Published on Jobs and Development

Getting urbanization right for better jobs in India

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Photo: © Ray Witlin / World Bank
Urbanization in India is set to take off in the coming years. At 31%, India’s official urbanization rate is far lower than that of other BRICS nations. However, according to a 2016 World Bank report, if we apply an agglomeration index, India would be around 55% urban as of 2010. An ongoing study by IDFC Institute finds that if we classify all places with a population of more than 5000 as urban (a criteria used by countries such as Ghana and Qatar) India would be 47% urban as of 2011.

Therefore, a number of settlements regarded in India as villages are de facto urban, having high population densities and with the infrastructure and amenity requirements of small towns and cities. Many living in these areas are engaged in non-farm employment and have aspirations that are similar to those living in urban areas. According to a 2013 World Bank report, employment growth in sectors such as manufacturing, real estate, and transport, storage and communications between 1998 and 2005 was substantially higher in rural areas within metropolitan regions as compared to their cores and urban areas in the seven largest metropolitan areas in India.
Changing the classification of such settlements from rural to urban is crucial so that policymakers are made aware of the true extent of urbanization and can design policies for developing urban areas. At present, state governments use considerable discretion in classifying areas as rural or urban and the criteria used vary across states.

One way to ensure that urban areas are not undercounted is to have a maximum population and density threshold beyond which settlements must necessarily be governed by urban local bodies. The Constitution allows for urban local bodies to include people with knowledge or experience in municipal administration and charges urban local bodies with functions such as land use planning. Courts tend to hold urban local bodies to a higher standard of service delivery than they do rural local bodies. Hence, areas governed as urban tend to have amenities of better quality and those residing in these areas have better access to education and skilling opportunities, healthcare, and sanitation, which translates to better human capital and employment productivity. Changing the mode of governance of de facto urban areas could therefore improve productivity of existing jobs in these areas.
But there is considerable resistance to converting rural areas to an urban governance form because those living there often pay lesser taxes and lower prices for utilities. They can also benefit from government schemes meant for rural development. Sometimes, local leaders in villages fear losing power and state governments resist conversion of villages to municipalities where different political parties enjoy local support.
If it becomes politically unfeasible to re-classify areas as urban, policy makers may have to think of governance forms for them that lie between the rural-urban classification, and make investments in providing infrastructure. The Union Government’s Shyama Prasad Mukherji Rurban Mission is one such step towards supporting development of rural clusters that have the potential to undergo a transformation to urban. The objective of this mission is not only provision of amenities but also job creation through economic development.

Agricultural employment in India’s rural areas has been declining. According to a 2014 working paper by Denis and Zérah, the number of people for whom farming was the main occupation declined from 103 million to 98 million between 2001 and 2011. In 2014, a survey of farmers conducted by CSDS found that 62% of those surveyed were willing to leave farming for a job in the city. Further, manufacturing and construction sectors, both in urban and rural areas, are witnessing a growth in the number of people employed.

The paper by Denis and Zérah estimates that two-thirds of the net total workforce that expanded between 2001 and 2011 was absorbed in non-farm jobs. However, job creation in key sectors is likely to shrink in the coming years; a 2014 report by CRISIL estimates that the number of jobs created between 2004-05 and 2011-12 and between 2011-12 and 2018-19 in industry and services sectors will decline by about 25 percent.

Therefore, if India has to absorb the large numbers of people leaving agriculture and having aspirations of a better life, it cannot afford to ignore its urban areas. By urban areas we mean not just large metropolises, but also the smaller cities, towns, and large villages, where much of the job creating economic activities like manufacturing, small scale industries, and construction are taking place. Investments in infrastructure and amenities along with skill development would be vital for augmenting employment productivity in these areas.  


Vaidehi Tandel

Associate Fellow, IDFC Institute (India)

Komal Hiranandani

Associate, IDFC Institute (India)

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