According to a TOI article, the government is considering a new categorization category termed "functional urban settlements" in addition to the current rural and urban classifications because India's villages are quickly taking on metropolitan traits.
According to the survey, many villages near cities and towns now have access to high-speed transportation networks, a greater built-up area, and a decreased reliance on agriculture. The government is being forced by these characteristics to reconsider how settlements are classified.
According to the research, urbanization is currently classified into two groups: Statutory Towns, which have municipal entities, and Census Towns, which have a population of more than 5,000.

In contrast to the government's own projection of 36%, an estimate based on the United Nations' Degree of Urbanization framework indicates that approximately 84% of India's population lived in urban areas in 2025, according to the research.
Despite being legally categorized as rural, the survey said that villages close to urban regions in states like Haryana, Uttar Pradesh, Maharashtra, Kerala, and Madhya Pradesh already exhibit the majority of urban characteristics.

According to the report, a new national settlement classification framework known as Functional Urban Settlements was suggested by a research conducted by the National Institute of Urban Affairs (NIUA), which is part of the housing and urban affairs ministry.
Since a significant portion of urbanization is taking place outside of officially recognized towns and cities, the framework is meant to better effectively depict the nation's changing urban landscape. The article further stated that PK Mishra, the prime minister's principal secretary, issued the study.
According to a senior ministry official cited in the paper, actual urbanization is more extensive than what is publicly documented. A number of regions have urban characteristics, the official continued.

while still being managed as rural areas, resulting in a notable discrepancy between the current administration institutions and the geography of urbanization.
According to the article, the government's most recent budget also included financial support for City Economic Regions (CERs). CERs serve as key economic hubs by mapping linked supply chains, labor marketplaces, and nearby municipalities, going beyond rigid administrative boundaries.
According to TOI, the NIUA study found hundreds of functional urban communities outside the current system of Statutory and Census Towns by using its modified Degree of Urbanization framework across Kerala and Madhya Pradesh.

According to the research, the number of Statutory Towns in Kerala increased from 63 to 93 in 2025. According to its transition matrix, 102 villages were merged into urban local bodies and 77 of the 461 Census Towns found in 2011 were later promoted to municipalities. The paper claims that this is a reflection of Kerala's dispersed urbanization pattern and growing network of urban government.
According to the report, the number of Statutory Towns in Madhya Pradesh rose from 361 to 413. Between 2011 and 2025, 379 villages were integrated into nagar panchayats, 112 into municipalities, and 186 into municipal corporations, according to its transition matrix, which shows significant village-to-urban transitions.

According to the research, these alterations indicate a slow but extensive trend of urban transformation throughout Madhya Pradesh's predominantly rural settlement pattern.

According to the report, the new matrix employs night-time light (NTL) techniques in contrast to traditional systems that depend on administrative borders or population thresholds. This method uses the spatial distribution and intensity of light areas recorded by satellite sensors to assess the degree of urbanization.
According to the study, the ministry is concurrently developing a standard classification system for tier-2, tier-3, tier-4, and tier-5 cities in order to facilitate differentiated policy, investment, and planning according to the size and function of each urban center. Additionally, it suggests dividing tier-1 cities into three distinct groups according to population.