Is India’s Manufacturing Sector Moving Away from Cities?

This paper investigates the urbanization
of the Indian manufacturing sector by combining enterprise
data from formal and informal sectors. It finds that plants
in the formal sector are moving away from urban and into
rural locations, while the informal sector is moving from
rural to urban locations. Although the secular trend for
India's manufacturing urbanization has slowed down, the
localized importance of education and infrastructure has
not. The results suggest that districts with better
education and infrastructure have experienced a faster pace
of urbanization, although higher urban-rural cost ratios
cause movement out of urban areas. This process is
associated with improvements in the spatial allocation of
plants across urban and rural locations. Spatial location of
plants has implications for policy on investments in
education, infrastructure, and the livability of cities. The
high share of urbanization occurring in the informal sector
suggests that urbanization policies that contain
inclusionary approaches may be more successful in promoting
local development and managing its strains than those
focused only on the formal sector. Cities are evolving in
India from places of goods production to forges of human
capital and coping mechanisms for survival.