New Delhi: India’s aspiration to become a developed economy by 2047 will remain out of reach unless it significantly accelerates urbanization, while the next generation of economic reforms must be driven primarily by state governments, economist and former 16th chairman Arvind Panagariya said on Friday.
Speaking at the National Council of Applied Economic Research’s India Policy Forum 2026, the Columbia University professor argued that the Centre has already completed or initiated most of the major “big-ticket” reforms under its domain, shifting the focus to states, where bottlenecks in land, urban governance and local regulations continue to impede economic transformation.
“If we are really looking at 2047 as the target date for a developed India, urbanization has to happen. Countries may urbanize without becoming rich, but no country has become rich without becoming urban,” Panagariya said.
He described urbanization as “the most critical next step” in India’s growth journey, saying the country’s pace has been far too slow compared with economies that successfully transitioned to developed status.
India’s urban population rose from just 17% in 1951 to about 28% in 2001 and is estimated at around 35% today—far below the pace seen in countries such as South Korea, Taiwan and Japan during their periods of rapid industrialization. South Korea, for instance, increased its urbanization rate from nearly 35% to 80% in just three decades.
Panagariya said migration into cities, rather than merely reclassifying villages as urban settlements, must become the principal driver of if India hopes to sustain high economic growth over the coming decades.
Land optimization
He stressed that the biggest obstacle to faster urbanization is not labour regulation anymore but the scarcity and high cost of urban land.
“Today, the big constraint, if the states are vigilant, is land,” he said.
Panagariya identified multiple hurdles that require state-level intervention, including cumbersome land acquisition processes, restrictive building by-laws, low floor space index (FSI) limits, rigid zoning regulations, underutilized government land, legacy litigation and outdated requirements governing land-use conversion.
He said India’s fragmented land ownership and acquisition framework makes it nearly impossible for private industry to assemble large parcels for manufacturing or infrastructure projects. Referring to the Tata Nano project in Singur, he noted that the acquisition of around 1,000 acres involved nearly 12,000 separate land parcels, illustrating the complexity businesses face.
The economist also called for revisiting provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. While the Centre’s attempt to amend the law in 2015 did not succeed, he noted that several states have used constitutional provisions to introduce their own amendments after obtaining presidential assent.
According to Panagariya, Tamil Nadu has largely restored its pre-2013 land acquisition framework, while Maharashtra has introduced some of the broadest relaxations under the existing law, providing models that other states could examine.
He also advocated liberalizing building regulations by allowing higher FSI limits, promoting mixed-use zoning instead of rigid residential-commercial segregation, bringing idle government land into productive use, simplifying conversion of agricultural land for urban purposes, and converting “census towns” into statutory urban local bodies.
Andhra Pradesh, he noted, has already removed the requirement for prior land-use conversion, while Telangana and Andhra Pradesh have undertaken significant reforms in building regulations.
Panagariya further proposed creating large “Special Employment Regions” with unified governance, greater flexibility in and land regulations, and world-class transport connectivity to attract labour-intensive industries. Such regions, he said, could bypass some of the institutional rigidities that currently slow investment and job creation.
He also called for expanding affordable rental and dormitory housing for migrant workers, arguing that India’s housing policies have largely focused on existing urban residents rather than new migrants who fuel urban economic growth.
States’ turn
On the broader reform agenda, Panagariya said the Centre has already made substantial progress on several major policy fronts, including trade liberalization and labour reforms, while privatization of public sector enterprises and banks continues. However, reforms in the judiciary, bureaucracy and higher education remain unfinished.
He argued that public discourse often wrongly attributes every governance challenge to the Union government, even in areas constitutionally assigned to states.
“Everybody goes and knocks on the Union government’s door for issues that are completely on the state list,” he said, citing sanitation, piped water, urban governance and school education as examples where states bear the primary responsibility. “If federalism is to work, we have to knock on the doors of the 28 states, not just Delhi.”
Panagariya concluded that while many of the reforms he proposed are politically difficult, they are essential if India is to unlock the urban transformation needed to achieve developed economy status by its centenary of Independence in 2047.