The Age of the Sub-City: How Indian Municipalities Can Accelerate Economic Growth

India’s real estate sector is booming, again. Across states — from Telangana and Andhra Pradesh to Tamil Nadu, Maharashtra, Gujarat, and Uttar Pradesh — governments are announcing new industrial cities, capitalising on private investment and rising land values.

These new cities promise jobs, growth, and industrial dynamism. But, there an invisible structural flaw. I argue that these state-led industrial city projects, while grand in ambition, neither strengthen India’s structural democracy nor ensure structural sustainability.

What I suggest, instead, is India's next urban leap should not be another round of state-created industrial hubs — but the creation of what I call “sub-cities”: autonomous, self-contained ecosystems within large cities, governed under the broader sovereignty of existing municipal bodies.

The Real Problem: Disempowered Municipalities

India’s municipalities remain among the weakest in the world. Despite the 74th Constitutional Amendment, which promised greater local self-governance for urban elected authorities, most city governments are financially and administratively dependent on state governments.

Their revenue base is narrow — mostly limited to property tax and small service fees — and often politically constrained. Land management and industrial policy are largely in the hands of state development authorities.

This imbalance makes cities administrative units, not economic engines. And it’s this imbalance that a sub-city model can correct.

The “Sub-City” Vision

A sub-city is an autonomous small city within a large one. It operates under the legal sovereignty of the city’s municipal government but enjoys administrative autonomy for internal functioning and development.

Unlike the state-built industrial cities on virgin land, sub-cities are conceived, facilitated, and partially owned by municipal governments.

Here’s how it would work:

The municipal body identifies and acquires land (through purchase, consolidation, or transfer).

It then provides trunk infrastructure — roads, subways, power, water, fuel, gas, sewerage, and drainage connections.

The land is leased-out to private developers or consortiums via transparent bidding.

The developer can build industrial, logistic, commercial, hospitality, residential, and recreational facilities, either independently or through sub-contracting.

The municipal government may own a minority equity-share or retain partial land ownership to secure recurring revenues.

Multiple sub-cities may be created within a single large city, each acting as a self-sustaining growth node.

Building Up, Not Just Out

In an earlier blogpost on India’s urban reform, I argued that India’s urban future must be vertical, not horizontal. Horizontal expansion eats into farmland, forests, and floodplains — causing ecological degradation, inefficient service delivery, and rising commute times.

The sub-city model inherits this logic. It encourages intensification and re-development of under-utilised or brownfield land within cities, rather than endless sprawl.

Vertical mixed-use development in sub-cities allows for:

Smarter land use — accommodating industry, offices, and housing within compact footprints;

Infrastructure efficiency — shorter utility networks, cheaper service delivery, and easier maintenance;

Preservation of open and ecological spaces — since vertical growth frees up horizontal land; and

Social integration — because high-density urbanism, if well-planned, brings diverse income groups into the same spatial ecosystem.

Why This Matters

a) Fiscal Empowerment

Each sub-city would generate steady income for the municipal corporation through lease premiums, annual ground rents, and service fees. Over time, this could enable lower property tax burdens on the larger city's residents while ensuring stable social funding.

b) Structural Democracy

Empowering municipalities to create and manage sub-cities means strengthening urban democracy at its roots. It makes local governments economic stakeholders, not passive administrators.

c) Structural Sustainability

By combining vertical efficiency with mixed-use planning, sub-cities promote compact, circular urban growth instead of sprawling industrial corridors. They bring jobs closer to homes and reduce environmental externalities.

d) Economic Coherence

For India’s large real estate developers, sub-cities offer a more holistic canvas: not “a residential project here, a logistics park there,” but an integrated urban ecosystem. This would encourage long-term planning and cross-sector efficiency.

Governance and Design Principles

To work effectively, sub-cities should follow clear principles:

SPV Model: Each sub-city should be governed by a Special Purpose Vehicle (SPV) in which the municipal corporation holds a notable equity-share (for example, one-fifth or one-fourth) ensuring oversight without micro-management.

Mixed-Use and Inclusion: Developers must reserve some areas for mixed-income housing, small enterprises, and local employment — ensuring the benefits don’t become elitist.

Autonomy and Accountability: Residents and businesses can form local boards to manage internal affairs, while safety, law enforcement, and trunk utilities remain under municipal control.

Addressing Concerns About Elitism

Critics may argue that sub-cities will privilege the upper classes. But in practice, each sub-city’s development will create hundreds of construction jobs and thousands of long-term industrial, logistic, and service jobs — mostly for people from lower-income groups.

Moreover, by leasing land rather than selling it, municipalities retain leverage to impose inclusionary policies and maintain social balance.

Challenges and the Way Forward

There's, of course, likely to be resistance. State governments may not easily cede control over urban land monetisation. Smaller municipalities may lack the expertise to structure and manage SPVs.

Therefore in this regard, the Central government should play a catalytic role, by:

Framing a Model Sub-City Policy or a Municipality Empowerment Mission;

Designing and delivering capacity-building programs to city governments;

Encouraging states to adopt enabling legislations under a Model Municipality Empowerment Act.

A New Federalism for Urban India

India’s future growth cannot depend indefinitely on state-led, capital-intensive projects. The next phase must delegate and democratise urbanisation — financially and institutionally.

The sub-city model offers a path toward urban federalism, where city governments not only govern but also generate growth and revenue. It’s a way to align economic dynamism with democratic depth, infrastructure with inclusion, and development with sustainability.

Conclusion: Towards Long-Term Resilience 

India doesn’t need another generation of industrial cities built on the outskirts of governance. It needs a generation of sub-cities built on the foundations of democracy and sustainability. That’s where true long-term resilience — structural, fiscal, environmental, and social — will come from.