Informal Economies in India

By Brian Turnbull

A vegetable market in Jaipur, Rajasthan


Brian Turnbull, PhD is an Assistant Professor of Instruction with the Department of Sociology and Interdisciplinary Social Sciences at the University of South Florida and was a participant in the 2019-2020 CAORC-AIIS Faculty Development Seminar to India. In this essay he describes what 'informal economies' are and discusses their importance in India.


Walking the streets of Mysore, I was struck by how clear and open the sidewalks were along the main thoroughfares. Having walked through the streets of many other Indian cities, I was accustomed to walking on the street edges due to the number of hawkers and storefronts encroaching on the sidewalks that blocked most pedestrian traffic. Space is always at a premium, so any open space is commandeered by entrepreneurs unable to afford storefront space. However, in Mysore something was different. I enquired and was told the municipal corporation had managed to strike a deal with street-side sellers to open up the sidewalks. What this deal entailed and where the hawkers have gone remains a mystery to me, but I hope to investigate further in the future. To begin this project, I have reviewed the literature on official attempts to regulate street-sellers in India, and how incredibly massive the informal economy, of which hawkers are just the tip of the iceberg, truly is in the country.


What exactly the term “informal economies” encompasses is malleable. Within the economics literature it is generally accepted to refer to any income generating activities conducted outside of state regulatory frameworks (Meagher, 2013), or more simply income generation that is not declared for tax, social security or labor law purposes, with the exception of illegal, criminal activities (Williams, 2014). While typically associated with the global South, as Williams and Lansky (2013) point out, informal work has existed and continues to exist to a large extent in the West as family, friends, and acquaintances provide an enormous amount of un-taxed, un-reported services to one another. What is more definite is the enormous proportion of the labor market that is informal. Contemporary studies estimate that 2 billion of the 3 billion global workforce earns in the informal sector, a significant majority (61-percent).


Weaver in Jaipur, Rajasthan


Given the staggering size of its informal economy, India has been a key case in the development of our contemporary understanding of informal economies. Surveys conducted in 2012 indicated that up to 88-percent of the Indian workforce operates informally, which only drops to 78-percent if agriculture is excluded, and to 75-percent if only urban-dwellers are counted (ILO, 2018). Notably, gender does not seem to affect the likelihood of being an informal employee, as around 2-percent more women proportionally work in the informal economy compared to men (ILO, 2018). Perhaps contrary to common perceptions, informal workers in India earn income through several different pathways, often simultaneously. Past studies have found that around 49-percent of informal workers earn income on their own accounts, while the rest earn either daily wages (30-percent) or standard wages (21-percent) (Gurtoo and Williams, 2009).


Coconut seller in Jaipur, Rajasthan


Changing Opinions

A more accepting and supportive approach towards informal economies is a marked change from the past. As Anjaria (2019) documents, street hawkers in India provide a useful case study in this transition. Opposition to hawkers goes back to colonial authorities, who perceived them as an obstructive nuisance that hindered the efficiency of the India city. Hawkers were blamed for congestion that hindered transportation, blockages that disrupted economic growth, and were even blamed for injuring public health through unsanitary conditions. As independent India developed a middle-class, hawkers were again targeted for causing congestion, but also for their unsightly encroachment that degraded the appearance of public space, particularly for the many who sought a more modern and formally organized urban India. For some, the everyday presence of street vendors symbolized even deeper national problems, “hawkers are often a symbol of poor governance, an indifferent bureaucracy, and broken democracy” (Anjaria, 2019: loc 139).


Knife sharpener in Jaipur, Rajasthan


Despite these localized attempts to restrict and reduce the informal economy, on a broader scale India has moved towards a greater acceptance of informal workers. As Anjara (2019) describes in Mumbai, informality in the form of slums and street vendors has gone from being portrayed as an embarrassment to a celebration of the innovation and ingenuity these forms of entrepreneurialism demonstrate. This reversal was likely encouraged by the increasing understanding that Western-style big box stores, regulated restaurants and gated housing are not on pace to replace vegetable street markets, street food vendors, or unauthorized housing development on a substantial scale for any section of society except for the elite. Instead, street vendors are now recognized, to a degree, for their ability to supply needed goods to densely populated urban spaces with little buildable space. Furthermore, beyond hawkers, it is undeniable that everyday life in large cities such as Mumbai is heavily dependent on informal workers. Whether it is in construction, sanitation, food, health, laundry, babysitting, etc. these sectors, and thus society, would not function without informal labor.


Linkages

The possibility of positive collaboration between the formal, whether government or market-based, and informal sectors of the economy has spurred further literature on “formal-informal linkages”. For example, innovative methods developed in the informal economy could be scaled up and integrated into formal structures with adequate investment to fill institutional gaps identified by informal entrepreneurs and to reduce transaction costs (Meagher, 2013). Furthermore, governmental and non-governmental organizations and associations such as local governments, labor unions, and NGOs could act as supportive formal sector actors to deliver their citizenship rights and collective benefits to informal sectors in return for increased collaboration, contributions, and legitimacy (Meagher, 2013).


Forsyth (2005) provides examples of such linkages in action in India. Forsyth describes a waste-to-energy plant in Uttar Pradesh that works with local waste pickers to process waste before it comes to the plant. Waste pickers are allowed to remove valuable recyclables and other inorganic materials, which both allows waste pickers to maintain their livelihood and removes the waste that would hinder the biomethanation process in the plant, lowering costs for the company. Forsyth contrasts this example with a pyrolysis waste-to-energy plant in Chennai that ran into stiff local opposition due to its need to burn recyclable material rather than organic material to generate energy. While such plants can alleviate the enormous waste problems faced by massive cities such as Chennai, they also burn the materials waste pickers rely on. Forsyth argues that these contrasting cases illustrate that deliberative partnerships between formal and informal actors create more effective and inclusive overall outcomes when implementing new technologies. However, Forsyth (19) also quotes the challenge put forth by the owners of the Chennai plant, who argued that accommodating waste-picker demands essentially perpetuated “the system where human beings handle other people’s raw garbage”. This is an important consideration given the broader political environment, where marginalized communities of informal workers are often co-opted by bigger corporate and governmental forces only interested in leveraging the claims of the poor for their own self-interest.


Waste separation and recycling in Mysuru, Karnataka


Formal-informal linkages can reduce economic transaction costs in the provision of public goods through the inherent efficiencies provided by informal networks (Ostrom, 1996); however, they are also critical in many developing economies to fill institutional gaps in the formal economy (North, 1990). These gaps often occur where “formal rules are incompatible with local realities” (Meagher, 2013, 19). In areas of low state penetration, informal economies can actually help restore governance and accountability by establishing non-governmental regulatory bodies and by providing public services typically provisioned by the state (Meagher, 2013). Again, India provides a useful case study, as Shah’s (2007) description of the highly informal water economies that serve the marginalized and unauthorized communities of Mumbai that the Indian state is unwilling or unable to provide water access to demonstrates. However, when informal economies must step in to provide the public services expected of a state, it must be remembered that the legitimacy of the state is fundamentally diminished.

 

CAORC’s 2019-2020 faculty development seminar to India was organized with the American Institute of Indian Studies and supported by the U.S. Department of State’s Bureau of Educational and Cultural Affairs and the following U.S. National Resource Centers in South Asian Studies: Columbia University, Cornell University, Syracuse University, University of California, Berkeley, University of Washington, and University of Wisconsin, Madison.


Learn more about CAORC Faculty Development Seminar

 

About the Author

Brian Turnbull, PhD is an Assistant Professor of Instruction with the Department of Sociology and Interdisciplinary Social Sciences at the University of South Florida. Dr. Turnbull’s research and teaching interests are in democratic representation, gender and politics, South Asian politics, and ethnic conflict. He also teaches the ISS Internship course. He received his PhD in political science with focuses in comparative politics and international relations from the University of Kansas. Prior, he received his MA in security studies from Georgetown University. He was a participant in the 2019 Faculty Development Seminar to India: "Exploring Urban Sustainability through India’s Cities”.

 

Sources:

Anjaria, J. S. (2016). The Slow Boil: Street Food, Rights and Public Space in Mumbai. Stanford: Stanford University Press.

Boo, K. (2012). Behind the Beautiful Forevers: Life, Death, and Hope in a Mumbai Undercity. New York: Random House.

Forsyth, T. (2005). Building deliberative public–private partnerships for waste management in Asia. Geoforum, 36(4), 429-439.

Gurtoo, A., & Williams, C. C. (2009). Entrepreneurship and the informal sector: some lessons from India. The International Journal of Entrepreneurship and Innovation, 10(1), 55-62.

ILO. (2018). Women and Men in the Informal Economy: A Statistical Picture. international Labor Organization.

Meagher, K. (2013). Unlocking the informal economy: A literature review on linkages between formal and informal economies in developing countries. Women in Informal Employment: Globalizing and Organizing, 27.

North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge, UK: Cambridge University Press.

Ostrom, E. (1996). Crossing the great divide: coproduction, synergy, and development. World Development, 24(6), 1073-1087.

Shah, T. (2007). Issues in reforming informal water economies of low-income countries: examples from India and elsewhere. Community-based water law and water resource management reform in developing countries, 65-95.

Williams, C. C. (2014). Out of the shadows: a classification of economies by the size and character of their informal sector. Work, employment and society, 28(5), 735-753.

Williams, C. C., & Lansky, M. A. (2013). Informal employment in developed and developing economies: Perspectives and policy responses. International Labour Review, 152(3-4), 355-380.