The Spatial Rebalancing, How India’s City Economic Regions Could Reshape the Nation’s Urban Future

The Spatial Rebalancing, How India’s City Economic Regions Could Reshape the Nation’s Urban Future

For decades, India’s urban discourse has been dominated by a single, powerful image: the megacity as a site of crisis. Mumbai’s overcrowded trains, Delhi’s toxic air, Bengaluru’s gridlocked roads—these are the visual shorthand for a narrative that frames urbanisation as a problem of scale. Cities are too large, too congested, too stressed. The implied solution is to slow down migration, to decongest, to push people away from the centres.

This framing, as a growing body of economic analysis suggests, is fundamentally misleading. India’s core urban challenge is not that it has too much urbanisation. It is that it has too little spatial diversification of urban economic activity. The problem is not the size of its megacities but the absence of a robust network of secondary cities and integrated urban regions that can generate comparable agglomeration benefits.

The Economic Survey’s chapter on urbanisation and the Union Budget’s proposal to develop City Economic Regions (CERs) , read together, signal a profound shift in official thinking. They move away from a city-centric understanding of growth towards a region-centric framework that recognises how labour markets, logistics networks, and production systems actually function across municipal and district boundaries. This is not a minor policy adjustment. It is a potential structural break in India’s urban trajectory—an acknowledgment that the old model of concentrating growth in a handful of megacities has reached its limits, and that the future lies in building polycentric urban networks that can spread agglomeration benefits across space.

The question now is whether India has the institutional capacity, the fiscal resources, and the political will to translate this conceptual shift into operational reality.

Part I: The Economics of Agglomeration—Why Cities Grow, and Why They Stop

The starting point for any serious discussion of urban policy is the economics of agglomeration. Firms and workers cluster in cities not because of irrational herd behaviour but because density, proximity, and scale generate productivity gains that are unavailable elsewhere.

The Economic Survey cites evidence that doubling the size of a city in India can raise productivity by over 10% . This is not a marginal effect; it is transformative. It explains why, despite congestion, high rents, declining quality of life, and governance failures, migrants continue to pour into Mumbai, Delhi, and Bengaluru. They are responding to spatially concentrated opportunity—a rational calculation that the benefits of access to jobs, networks, and services outweigh the costs of overcrowding.

But agglomeration economies are not infinite. At some point, the costs of concentration—congestion, pollution, housing shortages, infrastructure stress—begin to rise faster than the productivity gains. The net benefits of further growth diminish. A city can become too large in the sense that additional population adds more to costs than to output.

This is where India’s megacities find themselves today. They are large in population terms but underperform relative to global peers in productivity, liveability, and economic influence. This is not because density is inherently harmful. It is because density is unsupported by coordinated land use, transport infrastructure, and institutional capacity. The costs of congestion have been allowed to accumulate without the corresponding investments in public goods that would keep the net benefits of agglomeration positive.

Part II: The Top-Heavy Urban System—Why India Needs More Cities, Not Fewer Migrants

India’s urban system is unusually top-heavy. A small number of metropolitan regions—the National Capital Region, Mumbai Metropolitan Region, Bengaluru, Chennai, Hyderabad, Kolkata—account for a disproportionate share of GDP, employment, and formal sector jobs. This concentration is not the result of any natural economic law. It is the legacy of historical patterns of investment, infrastructure development, and industrial location that have favoured a few nodes while leaving vast swathes of the country under-urbanised in economic terms.

The consequence is a spatial equilibrium problem. Workers are pulled into a handful of megacities not because other regions are inherently unviable, but because alternative urban centres capable of generating comparable agglomeration benefits do not exist at scale. A young person in eastern Uttar Pradesh or northern Bihar who wants a formal sector job has few options beyond migrating to Delhi or Mumbai. The same is true for someone in rural Telangana looking to Bengaluru, or someone in coastal Odisha looking to Kolkata.

This is not distress migration in the classic sense of people fleeing agrarian crisis (though that is also real). It is opportunity-driven migration constrained by an undersupply of opportunity locations. The solution is not to build walls around megacities or to criminalise migration, but to create more locations where opportunity can be found.

The Economic Survey’s use of night-time lights data and core-periphery analysis reinforces this point. Urban growth in India is increasingly occurring in peri-urban and corridor regions outside formal city boundaries. This growth is real—it shows up in the satellite imagery—but it is poorly governed and weakly planned. It takes the form of sprawl rather than structured decentralisation: people move outwards, but jobs, infrastructure, and institutions do not follow coherently. The result is the worst of both worlds: the costs of dispersion without the benefits of planned polycentricity.

Part III: The CER Concept—From City-Centric to Region-Centric Planning

The City Economic Region (CER) framework is designed to address precisely this gap. It recognises that cities do not function as isolated units. Labour markets, logistics networks, housing markets, and production systems operate across municipal and district boundaries. A worker living in Gurugram may work in Delhi. A manufacturer in the Mumbai Metropolitan Region may draw suppliers from Pune and Nashik. A logistics hub may serve multiple cities within a 200-kilometre radius.

Planning at the boundaries of a single statutory city—the approach that has dominated Indian urban policy for decades—ignores these functional realities. CERs, by contrast, align policy boundaries with economic boundaries. They create a framework for coordinating land use, transport investment, infrastructure development, and economic promotion across the entire region that actually constitutes a single urban economy.

The potential benefits are substantial:

• Polycentric growth: Instead of one dominant core surrounded by unplanned sprawl, CERs can foster multiple employment nodes within a region, each specialising in different functions—manufacturing, services, logistics, research—and connected by efficient transport.

• Managed decentralisation: Firms and households that would otherwise be forced into the overcrowded core can locate in secondary cities and peri-urban areas that are planned to accommodate growth, with adequate infrastructure and services.

• Risk diversification: Excessive dependence on a single megacity creates systemic risk. Infrastructure failures, environmental shocks, or governance breakdowns in that city have outsized macroeconomic consequences. A network of cities within a region spreads this risk.

• Regional equity: By spreading agglomeration benefits across space, CERs can reduce the extreme spatial inequality that currently characterises India’s urban system, offering opportunities to populations that are currently locked into low-productivity equilibria.

Part IV: The International Experience—What India Can Learn from Germany, Japan, and China

The logic of CERs is consistent with international experience. Economies that have sustained long-term growth are characterised not by a single dominant city but by networks of cities performing complementary functions.

• Germany is the classic example. No single city dominates. Berlin, Hamburg, Munich, Frankfurt, Cologne, Stuttgart—each is a major economic centre in its own right, with specialised strengths and connected by world-class transport infrastructure. This polycentric structure contributes to Germany’s economic resilience and regional equity.

• Japan has a dominant capital region, but it also has strong secondary centres—Osaka, Nagoya, Fukuoka, Sapporo—that generate significant economic activity and provide alternatives to Tokyo.

• China is actively building such networks. The Pearl River Delta, Yangtze River Delta, and Beijing-Tianjin-Hebei region are all examples of mega-regions integrating multiple cities into coherent economic spaces. The government’s strategy explicitly aims to spread growth from the eastern seaboard to interior cities.

India’s urban system today resembles neither Germany nor Japan nor China. It is closer to the Latin American model of extreme primacy, where one or two cities dominate the national economy. This is not a model to emulate. It concentrates risk, exacerbates inequality, and ultimately constrains growth.

Part V: The Institutional Challenge—Why CERs Will Fail Without Governance Reform

The Economic Survey is explicit that India’s urban constraints are “not primarily financial but institutional.” This is a crucial insight, and it points to the single greatest risk facing the CER initiative.

India’s urban governance is characterised by:

• Fragmented authority: Multiple agencies—municipal corporations, development authorities, parastatal bodies, line departments—exercise overlapping jurisdiction over the same territory, with no clear hierarchy or coordination mechanism.

• Limited fiscal autonomy: Cities raise a fraction of the resources mobilised by their global counterparts. They depend on transfers from state and central governments, which are unpredictable and often tied to specific purposes.

• Weak planning capacity: Master plans are prepared by consultants, adopted after years of delay, and routinely violated with impunity. There is no tradition of strategic spatial planning linked to economic development.

• Misaligned incentives: Elected officials are accountable to voters within municipal boundaries, but the functional urban economy extends far beyond those boundaries. There is no political institution that represents the region as a whole.

If CERs are implemented simply as coordination platforms without empowered regional institutions, they risk becoming yet another layer in an already crowded planning architecture—a forum for meetings and reports that produces no binding decisions and changes nothing on the ground.

What is needed is a more radical institutional reform:

• Regional development authorities with statutory powers over land use, transport, and infrastructure investment across the CER, accountable to a council of elected representatives from constituent local bodies.

• Metropolitan-level taxation—a share of GST, property tax, or professional tax assigned to the regional authority, giving it predictable revenue streams and borrowing capacity.

• Integrated planning mandates requiring that all major infrastructure investments—roads, rail, power, water—be aligned with a regional spatial strategy.

• Land value capture mechanisms that allow the region to recoup some of the windfall gains generated by public investment, reinvesting them in further infrastructure.

Part VI: The Fiscal Dimension—Money Matters, But Not Alone

The CER concept also has a fiscal dimension. India’s cities are chronically under-resourced. They raise a fraction of the revenue of their global counterparts—a few hundred dollars per capita, compared to thousands in developed countries. This limits their ability to invest in the infrastructure and services that make cities productive and liveable.

The Union Budget’s proposal to develop CERs should be accompanied by a serious effort to reform urban finance:

• Property tax reform: Moving from outdated rateable values to area-based assessments or market values, with regular revisions and better collection efficiency.

• Land value capture: Capturing a portion of the increase in land values resulting from public investment in infrastructure—through betterment levies, development charges, or tax increment financing.

• Municipal borrowing: Expanding access to bond markets for creditworthy cities, with appropriate safeguards against over-borrowing.

• Central transfers: Reforming the system of central transfers to cities to make them more predictable, more performance-linked, and better aligned with functional responsibilities.

But money alone is not enough. The Survey’s point about institutional constraints is decisive. Additional resources channelled through fragmented, unaccountable, and capacity-constrained institutions will not produce better outcomes. Fiscal reform must go hand in hand with governance reform.

Conclusion: The Window of Opportunity

The Economic Survey and the Union Budget have together opened a window of opportunity for a fundamental rethinking of India’s urban future. They have named the problem correctly—too little spatial diversification of economic activity, not too much urbanisation—and they have proposed a conceptual framework—City Economic Regions—that aligns policy with economic reality.

This is a significant intellectual advance. It moves the debate beyond the sterile opposition between “pro-urban” and “anti-urban” positions, and beyond the equally sterile focus on individual cities as isolated units. It recognises that India’s growth problem is spatial, and that the spatial dimension requires a region-centric solution.

But the gap between concept and execution is wide. CERs will succeed only if they are matched by:

• Institutional reform that creates empowered regional authorities with statutory powers and fiscal resources.

• Integrated planning that coordinates land use, transport, and infrastructure investment across the region.

• Fiscal empowerment that gives cities and regions predictable revenue streams and borrowing capacity.

• Political commitment that sustains the effort over decades, not just a single budget cycle.

The alternative is that CERs become another well-intentioned concept that acknowledged the problem without altering the equilibrium—a chapter in the Economic Survey and a paragraph in the Budget speech, but no change on the ground.

India’s urban future hangs on which path is chosen. The country cannot afford to get it wrong. Its demographic dividend, its economic competitiveness, its environmental sustainability, and its social stability all depend on building cities and regions that work. The CER framework offers a pathway. The question is whether India has the wisdom and the will to follow it.

Q&A: City Economic Regions and India’s Urban Future

Q1: What is the central argument of the Economic Survey’s chapter on urbanisation, and how does it challenge conventional wisdom?

A1: The central argument is that India’s urban problem is not too much urbanisation but too little spatial diversification of urban economic activity. This challenges the conventional framing that cities are “too large, too congested, too stressed” and that the solution is to slow migration or decongest megacities.

Key points:

• Agglomeration economies (productivity gains from density, proximity, scale) are real and substantial—doubling city size can raise productivity by over 10%.

• Migration to megacities is rational, not anomalous; workers respond to spatially concentrated opportunity.

• The real problem is that India’s urban system is “unusually top-heavy”—a few metropolitan regions account for a disproportionate share of GDP and employment.

• The solution is not to shrink existing cities but to create more locations where agglomeration benefits can be realised—i.e., to build networks of secondary cities and integrated urban regions.

Q2: What are City Economic Regions (CERs), and how do they differ from traditional urban planning approaches?

A2: CERs are a region-centric framework for urban planning that recognises that cities do not function as isolated units. Labour markets, logistics networks, housing markets, and production systems operate across municipal and district boundaries.

The logic: Planning at municipal boundaries ignores how urban economies actually work. CERs align policy with reality, enabling coordinated land use, transport investment, and infrastructure development across the entire region.

Q3: What evidence does the Economic Survey use to support the case for CERs?

A3: The Survey uses multiple sources of evidence:

The conclusion: India needs to spread agglomeration benefits across space by developing secondary cities and integrated regions, not by continuing to overload a few megacities.

Q4: What are the main institutional and fiscal challenges to implementing CERs?

A4: The Survey is explicit that India’s urban constraints are “not primarily financial but institutional.” Key challenges include:

Fiscal requirements:

• Property tax reform (area-based assessments, regular revisions)

• Land value capture mechanisms (betterment levies, development charges)

• Municipal borrowing access with safeguards

• Predictable central transfers linked to performance

The bottom line: CERs require institutional reform, not just conceptual recognition. Without empowered regional authorities and fiscal resources, they risk becoming “another well-intentioned concept.”

Q5: What international examples inform the CER concept, and what can India learn from them?

A5: The CER concept draws on experiences of economies with successful polycentric urban systems:

The key lesson: India’s current system resembles the Latin American model. The CER framework aims to move it towards the German/Japanese/Chinese model of polycentric, networked urbanisation. Success requires deliberate policy, institutional capacity, and long-term commitment.