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Urbanization in India: Integral part of economic growth

Urbanization in India

Urbanization in India

Urbanization in India

October 31, 2007: Urbanization is not a side effect of economic growth; it is an integral part of the process. As in most countries, India’s urban areas make a major contribution to the country’s economy. Although less than 1/3 of India’s people live in cities and towns, these areas generate over 2/3 of the country’s GDP and account for 90% of government revenues.

India’s towns and cities have expanded rapidly as increasing numbers migrate to towns and cities in search of economic opportunity. Slums now account for 1/4 of all urban housing. In Mumbai, more than half the population lives in slums, many of which are situated near employment centers in the heart of town, unlike in most other cities in developing countries.

Meeting the needs of India’s soaring urban populations is and will continue to be a strategic policy matter. Critical issues that need to be addressed are:

• Poor local governance
• Weak finances
• Inappropriate planning that leads to high costs of housing and office space; in some Indian cities costs are among the highest in the world
• Critical infrastructure shortages and major service deficiencies that include erratic water and power supply, and woefully inadequate transportation systems
• Rapidly deteriorating environment

Urban Challenges


• Many urban governments lack a modern planning framework
• The multiplicity of local bodies obstructs efficient planning and land use
• Rigid master plans and restrictive zoning regulations limit the land available for building, constricting cities’ abilities to grow in accordance with changing needs.


• Building regulations that limit urban density - such as floor space indexes – reduce the number of houses available, thereby pushing up property prices
• Outdated rent control regulations reduce the number of houses available on rent – a critical option for the poor
• Poor access to micro finance and mortgage finance limit the ability of low income groups to buy or improve their homes
• Policy, planning, and regulation deficiencies lead to a proliferation of slums
• Weak finances of urban local bodies and service providers leave them unable to expand the trunk infrastructure that housing developers need to develop new sites.

Service delivery:

• Most services are delivered by city governments with unclear lines of accountability
• There is a strong bias towards adding physical infrastructure rather than providing financially and environmentally sustainable services
• Service providers are unable to recover operations and maintenance costs and depend on the government for finance
• Independent regulatory authorities that set tariffs, decide on subsidies, and enforce service quality are generally absent.


• Most urban bodies do not generate the revenues needed to renew infrastructure, nor do they have the creditworthiness to access capital markets for funds
• Urban transport planning needs to be more holistic – there is a focus on moving vehicles rather than meeting the needs of the large numbers of people who walk or ride bicycles in India’s towns and cities.


• The deteriorating urban environment is taking a toll on people’s health and productivity and diminishing their quality of life.

World Bank Projects

- Mumbai Urban Transport Project:
The Mumbai Urban Transport Project (MUTP) is a landmark project in India and the world. It aims to improve rail and road transportation infrastructure in the traffic-choked mega-city of Mumbai. Mumbai is India’s commercial and financial center and one of the most densely populated cities in the world. The total project cost is US$945 million. Of this, the World Bank has financed US$542 million. The World Bank loan came into effect in November 2002; the project is still ongoing.

- Karnataka Municipal Reform Project:
Karnataka is one of India’s most rapidly urbanizing states; its capital city of Bangaloreis known as the Silicon Valley of India. Enormous growth in business opportunities, as well as rising urban populations and incomes has led to strong demand for better infrastructure and services.

- Third Tamil Nadu Urban Development Project (TNUDP III):
The project aims to help civic services in the state.

- Andhra Pradesh Urban Reform & Municipal Services Project

- Gujarat Urban Development Program

- India: National Urban Infrastructure Fund

Facts: Urbanization in India


Fast Facts:
Most Urbanized States: Tamil Nadu 43.9%; Maharashtra 42.4%; Gujarat 37.4%
3 out of world's 21 mega cities, in millions: Mumbai (19); Delhi (15); Kolkata (14)
Large Cities: 23 in 1991; 40 in 2001
Urban Population: 25% of 850 million in 1992; 28% of 1,030 million in 2002.
Estimated Urban Population by 2017: 500 million
Percentage of Urban Poor Residents: About 25%
Slum Population: About 41 million in 2001
Estimated Slum Population by 2017: 69 million

Additional Resources

- End Poverty in South Asia
Analysis that shows it is possible to end poverty in Bangladesh, India, Nepal, Pakistan and Sri Lanka within the next 15 years. (Read More »)

- Blog: End Poverty in South Asia
Shanta Devarajan, World Bank Chief Economist for South Asia, shares insights about the fight against poverty in the region. (Read More »)

- South Asia: Development Data
A wide range of social and economic measures on South Asia, including links to the World Bank's most important online development databases. (Read More »)

- South Asia: Analysis and Research
Compilation of all the World Bank's publications on South Asia, with 'search' options and links to analysis and research on other South Asian countries. (Read More »)

- World Bank Program in South Asia
Launching pad to all information on World Bank activities in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.(Read More »)

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