Why India has the fastest-growing cities

A recent estimate put out by The Economist magazine claims that three of the world's 10 fastest-growing cities (by population, based on 2015-20 projections) are in India.

All three—Malappuram, Kozhikode and Kollam—are in the state of Kerala. This is intriguing. As per the 2011 Census, Kerala had the lowest decadal population growth rate in the country at 4.6%. That is unlikely to have changed by any significant degree in the years since. Hence, Kerala is, quite literally, the last state in the country that should be the site of urban growth driven by a population boom.

There are two other reasons that could be driving urban growth in Kerala and, particularly, in these regions: high in-migration and high rates of conversion from rural to urban areas. The last reason seems to be the most likely one though.

The rapid transformation of India from a country of villages to a country of cities, which is still officially unacknowledged, is at the heart of the Kerala mystery. Essentially, the overwhelming factor is not that more people are being born. The perceived boundaries of certain cities, known as urban agglomeration that includes densely built-up areas outside the official municipal boundary, is expanding. And fast.

In several parts of the country, non-farm work already dominates. More than 50% of Kerala's workforce, for example, is engaged in services jobs. These geographies should ideally be recognized as cities. This relatively slow, yet long-awaited, transformation is happening at a much faster pace in some states, such as Kerala.

This has implications for how we manage and service these areas—and wide-ranging consequences when it comes to access to economic opportunities and overall quality of life.

Cities are, after all, not just densely populated areas within the confines of an arbitrary administrative boundary. They are an agglomeration of firms and workers. Urbanist Alain Bertaud refers to cities as labour markets. Hence, the actual limits of cities may at times go beyond administrative limits.

The Economist, in taking population projections using inhabitants within the urban agglomeration—which includes the area within the municipal limit along with the contiguous built-up areas outside municipal boundaries (which can be identified with the help of satellite images)—also acknowledges this fact.

Thus, the growth witnessed in Kerala is on account of areas around municipalities becoming more populous and denser, with residents moving away from non-farm jobs, particularly over the last three decades. This transformation has been showing up in an official category called the "census town".

Census towns are areas that the census classifies as urban because they have more than 5,000 people, a density greater than 400 persons per sq. km, and 75% of the male working population in non-agricultural activities. However, census towns are governed by rural local bodies (RLBs) or Panchayats. Between 2001 and 2011, Kerala added the highest number of census towns to its urban settlements and the urban agglomeration areas of Malappuram, Kozhikode and Kollam added 37, 38 and 23 census towns, respectively. This pattern of growth is occurring in several other states as well.

A 2018 study finds that 1,373 of the existing 3,892 census towns share a common boundary with larger cities. This phenomenon of peripheral urbanization is also supported by evidence collected from satellite data that allows us to track built-up area growth over many decades.

Hidden urbanization

This raises practical questions of urban governance. Here is the problem: there is a substantial difference between the share of urban population according to the 2011 Census and the share of urban population that is "administratively" urban, that is, which is governed by an urban local body (ULB).

The decision of which places are to be governed by ULBs is taken by state governments, with state municipal Acts providing guidelines. According to the 2011 Census, India is 31% urban, whereas just 26% of the total population is administratively urban. The 5-percentage-point gap between the two definitions accounts for approximately 53 million people, roughly the population of South Korea.

The problem of exclusion from urban governance does not stop with census towns. Some studies state that the definitions used by India may result in undercounting its urban population. A 2019 paper (bit.ly/2019paper) in the Journal of Asian Economics shows that if we use a population threshold of 5,000, that is, if all areas having more than 5,000 people are classified as urban, India will be 47% urban. And Kerala? It goes from 16% administratively urban as per the 2011 Census to almost 100% urban by this definition.

The 5,000-plus threshold criterion is no more arbitrary than the threefold classification of 5,000-plus population, 400-plus population density, and 75%-plus non-agrarian male workforce that the Census of India has been using since 1961. Ghana and Qatar use the 5,000-plus criteria too.

Moreover, urbanization rates at the state level estimated using the census or 5,000-plus criteria correlate better with indicators like the gross state domestic product or the share of population working in services jobs, compared to urbanization rates estimated using just the administratively urban criteria.

Why it matters

This matters a great deal. ULBs and RLBs provide very different kinds of goods, services and management. The 73rd and 74th constitutional amendments contain the XIth and XIIth Schedules listing the powers, authority and responsibilities of Panchayats and ULBs, respectively. Items listed for ULBs and not RLBs include: town planning, slum improvement, public amenities including street lighting, parking lots, bus stops, solid waste management, building regulations and fire services.

An urban area governed by a ULB rather than an RLB could potentially benefit from a 147% increase in road length per sq. km, a 128% increase in water storage capacity in kilolitres per capita, a 25% increase in the probability of establishing a higher education institution, and an 11% increase in hospital beds per capita.

Even when amenities and services are available in de facto urban areas, the quality may be worse than it would have been under a ULB. Roads are a good example. The NYU-UN Habitat Atlas of Urban Expansion measures the quality of roads in several Indian cities in the pre-1990 period compared to peri-urban expansion areas between 1990 and 2014.

The quality drops off sharply due to the unplanned nature of the growth in the peri-urban areas. For instance, the average road width in the Kozhikode 1990-2014 expansion area was 4.03 metres, compared to 9.84 metres in its pre-1990 area (which was within the municipal boundaries).

Roads are critical in determining the efficiency of labour markets since they are the primary means by which workers can access jobs and firms can access markets as well as employees. Better quality of roads means workers can potentially access a greater number of jobs in different locations and the catchment area of potential employees for firms increases, which in turn enhances the productivity of cities. Besides, roads not only carry transport but can also house trunk infrastructure like sewerage lines or storm water drains.

While de facto urban areas everywhere may potentially be suffering adverse consequences of being denied a ULB status, de facto urban areas around large cities or big towns are particularly vulnerable because they are under intense pressure from the spillover growth and expansion that comes out of large cities. Imagine the outskirts of a Delhi or a Mumbai or a Bengaluru.

People who want to access the better-paying jobs that are available within cities or towns may prefer to reside in these peri-urban areas because housing is cheaper. Firms, especially industries, may prefer to locate in peri-urban areas to avoid emission norms and standards.

The economic fallout

If we compare the maps of Kozhikode and its surrounding areas in 1975 and 2014, we can see built-up growth spilling over municipal boundaries into peripheral areas that are governed by Panchayats (see chart).

What happens to growth in neighbouring districts? Malappuram is to the south of Kozhikode district. In the chart, it lies south of the dotted line that demarcates Kozhikode district. It is evident that in 2014, urban growth was contiguous across the two districts, traversing municipalities, census towns and Panchayats.

It makes the case for looking at areas with large populations and contiguous built-up areas as a single large city or metropolitan area, rather than separate towns and villages, as they may already be functioning as a unified urban area.

All of this isn't just about playing the long game by giving people the local administrations they need to improve their lives and boost growth. There are immediate potential gains for cash-strapped governments too. ULBs have greater revenue raising powers than RLBs.

A 2011 report on India's municipal finances estimated that ULBs raised about 8.5 times more tax revenues than Panchayats. More ULB governance, therefore, will mean increased revenues. This could set up a virtuous cycle with ULBs spending that revenue on providing more and better goods and services, thus boosting growth and productivity which feeds into higher revenue.

Of course, governance in India is never exactly simple. The challenge is that even the existing ULBs do not spend enough on basic goods and services. India's municipal funding as a share of gross domestic product is among the lowest globally—at 1.9%. The high-powered expert committee report on urban infrastructure and services found that ULBs spend only around 28% of what is needed for efficient management of services.

So, why aren't we even taking the first step of recognizing more of India as urban? Losing access to centrally sponsored schemes that are targeted at rural areas, like the Mahatma Gandhi National Rural Employment Guarantee Scheme or Pradhan Mantri Gram Sadak Yojana, is one of the main reasons why rural political leaders as well as rural residents resist conversion from RLBs to ULBs. Anecdotal evidence and qualitative research also throw light on other reasons for resisting conversion—fear among residents that they may have to pay higher taxes, say, or fear among local politicians that they may lose power and access.

Given these entrenched fears, ensuring that places get the governance set-ups most appropriate for them is a major policy conundrum. If policymakers get the solutions right, the benefits will go far beyond pride of place on an Economist graph.

Kadambari Shah is senior associate, Vaidehi Tandel is junior fellow and Harshita Agrawal is associate at IDFC Institute.