblocks in Urban Infrastructure

• Severe Investment Deficit: In 2018, annual investments amounted to just ₹1.3 lakh crore, which is only about 25% of the required ₹4.6 lakh crore. Nearly half of the anticipated ₹70 lakh crore needed in the future is for essential services, with the remainder aimed at urban transport infrastructure.
• Fragile Finances of Municipal Bodies: Since 2002, municipal financing has stagnated at roughly 1% of GDP. Urban Local Bodies (ULBs), which are accountable for 45% of urban investments, continue to be financially weak due to limited revenue generation from their own sources. Although transfers from state and central governments have increased from 37% to 44%, municipal fiscal health remains unstable.
• Inefficient Revenue Collection: Property tax collection is notably low, amounting to only 0.15% of GDP. Recovery of costs for services such as water supply and sanitation ranges between 20% and 50%, indicating significant inefficiencies.
• Funds Remaining Unused: Even when resources are allocated, utilization remains subpar—for example, Hyderabad and Chennai used only 50% of their capital budgets in 2018-19. Flagship initiatives like AMRUT and the Smart Cities Mission reported fund utilization rates of merely 80% and 70%, respectively.
• Shrinking Public-Private Partnerships (PPPs): Investments via PPPs have plummeted from ₹8,353 crore in 2012 to just ₹467 crore in 2018. The absence of project-specific revenue streams and viability gap funding has discouraged private sector involvement.

Structural and Governance Challenges

• Weak Urban Governance Framework: ULBs are constrained by limited administrative autonomy, fragmented responsibilities, and deficiencies in planning and executing projects. Mayoral and local leadership roles largely remain ceremonial without substantial power.
• Overlapping Institutional Roles: Confusion and delays arise due to overlapping functions between municipal bodies and state parastatals, which hamper efficiency and coordination.
• Climate Vulnerabilities in Cities: Urban centers are increasingly vulnerable to extreme weather events such as floods, heatwaves, and rising sea levels. Climate resilience has not been sufficiently incorporated into infrastructure planning, placing investments at long-term risk.
• Ineffective Land Use and Missed Value Capture: Land use often fails to align with infrastructure goals, encouraging sprawl and inefficiency. Opportunities to capture value from metro and rail-based developments remain largely untapped.

Unlocking the Potential of Urban India

• Urbanization as an Economic Engine: Cities contribute over 60% of India’s GDP and have the potential to increase this share. Well-managed urban ecosystems can stimulate innovation, manufacturing, and the services sector.
• Digital Public Infrastructure (DPI) as a Catalyst: DPI can modernize urban services and reduce operational costs. Examples include smart utility meters that improve revenue collection, integrated transport systems that enhance mobility, and data-driven governance that enables responsive city management.
• Leveraging Land to Fund Urban Growth: Transit-Oriented Development (TOD) and coordinated metro-urban planning can help cities finance their growth sustainably while enhancing quality of life.

Policy Recommendations Across Different Timeframes

• Short-Term Measures: Enhance revenue through modernizing property tax systems using geospatial technologies and implementing user charges for water, waste, and sanitation services. Improve the execution of projects within ULBs and link the release of state and central funds to measurable performance indicators.
• Medium-Term Measures: Revitalize PPPs by providing viability gap funding and risk-sharing mechanisms. Establish dedicated project preparation units at state and municipal levels to ensure projects are environmentally, socially, and financially sustainable. Encourage urban innovation through “innovation labs” and promote collaboration between academic institutions and private industry.
• Long-Term Structural Reforms: Empower ULBs both financially and administratively by strengthening State Finance Commissions and enabling access to municipal bond markets. Integrate city planning by aligning transport, housing, and land-use policies, embedding climate resilience across all urban development plans. Invest in building institutional capacity through specialized training in finance, technology, and urban planning.

Conclusion

India stands at a critical juncture with its rapid urban transformation. Effective management of this growth could become a significant driver of economic prosperity and social inclusion. However, without urgent reforms in financial management, governance, and institutional frameworks, urban centers risk becoming congested, unequal, and vulnerable to climate impacts. Immediate planning, investment, and reform are essential to ensure that India’s future cities are resilient, inclusive, and competitive on a global scale.