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Blog #9: Where you live decides how ‘well’ you live

India is home to the largest number of poor people in the world, as well as the largest number of people who have recently escaped poverty. Over the next few weeks, this blog series will highlight recent research from the World Bank and its partners on what has driven poverty reduction, what still stands in the way of progress, and the road to a more prosperous India.

We hope this will spark a conversation around 
#WhatWillItTake to #EndPoverty in India. Read all the blogs in this series, we look forward to your comments. 

Location and poverty are intimately linked. In India’s rapidly transforming economy, where the boundaries between rural and urban have become increasingly blurred, living standards are much higher in ‘good’ locations, and much worse in places that are not so ‘good’. In the years to come, creating more such ‘good’ locations, and spreading their prosperity to surroundings areas, will play a key role in raising incomes and reducing poverty in India.

Whether a household is poor or not depends not only on its assets, education and skills but also, importantly, on where it lives.  Consider a ‘typical’ Indian household, which has four members and where the adults have less than nine years of education.  Assuming this household is also ‘typical’ in other respects, it would spend Rs. 8,121 per month if it lived in urban Maharashtra, but only Rs. 3,735 a month if it resided in rural Bihar. A part of this difference can be explained by the higher cost of living in urban Maharashtra. Nonetheless, a big part of it can be attributed to the real difference in consumption levels between the two locations.  One may think of this difference in consumption levels - 117 percent in this case - as the gain associated with living in a ‘good’ location.

It is however important to note that this clear distinction between urban and rural areas no longer exists in India. A decade ago India’s cities and countryside were truly different.  Nowadays, the difference between urban and rural areas is mostly a matter of degree. While cities are expanding beyond their municipal boundaries, many once-rural areas are becoming denser and acquiring more urban characteristics.  Today, as cities move to people as much as people move to cities, India’s rural-urban divide is being replaced by a rural-urban gradation.

In a recent paper, we explore how this messy urbanization affects the likelihood of a household being poor, and its living standards more generally.  We use National Sample Survey (NSS) data from 2012 to compare patterns in living standards across four different types of locations along the rural-urban gradation, from small rural areas with a population of less than 5,000 to large urban areas with a population greater than one million. In all, we consider roughly 1,400 places spread across the 599 districts for which we have good data.

With this more granular spatial perspective, we find that the ‘typical’ Indian household could consume Rs. 13,554 per month in urban Gurgaon in Haryana, which has the highest consumption levels among all the 1,400 places considered. At the other extreme, a similar household in a small village in the Malkangiri district of Odisha would consume only Rs. 2,928. Seen from this more detailed standpoint, the difference in consumption levels rises to 362 percent.

Clearly, where a household lives matters. About half of the overall variation in consumption expenditure across places can be explained by differences in a household’s characteristics such as its ownership of assets, in its education and skills, and in its age composition – or how many working members there are in a household. But when we also take the household’s place of residence into account, nearly two thirds of this difference can be explained.  This means that one third of the variation in per capita consumption in India is related, in one way or another, to the place where a household lives.

The analysis yields other insights too.  First, it has now become difficult to tell the difference between large rural areas and small urban areas.  And, that on average, small urban areas and large rural areas can support similar consumption levels.

It’s not just where you live, but also near what you live that matters

It also appears that the ‘best’ places to live in India tend to be near each other. Clusters of such places are to be found in the northwest of India, along the western and southwestern coasts, and in India’s northeast, towards Bangladesh. Among them are the agglomerations surrounding Ahmedabad, Bangalore, Delhi, Jodhpur, Kolkata, Mumbai, Puducherry, South Goa and Thiruvananthapuram.

Some of these clusters are huge.  For example, the one around Delhi spreads across 60 districts, spanning seven of India’s northwestern states and Union Territories. Similarly, the cluster around Thiruvananthapuram spans 19 districts across the three southern states of Karnataka, Kerala and Tamil Nadu.

Although generally, urban India tends to have higher consumption levels than rural areas, there are some surprises.  Interestingly, it is not only large urban areas which display the highest gains in living standards.  In fact, many of the best places to live and work are secondary towns, and some of them are still administratively rural. What makes these ‘good’ rural locations special is that they lie in the catchment area of some of the best locations in the country.  Seen this way, what matters for a household is not just ‘where’ it lives, but also ‘near what’ it lives.

Some ‘good’ locations spread their prosperity more than others

However, all the ‘good’ locations do not spread their prosperity around them evenly.  For instance, both Bangalore and Delhi are among India’s top locations.  Between them, Bangalore enjoys a slightly higher gain in living standards than Delhi, arguably making it a better city to live and work in.  But Delhi spreads its benefits more widely, doing substantially better than Bangalore in the extent of its impact on surrounding areas. In Delhi’s case, the gain in living standards is still high up to 200 km away from the core of the city, while in Bangalore it almost vanishes just 100 km from the city centre. We do not know for sure why this is so, but the issue certainly warrants further research.

The ‘least good’ places to live and work are concentrated in the centre of India, where the states of Madhya Pradesh, Chhattisgarh, and Orissa meet. A number of such places can also be found in Uttar Pradesh and Bihar, along the Ganga basin. Surprisingly, most of them do not fall in the rural parts of these states, but rather in small urban areas.

Tribal populations live in some of the most disadvantaged places

Last but not least, paying attention to the places where people live changes our interpretation of the key determinants of poverty.  One of the most dramatic changes concerns our understanding of why some social groups are poorer than others.  For instance, a tribal household consumes 23 percent less than a household from the general category that is otherwise identical.  But when the place of residence is taken into account this gap falls to 13 percent. In other words, a superficial analysis would suggest that poverty among tribals is related to their socio-economic characteristics. On the other hand, our spatial analysis suggests a key reason why tribal populations are poor is because they live in some of the most disadvantaged places in the country.

Li, Yue and Martin Rama (2015) “Households or Locations? Cities, Catchment Area and Prosperity in India.” Policy Research Working Paper 7473, World Bank, Washington DC.

This blog was originally published in the Indian Express on 28th June, 2016.


Submitted by IIMB on

IIM Bangalore also has a deep engagement with international networks, such as the Global Network for Advanced Management (GNAM), which includes 28 top management schools around the world

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