Archaeology of Ayodhya:

A minor excavation at Ayodhya in 1969-70 showed that the site was occupied in NBP times. The upper levels of the NBP phase brought to light six terra-cotta human figurines grey in colour, and two Ayodhya coins. It also yielded some iron objects. Although there was a massive brick structure built in several phases at Kubera-Tila. It has not been dated; perhaps it belonged to the Kusana period.

Excavation at Ayodhya in 1979-80 shows evidence of town planning in the late NBP phase when we find terra-cotta ring wells and structures of baked bricks. After the end of this phase we get a baked brick wall of the Sunga period and a part of the house-complex of Gupta times. The 'typical' Gupta pottery is also found . It is stated that "occupation continued through the Sunga, Kusana and Gupta periods to medieval times", but the elements that continued after the Gupta period are not mentioned. In post-Gupta days the site was evidently neglected. ...

Ayodhya in Sanskrit Literature:

The Kavyas are more concerned with court life, and hence do not reflect the widespread decay of towns. Nevertheless a few literary texts contain faint echoes. Valmiki's description of Ayodhya when Rama left for exile gives clear hints about the condition of a deserted town. Apart from the absence of the din and bustle of a busy life, we find that carts and chariots do not ply in the streets, sacrifices are not performed, and commodities are not adorned with flowers and garlands to attract customers. The shops are devoid of merchants, who feel worried on account of the end of their trade. We learn that very few shops and markets are open, and the merchants do not know what to do. Ayodhya faces a similar plight in the Raghuvamsa, after the death of Rama. Its roads and streets, palaces and water tanks, and gardens and orchards are deserted, and the town goddess bemoans her fate. The Raghuvamsa belongs to Gupta times although the Ramayana could be of an earlier period ..

Ayodhya in Decay in 8th Century AD:

Taxila, Sravasti, Ayodhya, Pataliputra, Ujjayini and Pratisthana or Paithan appear as important towns in the Kuvalayamala. In addition to these Champa, Mithila, Kausambi Sravasti, Hastinapura and Bairat appear as important towns in the Samaraicca Kaha, but leaving aside of Mithila, which cannot be identified and appears as a town in the Ramayana of Valmiki, archaeological and other sources show that these towns were in a state of decay in the eighth century. In the Samaraicca Kaha some towns are called city states, which label could fit those towns that issued coins between 200 BC and AD 200. No town did this in the eighth century or in the following two centuries. Nor is there any other indication to show that city states existed in the early medieval period. ...

By comparing Al-biruni's list of towns in northern and western India with that of Kusana and pre-Kusana towns, K.A. Asharfyan points out that the transition from antiquity to the Middle Ages was marked by the disappearance of many ancient towns. Those which survived suffered decline and underwent a gradual transformation of their socio-economic structure. Asharfyan identifies twenty-two important pre-Kusana towns, which cover not only northern India but also parts of central and western India according to our scheme ...

... Out of these only five towns, namely Ayodhya, Mathura, Pataliputra, Ujjain, and Varanasi appear in Al-biruni's text. Most of these existed as religious centres, which ... developed when towns lost their urban character. Thus the process of the decline and disappearance of ancient towns is very clear.

According to Asharfyan a study of the list of Al-biruni's northern towns known from ancient Indian sources shows that ancient towns had either disappeared or were in a state of decline.

It will be seen that Indian literary evidence for urban decline of Gupta and post-Gupta times is not strong .. Indigenous texts are not totally bereft of references to urban decline. What is far more important, inscription and foreign accounts broadly corroborate the decline indicated by excavations. ...

The Gupta empire in India was larger than each of the two kingdoms, and yet its cities and towns show the general trend of decline. Proceeding from east to west and north, Pataliputra, Vaishali, Katragarh Chirand, Khairadih, Manjhi, Varanasi, Kausambi, Sringaverapur, Ayodhya, Hastinapura, Mathura, Atranjikhera, Sonkh, Purana Qila, Noh, Ropar, Sanghol, etc, show symptoms of decline ... Apparently the Guptas and their  contemporaries were not capable of giving towns the scale of support which they had enjoyed earlier.

The second phase of urban decay appears after the sixth century. and its beginning synchronizes with the fall of the Gupta empire ... The archaeological decline of 'Buddhist' towns after the sixth century is generally attested by the account of Hsuan Tsang and by the lack of such seals and inscriptions as mention artisans and merchants either collectively or individually. It is also confirmed by decreasing attention given to traders and craftsmen in literature ...