New Delhi, Jan 29 (.)The Economic Survey 2025-26 has flagged restrictive land-use regulations, particularly low Floor Space Index (FSI) and Floor Area Ratio (FAR), as a key structural constraint holding back India’s urban growth, linking the issue directly to fragmented urban governance and weak institutional accountability.
The Survey notes that Development Control Regulations (DCRs) that cap built-up area per unit of land constrain vertical development and force cities to expand outward rather than upward. This distortion, it says, raises land values and creates artificial scarcity in core urban areas. Compared to global cities such as New York and Hong Kong, Indian cities have relatively low FSI, barring limited exceptions like central business districts.
Low FSI incentivises horizontal expansion, driving up average land costs and increasing infrastructure delivery costs per unit of housing or commercial space. As a result, housing supply remains constrained and prices rise faster than incomes, undermining affordability and productivity in urban centres.
While several state governments and urban bodies have begun modifying DCRs and granting additional FSI for a premium, the Survey points out that these measures are largely piecemeal. It stresses the need for a holistic rethink to unlock land use at scale. As an illustration, the Chennai Metropolitan Development Authority, while drafting its third master plan, is reportedly considering higher FSI in key zones, mixed-use development, and phased infrastructure upgrades to enable compact and vertical growth.
The Survey underlines that increasing FSI and FAR can unlock economic value by allowing more built-up area per unit of land, but warns that higher density without parallel infrastructure augmentation can lead to unproductive outcomes. Analysts cited in the Survey caution that an excessive focus on “de-congestion” often leads planners to spread cities outward instead of investing in infrastructure that supports compact growth, even though successful global cities are dense by design. In the absence of adequate amenities such as mass transit, water supply and sanitation, higher density can result in traffic gridlocks, water shortages and overwhelmed civic systems.
Crucially, the Survey links restrictive land use to the multiplicity of agencies governing Indian cities. It notes an inherent contradiction in urban policy: cities are expected to deliver growth, productivity and jobs, yet policies restrain density, fragment authority and ration urban land. Infrastructure projects such as metro rail, flyovers and expressways are often implemented without parallel land-use reform, housing supply expansion or skill clustering, forcing transport systems to compensate for planning failures rather than enable density.
This, the Survey observes, results in capital-intensive infrastructure with sub-optimal economic returns. While metro systems move people, they do not always raise productivity because jobs, housing and transport remain misaligned.
In contrast, global cities align electoral, planning and financial accountability. Mayors or city governments are not only directly elected but also empowered to control land use, transport planning and city finances through unified metropolitan plans and strong own-source revenues.
Indian cities, by comparison, raise less than 0.6 per cent of GDP in own-source revenues, borrow negligibly and depend heavily on intergovernmental transfers, leaving limited room for accountable and integrated urban planning.
The Survey concludes that unlocking higher FSI and FAR, coupled with unified urban governance and infrastructure-backed density, is central to enabling Indian cities to achieve their intended economic and social outcomes.
. KK