<p>Small towns are the engine of economic growth if they are appropriately managed. However, they are neglected in more extensive discussions on urban development policies in developing countries. In this study, we asked the following questions: How can we measure the level of deprivation in small towns, whether small towns are deprived, and what are the spatial locational patterns of these towns? We answered these questions by considering 3755 small towns in India in 2011. The deprivation index was calculated by considering eighteen variables, focusing mainly on the availability of basic services, housing conditions, health facilities and educational facilities using Principal Component Analysis (PCA). To determine factors that affect their level of deprivation, we employed Ordinary Least Squares (OLS) and two-stage least squares (2SLS) regression models, considering variables related to agglomeration shadows, agglomeration economies, infrastructure availability, and accessibility to markets and political power. Results indicated that the levels of deprivation in small towns differ from one another. While the least deprived small towns were usually found in high-income group states, the most deprived ones were in poorer and middle-income states. Regression results showed that though there is little evidence of agglomeration shadows, small towns “borrow” the agglomeration benefits from their large neighbors. Therefore, agglomeration shadows do not necessarily deprive small towns. The agglomeration economies reduce the deprivation while the distance to political power and market potential increase it. Finally, we present several policy options to make small towns more productive, and drive higher and more sustainable growth in India in the future.</p>