the random forests method, as well as when relying on predictions based on the Logit model and the LASSO method.<sup>9</sup> These gaps in urbanization rates by administrative category could be interpreted as the outcome of prediction error in both directions, around otherwise consistent urbanization rates at the aggregate level. However, it should be noted that the gap does not affect all administrative categories in the mid-range between rural and urban to the same extent. In relative terms, the gap is much larger among census towns and other towns than among municipalities and outgrowths.

These uneven gaps suggest that there could be more than prediction error at play, and the way places are administratively classified may matter as well. Different biases by administrative levels may indeed reflect an official classification of places that is not exclusively based on their urban characteristics but is also affected by fiscal incentives and statistical initiatives.

In India, the implementation of central government programs and the financing available for the development of settlements depend on the urban or rural status of beneficiary places. Statutory towns are declared by the state governments and governed by urban local authorities. These urban local governments have taxation authority, but they are also subject to a complex set of rules, regulations, building bylaws and development planning controls known as “urban laws”. Rural local governments have no taxation powers, but they receive a host of transfers in support of farmers and the rural poor. As a result, there are numerous examples of statutory urban places being reclassified back and forth, especially other towns (Aijaz 2017; Mukhopadhyay et al. 2012; Ministry of Finance 2017).

Census towns are not even the result of an explicit reclassification of places by local authorities, but rather a statistical attempt by the Census of India to generate a more accurate estimation of the urban population. Census towns started being defined consistently in 1971, as an addition to the statutory towns declared by the state governments. They correspond to places that are administratively rural, host more than 5,000 inhabitants, have a population density exceeding 400 persons per square kilometer, and where over 75 percent of their male working population engaged in non-agricultural activities (2011 Census of India). These places are deemed urban by the Census of India, but not by local and state authorities.

# _Urbanization by state_

There are also significant differences between our predicted urbanization rates and official figures at the state level. Again, using the random forests method with the full set of covariates, our estimate of the urban population falls short of the official estimate by roughly 1.5 million people in each of the states of Orissa, Gujarat and Rajasthan. The gap is even bigger in Madhya Pradesh, where it reaches 3.9 million people, and especially in Tamil Nadu, where it approaches 6.6 million people. Conversely, our estimates of the urban population exceed the official figures by 0.8 million people in both Bihar and Kerala, and by 0.7 million in Andhra Pradesh (figure 7).

While these gaps in the estimated urban population could reflect prediction error, there are grounds to believe that they result, at least in part, from prevailing institutional arrangements. In India, urban development is a subject under the purview of state governments. By default, all settlements are rural

> 9     The conclusions also hold when using classifications based on different rounds of assessments. The results are available upon request.

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