One-size-fits-all rules holding back India’s cities, warns Economic Survey 2025-26

India's cities are central to the nation's growing economic output, yet the Economic Survey 2025-26 warns that ineffective city governance is undermining productivity for workers and firms. The report identifies regulatory practices and administrative shortcomings as key obstacles, indicating that current approaches constrain urban efficiency and economic advancement. The Survey states that 'the Survey notes that Indian cities struggle to convert scale into efficiency.'

A major concern highlighted in the Survey is the prevalence of uniform, inspection-led regulations across cities, regardless of differences in density, risk, or local capacity. The Survey explicitly calls for 'contextual compliance based on risk, scale and capacity', noting that 'one-size-fits-all regulation raises transaction costs without improving outcomes.' This approach often delays projects, increases operating costs, and leads to underutilised land, particularly impacting businesses that depend on speed and flexibility.

Regulatory systems are criticised for relying on rigid, uniform frameworks instead of tailoring rules to the realities of modern cities. The Survey notes, "the core of this problem is a regulatory system that relies on uniform, one-size-fits-all compliance, instead of contextual, risk-based regulation suited to the realities of modern cities". As a result, regulatory scrutiny is often misallocated, with low-risk activities facing disproportionate oversight while high-impact risks may be neglected.

The Survey attributes these outcomes to fragmented governance structures and limited economic agency at the urban local body level. It states that, 'it argues, lies in fragmented governance and limited economic agency.' Urban local bodies often lack real control over land use, taxation, infrastructure planning, and service delivery, limiting their ability to manage urban growth effectively.

This governance deficit has tangible consequences for productivity. Ineffective land-use planning results in higher housing costs and urban sprawl, which in turn causes longer commutes and more congestion. Poor coordination between transport, housing, and employment centres diminishes effective working hours, eroding the productivity benefits typically linked to urban density.

The Survey also discusses the impact of non-contextual compliance, pointing out that excessive regulatory burdens can delay project approvals and discourage formalisation of businesses. This system creates an environment where small enterprises and service providers, which rely on rapid adaptation, are especially affected by increased operating costs and administrative delays.

Urban informality is becoming increasingly entrenched, the Survey indicates, noting that urban informality is becoming structural. Cities absorb labour but often fail to integrate workers into formal housing, transport, and service networks, while heavy compliance requirements dissuade formalisation and limit investment in productivity-enhancing infrastructure.

Institutional trust is another area of concern. The Survey observes that, 'the Survey argues that Indian cities lack the trust-based relationship between citizens and urban governments that underpins efficient service delivery.' Limited accountability and substandard services weaken compliance and civic engagement, adding to the challenges in building productive urban systems.

Beyond mobility, the Survey stresses the importance of creative density, alongside economic density. Globally engaging cities actively nurture art, music, food and street culture as part of urban policy. Indian cities, despite their cultural depth, often constrain creativity through restrictive licensing, blunt noise regulations and lack of affordable inner-city spaces. The Survey calls for low-rent creative zones in city cores, using public or underutilised land, supported by single-window approvals for studios, theatres, rehearsal spaces and galleries.

On informality, the Survey argues against eviction-led urban development. Instead, it favours in-situ upgrading of informal settlements, with secure tenure, basic services and gradual formalisation. Streets, it adds, should be explicitly designed to accommodate vendors, building on the Street Vendors Act, 2014 and schemes such as PM SVANidhi that have helped formalise vending zones in several states.