Update India’s reform agenda: Freeing up urban land should be treated as an economic imperative

Subscribe to enjoy similar stories. India recently notified the long-awaited modifications of its labour laws, streamlining outdated and punitive regulations that had raised the cost of doing business and discouraged scale. As states begin to operationalize the new codes, there is optimism that simpler rules will encourage the formation of new firms, investment and formalization.

As these changes take effect, a parallel and equally consequential part of our reform agenda remains untouched: deregulation of India’s urban planning and land-use regulations that are just as archaic and distortionary as our labour laws were. Like our old labour laws, land regulations raise business costs invisibly but significantly, incentivize informality and inhibit scale. Unlike capital and labour, which can be optimized to drive productivity, land is a finite resource that cannot be substituted.

When neighbourhoods cannot add housing, cities cannot expand mass public transport and peri-urban growth is unplanned, productivity and affordability suffer. If labour reform is expected to spur job creation, planning reforms must unlock physical space for growth. What does the failure of spatial regulation look like on the ground? Satellite imagery offers a picture of our urbanization patterns.

Cities have long outgrown their municipal boundaries—as thriving cities do. As economic activity spills into surrounding rural areas, built-up land expands in haphazard ways, with irregular plot subdivisions and almost no land secured for arterial roads, public use or mass transit. The actual ‘economic unit’ in which people live and work exceeds the administrative unit for planning and governance.