From Kaivan Munshi and Mark Rosenzweig, here is the puzzle:
It follows that the real wage gap [rural to urban] in India is at least 16 percentage points larger than it is in China and Indonesia. There is evidently some friction that prevents rural Indian workers from taking advantage of more remunerative job opportunities in the city.
Indian migration to the cities is much lower than for China or Indonesia. Here is part of the answer:
The explanation that we propose for India’s low mobility is based on a combination of well-functioning rural insurance networks and the absence of formal insurance, which includes government safety nets and private credit.
…In rural India, informal insurance networks are organized along caste lines. The basic marriage rule in India (which recent genetic evidence indicates has been binding for nearly two thousand years) is that no individual is permitted to marry outside the sub-caste or jati (for expositional convenience, we use the term caste interchangeably with sub-caste). Frequent social interactions and close ties within the caste, which consists of thousands of households clustered in widely dispersed villages, support very connected and exceptionally extensive insurance networks.
Households with members who have migrated to the city will have reduced access to rural caste networks…
I believe “deficient infrastructure” and “lack of good manufacturing jobs” should be a bigger part of that answer, but nonetheless an interesting question and discussion. Might the multiplicity of languages in India be a factor too? Here is my earlier argument that Indian cities may be undercrowded.
For the pointer I thank the excellent Samir Varma.