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Urbanization is not a side effect of economic growth; it is an integral part of the process. As in most countries, India's urban areas make a major contribution to the country's economy. Indian cities contribute to about 2/3 of the economic output, host a growing share of the population and are the main recipients of FDI and the originators of innovation and technology and over the next two decades are projected to have an increase of population from 282 million to 590 million people. India's towns and cities have expanded rapidly as increasing numbers migrate to towns and cities in search of economic opportunity.

Hence accompanying India's rapid economic growth will be a fundamental shift in terms of a massive urban transformation, possibly the largest national urban transformation of the 21st century. This would pose unprecedented challenges to India's growing cities and towns in providing housing and infrastructure (water, sewerage, transportation, etc.), and addressing slums. Already, slums now account for about 26% of all urban population in cities. In Mumbai, more than half the population lives in slums, many of which are situated near employment centers in the heart of town, unlike in most other cities in developing countries. This would also entail massive capital investment needs in urban infrastructure India, as highlighted by various Finance Commissions and expert bodies. For instance the Report on Indian Urban Infrastructure and Services by the High Powered Expert Committee (HPEC) on urban projects an investment requirement of over US$ 870 billion over the next 20 year period. Similarly a Mckinsey study on Indian urbanization projects an investment need of US$ 1.2 trillion over a similar period.Meeting the needs of India's soaring urban populations is and will continue to be a strategic policy matter for various national, state and city governments. Promoting an efficient urbanization process in India will require a set of policies that will deal with land policies and basic needs, connective infrastructure and specific interventions. India also needs well managed cities with high quality services. Water supply and sanitation, urban transport and urban drainage are key local services to ensure the quality of living and sustained growth. Sustained energy supply, and affordable serviced land are services that are essential for the development of the economy.