The Towns India Forgot to Govern

by Bhalchandra Murarka, CEO, Choice Consultancy Services

Somewhere near Indore, on the road to Pithampur, there is a settlement called
Pigdambar. Factories line its edges. Workers commute in from nearby villages. The IIM
campus sits within eyeshot. Land prices have been climbing for years. By any reasonable
definition — density, occupation, economic character — Pigdambar is a town. But open a
government file and you will find it listed as a village, governed by a Gram Panchayat,
administered under rural rules designed for a way of life its residents largely left behind.
Pigdambar is not an exception.

India’s Census identifies a settlement as urban when its population exceeds 5,000, its
density crosses 400 persons per square kilometre, and at least 75 per cent of its male
workforce is engaged in non-agricultural activity. A place that clears all three bars earns
the label of a Census Town — statistically urban, but legally still rural. No Urban Local
Body, no municipal planning powers, no direct access to urban schemes; just a Gram
Panchayat doing its best to manage what has quietly become a small city.

Between 2001 and 2011, the number of such Census Towns grew by 185 per cent — from
1,362 to 3,892. Statutory Towns, the ones with actual municipal governance, grew by just
9 per cent in the same period. Today, nearly 30 per cent of India’s urban population lives
in settlements with no formal urban institution to govern them. On current trends, that
number could reach 8,500 to 9,500 Census Towns by 2031. That is not a governance
footnote. That is the central urban challenge of the next decade.

The consequences of this mismatch are not abstract. Gram Panchayats are built to serve
dispersed rural populations — their staffing, revenue tools, and service norms are
calibrated for fields and hamlets, not dense commercial settlements. Only 15 per cent of
Census Town households are connected to formal sewerage systems. Panchayat revenue
from local taxes? A mere 1.1 per cent of total income — the rest comes from state and
central grants. Meanwhile, the settlement grows denser, land gets converted quietly,
buildings go up without regulation, and the infrastructure deficit compounds. The cost of
correcting unplanned growth is always higher than planning it right the first time.

Here is the opportunity hiding inside this challenge. Spatial mapping shows that roughly
60 per cent of Census Towns sit along national or state highways, near industrial nodes,
or on the peri-urban fringes of major cities. These are not marginal places. They are
tomorrow’s economic clusters — logistics hubs, manufacturing corridors, affordable
housing belts, education towns. Niti Aayog estimates that every one percentage point rise
in urbanisation at the district level lifts GDP by 2.7 per cent. India does not need to build
new growth poles from scratch. It needs to recognise and empower the ones already
forming.

Converting a Census Town to a Statutory Town is not paperwork. It is a fundamental shift
in what a place can do for itself. A notified Urban Local Body can levy property tax,
regulate construction, prepare master plans, and access AMRUT funds directly. While
Panchayats governing Census Towns raise barely 1–2 per cent of their revenue from own
sources, Statutory Towns generate nearly 59 per cent independently. The transition
unlocks a fiscal architecture that makes long-term investment possible — and attracts
private capital that simply will not come without a recognised institutional counterparty.

When Jharkhand chose to act, it acted decisively. Between 2016 and 2019, responding to
a Ministry of Housing and Urban Affairs directive, the state moved over 100 Gram
Panchayats into statutory urban governance — some folded into existing municipal
corporations, others constituted afresh as Nagar Panchayats. City Managers were put in
place. Tax collection went to specialised agencies. Master planning found its footing
through the Ranchi Regional Development Authority. The results were tangible: own
source revenues climbed, urban services improved, and a governance model that had long
existed only in policy documents proved it could work on the ground. It was not without
friction. But it held — and what holds once can be built upon everywhere. Choice
Consultancy Services Private Limited has provided services as Project Monitoring Unit
(PMU) for Revenue Augmentation of all Urban Local Bodies in the State of Jharkhand.

Odisha became the first state to formalise a Rural-Urban Transition Policy with a
structured Hub and Spoke governance model. Rajasthan is drafting legislation. Tamil
Nadu is empowering Urban Development Authorities over peri-urban areas. Maharashtra
has notified new councils around Pune. The direction of travel is clear. What is needed
now is for these pioneering efforts to become the national default rather than the
honourable exception.

The world, too, offers instructive mirrors. Indonesia’s concept of Desakota — the ‘village
town’ that exists in the fluid zone between rural and urban — describes precisely the
character of India’s Census Towns: mixed land use, informal markets, rapid densification,
and governance gaps. The international lesson is consistent: peri-urban areas that receive
proactive planning and formal governance frameworks before they are overwhelmed by
growth fare far better than those left to catch up after the fact. South Africa’s Wall-to-Wall
Municipality model eliminated unincorporated areas entirely, bringing every part of the
country under some form of municipal governance. Brazil’s 1988 Constitution devolved
substantial powers to municipalities early, enabling them to manage a rapid urbanisation
wave. India’s Census Towns are at a similar inflection point — and the decisions made in
the next few years will shape urban quality of life for decades.

The 16th Central Finance Commission has a precise instrument available. The World
Bank study recommends a Performance-Based Grant model — phased funding tied to
milestones like spatial planning, GIS master plans, transitional area notifications, and
statutory conversion. It respects the constitutional reality that urban governance is a state
subject, while providing the financial incentive that states need to move decisively. A
mechanism designed not to compel, but to reward ambition.

Viksit Bharat is not only a story of megacities. It is a story of thousands of thriving, well
governed smaller towns distributed across the country’s economic geography — each one
a node of opportunity for the people who live and work there. The 74th Amendment
provides the pathway, the Finance Commissions provide the incentive, and the research
has already drawn the roadmap. These towns exist. All they are waiting for is recognition.
Governing them well is not a burden — it is one of the most consequential investments
India can make in its own future.