Sprouting of a thousand small towns

The advocates of balanced urbanisation often oppose population concentration in a handful of large urban centres. But it is difficult to ignore the positive outcomes associated with population concentration. Productivity gains are higher in large urban settlements and thus there is a tendency for firms to reap locational advantages.

In the Indian context, many of the mega cities which once upon a time attracted much of the investment and accounted for a large component of economic activity have started showing signs of decline.

This is possibly because they have attained the saturation limit. Whether the next tier cities are ready to take over the lead role is an important question.

However, this is not a given. As a large city gets saturated, new economic activities gradually come up in the rural hinterland. This is the second-best solution for new firms, because by doing so they are able to avoid the diseconomies that the core city generates, and at the same time they may have access (due to locational proximity) to the agglomeration economies that the core city offers.

The last Census points to the rise of a huge number of census towns between 2001 and 2011.

A census town is one that has a minimum population of 5,000, at least 75 per cent of the male working population engaged in non-agricultural pursuits and a population density of at least 400 per sq km. A little over 2,500 new towns cropped up during this period, while it had taken almost 60 years since Independence to reach 1,362 census towns. What can explain such fast growth?

Most of the census towns are concentrated in Kerala, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal.

Of them, Maharashtra, Tamil Nadu and West Bengal are relatively industrialised, whereas Kerala’s growth dynamics is unique, with a lead role played by the plantation sector. Only in UP have many new towns come up despite there being only moderate growth.

The number of statutory towns of all sizes is also positively associated with the number of census towns (though the correlation is moderate), implying that urbanisation as a whole seems to be expanding -- from the spillover of the existing urban localities into the rural hinterland.

For the first time since Independence, the absolute increase in the urban population was higher than in the rural population.

With urbanisation, several social, economic and demographic variables tend to improve. Rural non-household manufacturing and services increase with urbanisation. In other words, districts with higher urbanisation levels are able to witness a rural transformation.

The rural child-woman ratio and household size also decline with the urbanisation level.

On the other hand, rural work participation rises in response to urbanisation, suggesting possibilities of spillover of urban-based activities to the rural areas, which in turn raises demand for rural labour in the rural non-firm sector.

Thus, a shift away from cultivation going hand in hand with urbanisation is discernable. Growth, inequality, poverty and other development indicators, including the urbanisation level in the district, are related, though the associations are not very strong.

On the whole, districts with a higher level of urbanisation are associated with reduced rural poverty incidence and higher levels of growth and other development indicators, though inequality is likely to rise in the process.

Hence, based on the district level data, it may be concluded that urbanisation delivers better outcomes in terms of not only economic indicators but also social and demographic indicators in the adjacent rural areas, though such processes are on a limited scale. However, rural areas which are not close to the urban centres need to be tackled exclusively.

Overall, the growth of new towns is not always related to the spillover effect of very large urban centres. However, there is ample evidence to suggest that some of the new towns are the outcome of a shift of population from cultivation to non-farm activities.

Many of these new towns do not seem to have emerged in response to agricultural prosperity.

Hence, the contribution of these towns to wealth formation seems to be negligible. In order to strengthen the positive spillover effects of urbanisation on the rural economy a number of policy initiatives need to be pursued.

It is pertinent to strengthen rural-urban ties in terms of infrastructure base, provision for skill-improvement for the rural population and creation of productive jobs in the rural non-farm sector.

The growth of rural non-farm sector activities is crucial for the productive utilisation of the surplus workforce in the agriculture sector.

The writer is a professor at the Institute for Economic Growth

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