Old question in the initial podcasts. Te answer can be found here. Basically, it was a question whether Rahi are mechanical or organic. The answer was they are “synthetic”, part mechanical part organic. They grow with their armor. So my guess is they do decompose.
Kanae, that place could suffer from severe lack of space. Specially with how irresponsible they are with their kids and how often they die. Important rich families might bury their kids or perform a ceremony, but I see them dealing with the dead the same way unbaptized dead babies where dealt with in middle ages. Mass funeral cremations, where at the end they are just left to scatter on the winds.