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Ascriptive divisions, such as race, religion, and social class, are often salient loci for distributive politics. Moreover, previous work has found that inter-group inequality tends to increase the importance of group identity for political preferences. Existing theories, however, provide ambiguous predictions regarding how patterns of residential settlement impact the salience of ascriptive characteristics to individual voters. Racial threat theory posits that closer contact will sharpen group conflict, while contact theory predicts that residential proximity can promote inter-group harmony. Moreover, previous empirical work has shown that social contact and residential proximity can both either increase or decrease sectarian animus. One challenge in assessing these competing claims is that extant measures of segregation are too geographically gross and provide little insight into interpersonal contact. To address these issues, I to develop a novel segregation metric that can be applied at the level of individuals within a single neighborhood. Using an original geocoded network census dataset, I confirm that this segregation metric captures social contact. I then apply this segregation metric to an original, large-n survey dataset from urban slums in three Indian cities to test whether individual proximity to members of other castes or religions is associated with higher demand for political favors targeted to one's own caste or religion, as opposed to support for public goods that equally benefit all neighborhood residents. I also test whether intergroup inequality magnifies the effect of intergroup proximity. These results shed light on how networks mediate the relationship between outgroup proximity and racial threat, explicate the downstream effects on demand for public goods, and have implications for how policymakers should implement efforts to reduce economic inequality without reinforcing internecine divisions.