Government proposes 'Functional Urban Settlements' for urban classification

Key facts

• The National Institute of Urban Affairs (NIUA), under the Ministry of Housing and Urban Affairs, recommended a new national settlement classification framework called Functional Urban Settlements.
• The framework aims to accurately capture urbanisation occurring beyond existing Census Towns (population over 5,000) and Statutory Towns (with municipal entities).
• The new matrix utilizes night-time light (NTL) methods from satellite sensors to infer urban extent based on the spatial distribution and intensity of illuminated areas.
• Financial aid was announced in the last Budget for City Economic Regions (CERs), which serve as strategic economic hubs mapping integrated supply chains and labour markets beyond administrative borders.
• In Kerala, Statutory Towns increased from 63 to 93 in 2025, with 77 of 461 Census Towns upgraded to municipalities and 102 villages incorporated into urban local bodies.
• In Madhya Pradesh, Statutory Towns increased from 361 to 413, with 379 villages incorporated into nagar panchayats, 112 into municipalities, and 186 into municipal corporations between 2011 and 2025.
• The ministry is finalising a uniform classification for tier-2, 3, 4, and 5 cities and proposes to categorise tier-1 cities into three groups based on population.