Need for a National Urbanisation Policy in India

Syllabus: GS1/Urbanisation, GS3/Infrastructure

Context

• The Union Budget, Economic Survey 2026 and 16th Finance Commission have emphasised the need for a National Urbanisation Policy to address gaps in urban planning and governance.

Status of Urbanisation in India

• Urban population: India had 377 million urban residents across approximately 8,000 cities and towns in 2011.
  • The United Nations estimates that 44% of India’s population currently lives in urban areas, which is projected to exceed 720 million by 2050.
• Changing settlement patterns: Around 94% of urban settlements are small towns, while nearly 60% of the urban population lives in Class I cities.
• Growth of peri-urban areas: Peri-urban areas are expanding at approximately 4.15% annually, compared to 2.9% growth within existing city boundaries.
• Functional urbanisation: The Economic Survey 2026 highlighted that India is more urban in functional terms than official definitions suggest, citing satellite-based estimates that placed India’s urbanisation at 63% in 2015.

Limitations of the Existing Urban Classification

• Outdated Census criteria: Census 2027 will retain the 2011 criteria for identifying census towns:
  • Population of at least 5,000.
  • Population density of at least 400 persons per sq. km.
  • At least 75% of male main workers engaged in non-agricultural activities.
• Administrative limitations: Article 243Q gives states discretion in notifying areas as urban without prescribing uniform criteria or mandatory periodic reviews.
• Mismatch between economic activity and governance: Several settlements with predominantly non-agricultural employment continue to be governed as rural areas. 
• Inadequate spatial planning: Around 52% of statutory towns and 76% of census towns lack master plans, resulting in unplanned expansion and infrastructure gaps.

Why is a National Urbanisation Policy Needed?

• Recognising emerging urban settlements: It will establish uniform criteria and conduct periodic reviews to identify settlements undergoing urban transformation.
• Integrated regional planning: It will promote planning beyond municipal boundaries, covering peri-urban areas and interconnected economic regions.
• Strengthening urban governance: It will improve coordination among Union, State and local governments and clarify institutional responsibilities.
• Improving municipal finances: India’s municipal revenue is approximately 1% of GDP, compared to 7.4% in Brazil and 6% in South Africa.
  • A coherent policy can strengthen municipal revenue mobilisation and ensure predictable fiscal transfers.

Recommendations for a National Urbanisation Policy

• WRI (World Resources Institute) India’s report ‘Equitable, Productive, Low-carbon and Resilient System of Cities in India – Recommendations for a National Urbanisation Policy’ proposes seven systems transformations:
  • Standardise the definition and classification of statutory urban settlements; 
  • Modernise spatial and regional planning; 
  • Reorient public and private finance flows into urbanisation; 
  • Embed a tiered coordination architecture, anchored by a National Urbanisation Council;
  • Build sectoral reforms on functional foundations; 
  • Align urban politics with reform incentives; and 
  • Support knowledge exchange and local innovation.

Concluding remarks

• India needs to move beyond the traditional rural-urban classification towards a functional approach to urbanisation. 
• A National Urbanisation Policy can provide a common institutional and fiscal framework for managing this transition while promoting equitable, productive, low-carbon and resilient cities.

Source: TH