Policy Engagements and Blogs

Understanding Economic Processes in Small Towns

May 14, 2018



In this interview, Eric Denis, Director of Research at Géographie-cités lab, CNRS, Paris, discusses some of the varied processes characterising small town economics.

What kind of economic processes do we see emerging in small towns?

We can summarise the multiple and complex economic processes playing out in small towns into four broad types. Locally, these four ideal-types are interlaced with each other:

  • Small towns are incorporated into metropolitan and large cities,
  • Small towns are entrepreneurial, resilient and innovative localities,
  • Small towns are ordinary market towns,
  • Small towns are large villages that expand and grow including a work-force moving away from the farm sector.

What are the main characteristics of small towns under the influence of metropolitan expansion?

There are a number of places that are growing due to the diffusion and re-localisation of economic activities in the peripheries of large cities – both of these activities are in a phase of rapid expansion.

Diffusion: A heterogeneous amalgam of investments in infrastructure, real estate, commercial ventures, industrial parks and educational institutions surround small towns, which, in turn, become central places, i.e., nodes and sites of agglomeration and not just for accessing markets and services. In this case, the agency of local actors is limited. The urban transformation depends of such localities depends on their attractiveness seen in terms of:

  • Accessibility and location (new roads, mass transportation, etc.),
  • Cost of land,
  • Local tolerance to pollution,
  • Availability of a labour force and its willingness to accept the offered working conditions, often characterised by low wages, daily contracts and a weak level of unionisation.

Often, the weakness of the local government in enforcement, with its limited capability, becomes an added advantage in terms of attractiveness.

Over time, however, the physical planning of metropolitan regions, megaprojects, Special Economic Zones (SEZs) and real estate promoters’ appetite for new land opportunities can be destabilising factors for existing flourishing clusters of activities that depend on intensive workforce, inherited knowledge and local capital (such as the Kartarpur furniture industry in the periphery of Ludhiana, discussed in chapter 18 by Rémi de Bercegol and Shankare Gowda).

For example, India, which recently opened its doors to Foreign Direct Investment, has limited availability of large tracts of lands within large cities. Here, much of the globalisation related investment is occurring in peri-urban areas. This is where megaprojects such as SEZs materialise. Hence, often banal and polluting activities are de-concentrated from the city centre to these peripheral small towns alongside industrial development parks.

Re-localisation: Daily commuters constitute the second component of vibrant small towns around large cities. Their circular migration (i.e., not a permanent movement to the city but periodically going back and forth from a place of residence, which can be for short periods of time, or even daily commuting) towards jobs within the city transforms the small towns bringing in new households, mostly young people, who cannot find affordable housing in the core city. They stimulate a diversification of local economies and alter the local political equilibrium. The youth of small towns, notably those who have access to technical colleges, are also more engaged in commuting. This daily circulation tends to adjust itself as major firms relocate their factories and offices to peripheral parks, thus ensuring that circular migration comes full circle as people from the core city start commuting to the periphery.

What are the conditions of emergence, expansion and adaptation to change of entrepreneurial and innovative towns?

Outside the direct influence of metro cities, there are many vibrant small towns. This is due to a strong and often fast growing network of entrepreneurs and skilled workers who contribute to the development of industrial clusters. They are able to expand their market, adapt to change, and innovate.

Small and medium towns prove to be interesting locations to set up and develop productive activities, particularly in response to the immense demand constituted by the vast majority of Indian families that do not belong to the middle and upper urban class. In these locations, entrepreneurs innovate to create low cost products that respond to the specificities of the non-metropolitan environment with solid and rustic equipment that is easy to operate and repair using local skills. It is an environment of jugaad, by which we mean doing more with less. Such innovative products, notably vehicles adapted to bad roads and difficult weathers, are not just limited to the Indian customer base as some small companies even manage to export to other emerging low cost markets such as Africa (see Chapter 19 by Yann Philippe Tastevin for rig drilling trucks in South India).

Apart from industrial activities, these towns also provide locations for the establishment of technical colleges, which recruit beyond their local geography. Often, some of these towns do not grow in an isolated manner but belong to a group of small towns, co-specialising in a sector. This is also the case for more traditional activities, such as textile or leather industries, that are similarly integrating into the global value chain and up-scaling.

Besides the vibrant small towns, what constitutes the majority of small towns where most of the non-metropolitan urban citizens live?

These are of two broad types, as indicated earlier.

First, ordinary mandi or market towns.  These cater to the needs of the rural areas in their hinterland constitute a large proportion of small towns. Many of these towns have historically been market towns or administrative centres. Depending on their administrative functions (whether they are home to a block office or a police station, etc.), and the dynamism of local agriculture (such as the nature of production and volume of cash crops), they can be more or less dynamic.

Second, emergent census towns. With a decline in farm employment, people have to generate incomes with access to minimal resources. This is how mandi towns as well as large villages, become more diverse.  More of the labour force opens petty shops, becomes daily workers in the construction sector or at brick kilns – either locally or in other towns through seasonal migrations. In turn, their remittances stimulate the morphing of their place of origin.

This morphing, which occurs in villages gives rise to growth in the number of census towns, as the workforce shifts away from non-farm work. In this case, the local economy tends to move away from agricultural activities as in the settlements above. However, here, there is no previous history of urban-like activity such as administration or regional markets. As such, the emergence of these census towns is not supported by the presence of a local elite related to the presence of a market, educational or administrative functions, but markets do emerge.

These emerging urban areas, smaller than the towns referred to above, consolidate and diversify because there is a need for their population to create new activities and access resources through self-employment and mobility. These settlements, therefore, also often serve as local transport hubs assisted by improved rural roads and a growing access to vehicle finance from formal banks.

Is this typology airtight or do some small towns straddle these different ideal-types?

None of the types of small towns described above exists in a pure configuration. Each one is the product of multiple influences carried by an increasingly diverse population, which is often well connected with distant places.

The multiplication of small towns and the urban transformation of villages constitute the material expression of the current socio-economic transition in India that is characterised by important reduction of jobs in the farm sector and poor creation of employment in the industrial sector, associated with a limited level of residential migration towards large cities. Many of these emerging small urban centres are places where people struggle daily to access resources but prefer to stay in a known environment where local values of solidarity support them.

The other pieces in the series can be accessed below: