Bhubaneswar: For decades, Odisha has been officially described as one of India’s least urbanised states. According to the 2011 Census, only 16.7 per cent of its population lived in urban areas, placing the state well below the national average.

But what if that number is no longer telling the real story?

A new policy debate emerging from the National Institute of Urban Affairs (NIUA) could fundamentally alter how Odisha is governed, funded and planned. The proposal centres on the creation of a new category called Functional Urban Settlements (FUS) – a framework that recognises places based on how people live, work and commute rather than where municipal boundaries happen to be drawn.

The NIUA study has been recently released by Principal Secretary to PM Modi, P.K Mishra.

If implemented nationally, the framework could be particularly transformative for Odisha, where vast stretches of rapidly developing settlements remain officially classified as villages despite exhibiting many characteristics of urban economies.

The result could bring a historic shift in governance, infrastructure investment and quality of life for millions of residents currently living in what experts increasingly describe as India’s “hidden urban” regions.

Death of Odisha’s 16.7% Urbanisation Myth

The Census definition of urban India relies on three conditions: a population above 5,000, density exceeding 400 persons per sq km, and at least 75 per cent of male main workers engaged in non-agricultural activities.

While useful in the past, this framework increasingly struggles to capture the realities of modern Odisha.

A worker who farms seasonally but spends most of the year driving a commercial vehicle in Bhubaneswar remains statistically rural. Women participating in self-help group enterprises, retail trade, food processing or service activities often remain invisible within traditional classifications. Villages functioning as industrial suburbs continue to be counted as rural simply because administrative boundaries have not changed.

As a result, Odisha’s official urbanisation statistics significantly understate the economic transformation underway across the state.

How UN Coins New Methodology in 2025

The United Nations’ Degree of Urbanisation (DEGURBA) model uses 1 sq km population grids instead of administrative boundaries. It classifies settlements based on population density and settlement continuity, allowing analysts to identify urban clusters that traditional censuses often overlook. It has coined the terms – Urban Centres, Urban Clusters and Rural grid cells.

Applied globally, the approach has revealed substantially larger urban populations than national definitions suggest.

The DEGURBA estimates that India has 41% urban centres, 45% urban clusters, reducing the rural areas to mere 15%. Thus, the urbanisation in India stands at 85% in 2025, inching up to 86% in 2030. The Census 2011, however, estimates that at 31.16% vis-à-vis UNDEGURBA’s 81% in 2010.

But NIUA’s framework goes even further.

How Satellites Scan Odisha’s Hidden Cities

The NIUA methodology uses Night-Time Light (NTL) imagery captured by satellites to identify concentrations of economic activity.

The logic is simple: where industries operate, markets function, logistics move and households consume electricity, the landscape glows after dark.

By measuring radiance levels and combining them with commuting patterns, transport flows and economic linkages, NIUA maps what it calls City Economic Regions (CERs).

These are not cities in the conventional sense. Instead, they are integrated economic ecosystems where workers, businesses and services function as part of a common urban network.

Under this framework, Odisha begins to look very different.

Odisha’s Emerging Mega-Urban Spine

The most striking transformation appears along the NH-16 corridor.

Instead of isolated municipalities separated by rural gaps, satellite imagery increasingly reveals a nearly continuous economic belt stretching from Balasore through Bhadrak, Jajpur-Kalinganagar, Cuttack, Bhubaneswar and Khurda before extending southwards toward Berhampur.

Under the Functional Urban Settlements concept, this coastal corridor would be viewed as a connected regional economy rather than a collection of disconnected towns.

Such recognition could radically change infrastructure planning.

Roads, drainage systems, public transport, water supply networks and waste management projects could be designed for the entire corridor instead of stopping at municipal borders.

Western Odisha’s Silent Urban Expansion

The transformation is equally visible in western Odisha.

The Jharsuguda-Sambalpur-Bargarh belt has evolved into a major industrial region driven by power generation, manufacturing, aluminium production and logistics.

Yet many settlements serving these industries continue to be governed by Gram Panchayats despite facing challenges more commonly associated with towns.

Population growth, rising land values, traffic congestion and growing demands for urban utilities have already begun reshaping these areas.

The FUS model would formally acknowledge these realities.

Mining and Energy Urban Clusters

Another major beneficiary could be the Angul-Talcher region and the mining hubs of Joda-Barbil.

These areas support large workforces, heavy transport systems, extensive housing colonies and industrial ecosystems.

Although economically urban in character, governance structures often remain rural.

Recognition under a functional urban framework could facilitate more systematic planning for housing, transport, environmental management and civic services.

Why This Matters for Governance

Perhaps the biggest significance of Functional Urban Settlements lies in governance reform.

Today, many rapidly urbanising settlements exist in a regulatory limbo.

Their populations demand urban services, but local governments operate with rural budgets and administrative capacities.

This mismatch explains many recurring civic problems.

Waterlogging on the outskirts of Bhubaneswar, unmanaged solid waste in industrial belts, inadequate drainage systems and transport bottlenecks often arise because planning institutions stop where municipal boundaries end.

The FUS framework proposes a middle path.

Rather than waiting years for formal municipal upgrades, transitional governance structures could be introduced to manage fast-growing settlements.

Dedicated planners, engineers and infrastructure budgets could arrive before civic problems become crises.

Funding Windfall Also For Odisha

The financial implications could be equally significant.

States with larger recognised urban populations generally gain greater access to urban development resources and infrastructure financing.

A functional urbanisation framework would strengthen Odisha’s case for enhanced urban investment, particularly in rapidly expanding peri-urban regions.

As the 16th Finance Commission begins shaping future fiscal devolution, recognising actual settlement patterns rather than outdated administrative categories could influence how urban infrastructure funding is allocated.

For Odisha, where much of the economic growth is occurring outside traditional municipal limits, the stakes are enormous.

What It Means for Ordinary Citizens

For residents, the impact would be far more tangible than statistical reclassification.

Areas currently experiencing unplanned growth could receive structured drainage networks and scientific waste management systems.

Settlements dependent on overstretched rural utilities could be integrated into urban water supply and power infrastructure.

Transport connectivity could improve through expansion of organised public transit systems into peri-urban corridors.

Property owners would benefit from clearer zoning regulations, streamlined approvals and more predictable land-use planning.

In short, the shift would align governance systems with the realities people already experience every day.

A New Development Narrative for Odisha

The larger significance of the NIUA proposal is that it changes how Odisha sees itself.

For decades, development debates have been framed around a rural-versus-urban divide. But the emerging evidence suggests the state’s future may lie in the vast space between those categories.

The real challenge is no longer whether Odisha is urbanising.

It is whether governance systems can recognise and manage urbanisation that has already occurred.

If Functional Urban Settlements become part of India’s policy architecture, Odisha could emerge as one of the biggest beneficiaries.

Also Read: Beyond Housing: Why Odisha’s First BJP Govt Brought a New Rental Law Five Years After the Modi Govt’s Model Tenancy Act? | Special Story