Based on the recent publication of Saumya Chakrabarti’s Inclusive Growth and Social Change: formal-informal-agrarian relation in India (2016) published by the Oxford University Press, the article offers a critique of the “inclusive growth” programme from the perspective of India’s non-agricultural informal sector.
It is widely recognised now, that India is one of the fastest growing countries of the world. Internationally, Indian economy is attracting huge attention for its growth stories. But, despite this prolonged growth process of over two decades a very large part of the Indian economy is suffering badly with acute under-employment and human-underdevelopment. Indian economy actually posits a paradox: while the macro-economy, at the surface, shows enormous agility and the “mainstream” economy is truly “shining”, there is an ever-growing problem of ballooning misery in the fields of petty agriculture and also in the non-farm informal sector. It is true that, with growth, some parts of the population is moving out of agriculture, but, these people are unable to get engaged in the remunerative formal/modern activities – the advanced manufacturing and services; contrarily, most of these migrants are compelled to throng the under-remunerative rural-urban informal sectors. Thus, instead of a so-called comprehensive transformation of the Indian economy towards an inclusive capitalistic environment, a deep “dualism” persists stubbornly and at times, it is even being reproduced and aggravated: along with growth and prosperity of the fortunate few a very large part of India goes on languishing.
In this very context, we posit our following critical analysis of the Indian non-agricultural informal sector. We start with the fundamental question: Is India able to achieve a growth process in which people, in different walks of life, feel that they too benefit significantly from the ongoing transformations?
India is huge in terms of its diversity and population. The formal sector consists of people working in large traded companies, incorporated or formally registered entities, corporations, modern factories, shopping malls, hotels, and large and modern businesses. On the other hand, the non-farm informal sector refers to economic activities such as owner manned petty/kirana stores, handicrafts and handloom workers, rural-urban petty traders, petty manufacturing and repairing etc. It is believed that the informal sector has a huge promise for the betterment of living standards for the people engaged in its different segments (especially when agriculture is reeling under deep crisis).
Is that so in reality? Our detailed empirical study projects rather a gloomy picture, especially for the overwhelmingly large rural-urban self-employment segments of the Indian informal sector. While the formal/modern sectors and the people associated with it are able to reap the benefits of globalisation and growth, the overwhelming majority of the informal sector population is found to be unable to gain out of these processes. While the volume of informality is ballooning, only the larger firms with better asset-positions and locational advantages are able to prosper; and contrarily, the vast segment of petty self-employment is found to suffer or even lose! These bare facts push us for a critical analysis of the Indian informality.
We question certain crucial aspects of the projected process of “inclusive growth” in India and ask specifically, why the vast informal sector of India could not be included into the mainstream of economic activities, despite a high growth rate of the economy driven by its formal/modern sectors. There remains an element of doubt over the proposed “win-win” scenario, for both the formal and informal sectors, as posited by the mainstream literature. It has been argued time and again that, with the help of a well-functioning government, the efficient market can lead to an optimum allocation of scarce resources, through which not only the formal sector but also the informality can benefit. But, our observations do not strengthen such enthusiasm for the informal sector; it rather leaves behind a marked dose of disappointment. On the main, the reason underlying the abysmal performance of the informal sector may be the complex formal-informal relationship. The detailed process could be delineated as below:
Focusing on the inter-sectoral associations in India, one can find that there is a positive relation between the formal sector and the urban informal sector through the demand and supply side linkages. However, the formal sector and the rural informal sector are two disjointed categories, as far as direct exchange relations are concerned. Further, both the urban and rural informal sectors are found to be positively related to the small-and-marginal-farming based agriculture. Finally, while the formal sector and the urban informal sector are associated with aggregate economic activities, the rural informal sector is found to remain largely isolated.
Based on these preliminary empirical observations, we propose that, as the formal sector expands, there is a resource-drag from the petty-agriculture to this formal sector (as well as to the urban informal sector), but the rural informal sector is suffocated (due to this resource-transfer). Thus, the fundamental question is posed: whether all the segments of the informality are positively affected by the formal sector growth process, or there are major sites of exclusion and especially, marginalisation. There could be a complementarity between the formal sector and the urban informal sector, but a conflict between the formal sector and urban informal sector composite, on the one hand and the rural informal sector, on the other. However, if the formal sector siphons off resources directly from the traditional agriculture and/or from the commons and other natural resource-pools (by means of market mechanisms or by force), essentially, there arises a conflict between the formal sector and the informal sector as a whole.
Consequently, we propose that, due to these specific patterns of inter-sectoral linkages involving the formal and informal sectors and agriculture the Indian informality produces heterogeneous tendencies: while the fortunate few, who are linked with the formal sector, are able to benefit, a very large part of the informality is suffocated, as the basic resources (agricultural and otherwise) are expropriated by the growing segments of the economy. Only some parts of the informality gain out of the contemporary processes of growth, while a larger part either persists in limbo or is drained out by this very growth process.
On the other hand, concentrating on the intra-sectoral dimensions (within the informal sector itself), it is observed that the Indian informal sector still remains largely micro-unit based contrary to the proposition of sectoral-transformation towards greater concentration of larger and dynamic firms. Further, a process of congestion and a deepening of underemployment is found to occur even in this era of high growth, raising questions against the very proposition of “inclusive growth”. Millions of people are entering into those segments of the rural-urban self-employment, which are consisted of already suffocated tiniest firms and the share of labour force in the medium and large establishments (hiring labour) show a relatively weak bias towards larger activities. Thus, instead of a growing dominance of the larger and more dynamic units and instead of a reducing preponderance of the tiny self-employment based firms, the pettiest activities go on languishing and in fact, are ballooning along with the so-called progress.
Furthermore, contrary to the existing literature proposing that the informal sector is accumulating capital and thus undergoing a structural transformation (towards “capitalism”), it is in fact found that, the rural self-employment units (which are overwhelmingly large in number) are absorbing less labour along with very small addition to the stock of assets; and the urban establishments (hiring labour) are not expanding with a great pace, in terms of both labour absorption as well as asset accumulation. The stagnancy in the vast self-employment segment has been noticed, despite a significant productivity improvement in the formal/modern sector. As the formal sector expands and there is a direct and/or indirect resource-drain from the subsistence-agriculture, self-employment, which is the largest segment of Indian non-agriculture, also suffocates, perhaps due to the presence of this inherent resource-conflict. Moreover, it is not difficult to predict that, ceteris-paribus, the people who are on the verge of being evicted from the self-employment segments might find their refuge only in the pettiest businesses, rather than in other (relatively better-off) segments of the economy, like the medium and large establishments. Thus, the petty traders and manufacturers are evicted from their traditional businesses and they have no other option but to roam around constantly and continuously changing their work – moving from one precarious job to the other – and survive as “neo-nomads” in the era of neo-liberalism!
Consequently, the theoretical analysis, built on the basis of these peculiar tendencies of transformations, highlights that, just as there are benefits, there are costs as well, associated with the much advocated project of “inclusive growth”. Although some parts of the marginalised populations are incorporated into the expanding economic space in keeping with accumulation and growth in the modern/formal sectors, a larger part is further immiserised, probably, because of a market-driven and/or forced reallocation of resources. And it may happen that, the displaced population, be it from the rural non-farm economy and/or from the urban economic segment of the petty producers and traders, finds itself unable to get a refuge in the so called developing segments of the economy. They may not have any other option but to fall back on the already over-crowded petty agriculture and the rural and urban thoroughly under-remunerative non-agricultural activities.
Finally, on the basis of these complex formal-informal relations we could also comment on some of the associated political processes and ramifications. We propose that, given the intense formal-informal conflicts, the role of the State and its institutions in India has essentially been to provide/maintain such an environment so that a peaceful co-existence of these inherently contradictory socio-economic entities could be ensured. This complex relation results in a situation where Capitalism loses its “ideal” progressive role. Accumulation, growth and persistence of misery co-exist without a substantial structural transformation of the whole economy.
The formal sector progresses, but it fails to induce a definitive/comprehensive transformation within the informality. Only a small part of the Indian informal sector is able to reap the benefits of growth, while the overwhelming majority goes on suffering; and at times, misery is in fact produced by this very growth process (via expropriation of resources). However, this paradoxical persistence of prosperity and poverty must be managed by the Indian State and its institutions, especially when (capitalistic) progress fails to mitigate significantly the curse of poverty. The State and its institutions along with other social organisations – NGOs, CBOs, CSOs – should constantly try to maintain a balance between the two – the formal and the informal, so that one cannot annihilate the other and a complete social disorder could be avoided. The State faces a great dilemma: whether to embrace the path of unbridled growth based of accumulation of capital and appropriation of resources or to maintain a fine balance between “controlled” prosperity and “well-managed” poverty. However, this constant act of balancing seems to be inherently unstable, given the insatiable greed of Capital (and the mechanistic logic of growth), on the one hand and the undeniable right to live for the very large mass of People, on the other.
About the Authors
Saumya Chakrabarti is an Associate Professor of Economics at the Visva-Bharati (University), Santiniketan, India. He has also taught at St Xavier’s College, Kolkata; University of Calcutta; and at Presidency University. Dr. Chakrabarti has been a visiting fellow at Brown University, USA. He has published in journals like Cambridge Journal of Economics, Review of Radical Political Economics, International Critical Thought, Economic and Political Weekly, among others; and has written books published by Prentice Hall and Oxford University Press.
Daipayan Sarkar is a Graduate Student from the Economics Department, Presidency University, India. He has researched on the Indian informal sector in association with the first author.