India is a land of cities, not villages

It’s an election year in India, with the world’s largest polls expected in the spring. The focus of politicians is, as usual, on farmers and rural areas and competitive pandering to both — hardly surprising in a country that considers itself a nation of villages.
However, this narrative has one major flaw. India is, in fact, more urban than politicians know or acknowledge. This seriously affects India’s growth prospects, leading to inefficiencies and loss of productivity in both rural and urban areas. What’s worse, the resulting misallocation of resources is making India’s blossoming urban areas well-nigh unlivable.
The problem — in India as elsewhere — is largely one of definition. What constitutes a city or urban area varies widely around the world. Some nations employ simple population cutoffs: Mexico and Venezuela count any town with more than 2,500 residents as urban, while New Zealand uses 1,000 people. Since 2000, the US Census has focused instead on population density. China uses a density criterion of 1,500 people per square kilometer, but recently expanded the definition to include residents of villages that are directly connected to municipal infrastructure or that receive public services from urban municipalities.
In India, only ‘statutory towns’ are considered urban and have a municipal administration — a definition that officially leaves the country 26 percent urban. State governments make the decision using widely differing criteria; demographic considerations are peripheral at times. The Census of India provides the only other official, and uniform, estimate. Its formula uses a mix of population, density and occupation criteria, and pegs India at 31 percent urban.
Such estimates can be misleadingly low. For instance, Kerala is statutorily only 16 percent urban. Yet the census sees the well-developed southern state as approximately 48 percent urban. If we use a population cutoff of 5,000 residents as Ghana and Lebanon do, or even Mexico’s threshold of 2,500 people, Kerala’s urban share leaps to 99 percent, which is more consistent with ground reality. In effect, then, a state that’s close to 100 percent urban is being governed as if it was only 16 percent urban.
This pattern plays out across many large Indian states. Using a reasonably conservative definition as Ghana does, in fact, India is already close to 50 percent urban, far removed from the dominant narrative that India lives in her villages.
The consequences of underestimating the urban share of the population are dire. Resources are badly misallocated: By one estimate, over 80% of federal government financing still goes to rural development. This reduces incentives for politicians, especially rural ones, to change the status quo. Tens of millions of Indians who live in dense, urban-like settlements are governed by rural governments that lack the mandate and the money to deliver basic services.
Not acknowledging towns as urban also encourages haphazard and chaotic development.
As long as there are no standard definitions, urban-rural classifications are likely to be political, path-dependent and arbitrary. This will deny many countries the vital scale and agglomeration economies provided by urban areas, a necessary condition for escaping poverty.
—Bloomberg