The Informal Sector in India Essay Example
The Informal Sector in India Essay Example

The Informal Sector in India Essay Example

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  • Published: May 31, 2018
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THE INFORMAL SECTOR. In India, about 92% of the labour force or about 326 million persons work in the informal sector. As such, it can be well be termed as the “Informal Economy”. The concept of the Informal Sector was first introduced by Keith Hart in a field study of urban workers in Ghana in 1971 for denoting the self – employed sector which provided a source of income to many new entrants to the labour force who were unable to secure jobs in the organized or formal sector.

The concept was first used in an official document of the ILO – UNDP (International Labour Organisation) with reference to their employment mission to Kenya in 1972. This mission identified the main characteristics of the informal sector as ease of entry, reliance on indigenous resources, family ownership, labour intensive technology, small scale of operations, non-institutional skills’ formation and un


regulated but competitive markets (Anand, H). Moreover, workers in the informal sector do not enjoy the measure of protection afforded by the formal modern sector in terms of job security, decent working conditions, and old age pensions.

Though the term “informal sector” gained currency after ILO evolved a conceptual framework and guidelines for the collection of statistics on informal sector, there has not been any single definition of informal/unorganised sector in India. (Papola, 1981). Generally the following definition of the Informal Sector is used, “The informal sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers”.

The definition of the unorganised enterprise constituting the unorganize

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sector given her is a generic one in the sense it has no legal personality of its own (other than the person who owns it); it is small in employment size and, more often than not, associated with low capital intensity and labour productivity. The diverse nature of these enterprises is often a response to the demand for a variety of low-price goods and services produced in different modes of self employment, unpaid family labour and wage work. (Sen Gupta, 2008) The International employment situation is characterised by growing informalism.

The labour market situation of women in developing countries is changing in as much as women are shifting out of agricultural into manufacturing services and commerce. According to Guy Standing “ while there has been an overall trend toward more flexible, informal forms of labour, women’s situation has probably become less informal, while men’s has become more so. Further, the international labour market is characterised by growing demand for skilled labour in certain areas; redundancy, outsourcing and sub-contracting in several areas; and the growing need for training and multi-jobbing.

It would now be useful to examine the Indian employment situation within the context of the foregoing international scenario. The Indian Labour force was estimated to be about 362 million (as 1. 7. 1997) thereby constituting about 12 % of the world’s labour force. The unorganised workers consist of about 92 percent of the total workforce that is about 457 million (as of 2004-2005) (Anand, H). At the end of 2004- 05, about 836 million or 77 % of the population were living below Rs. 0 per day and constituted most of India’s informal economy. About 79% of

the informal or unorganized workers belong to this group. The Indian Growth Strategy of the 1990s and this decade have led to an increased economic inequality. Several studies have pointed to increased distress in the agrarian sector in India. Agricultural growth has lagged far behind the growth in the other sectors such as services and manufacturing. This has been attributed to policies of economic liberalisation.

However, the rural non-agricultural sector has seen impressive gains at a first glance. But, even though it has seen improvement its ranks have almost doubled while the inequality within this group has undergone a big increase. The latter probably results primarily from the distress that the agricultural sector has undergone causing an outward migration. In the wake of insufficient employment opportunities in the urban areas, this migration shows up as intra- rural. The urban sector has grown more rapidly than the rural sector during this period.

The informal sector owners and managers within the urban areas have seen impressive growth in their consumption even as the inequality within this group has increased sharply. This group is operating within the high income generating arenas such as retail and wholesale, as well as low income generating arenas such as self- employed petty vendors. After 1991, as the NSS survey results indicate, the dominant classes are the urban elites. The rural intermediate classes are not quite as important in the scheme of economic liberalization for the government.

The owners and managers in the informal sector in urban areas are quite heterogeneous and certain groups (wholesale and retail) have probably benefited (even this may not last long once liberalization takes deep roots in these occupations) while a

large section (petty vendors) has probably not. However, as the employment numbers suggest that the informal sector as stated above plays the key role of absorbing employment in the face of insufficient employment opportunities in the formal sector, although it does not improve the consumption levels of the informal workers. Economic Political Weekly, 2010) In a nutshell, the informal sector is made up of two baskets: one basket consists of small, non-capital enterprises managed by one or more persons with family support and sometimes with a few hired hands; and the other basket consisting of a large informal labour market whose members work for micro-enterprises on the one hand for the organized sector through the medium of intermediary sub-contractors on the other hand.

The general characteristics of the first basket are self- proprietary or partnership forms of management, employment of less than 20 workers, unregistered status; low capital requirement, traditional or second-grade modern technology; low productivity per worker; and meagre incomes. The characteristics of the second basket are: lack of organization or unionism, low level of social protection, comparatively unhygienic and less safe working environment and poor terms of trade vis-a-vis employers or sub-contractors. The NSS 55th Round divides the informal sector into two types of enterprises: On Account Enterprises OAE) and Establishments.

An OAE is an undertaking run by household labour usually without any hired worker employed on a ‘fairly regular basis’ and an Establishment is an undertaking which has got at least one hired worker working on a fairly regular basis. (Anand,H ) SOCIO- ECONOMIC PROFILE OF TRAIN VENDORS. There are mainly two types of workers in the Non-Agricultural Informal Sector- The wage workers and

the self- employed workers. Wage workers can be either ‘regular workers’ or ‘casual workers’. They are persons employed for remuneration as unorganised workers, directly by employers or through agencies or contractors.

Self employed can be ‘homeworkers’ or ‘other self-employed’. These are persons who operate non-farm enterprises or engage in a profession or trade, either on own account, individually or with partners, or as home-based workers. Own account workers include unpaid family workers too. ( Sen Gupta , 2008) I have done a study on the Train Vendors in Mumbai. They fall under Self-Employed workers. I interviewed people selling varied products ranging from hairclips and accessories to chikki and channa to locks and bindis. I have observed the following characteristics in this activity:

Most people’s earnings ranged between Rs. 100- Rs. 300 per day, approximately Rs. 3000- Rs. 9000 every month. An interesting point to note is that most of them invest more than they earn. A 20 year old girl named Martha earns Rs. 300 everyday selling hair accessories and bindis, but buys products worth Rs. 500 everyday. Similarly 33 year old Taramati earns Rs. 200 – Rs. 300 everyday selling jewellery and invests Rs. 500 – Rs. 600 every evening. However, it is not true in all cases. Some people made quite a profit every day. 19 year old Ganesh makes a profit of Rs. 300 – Rs. 00 everyday selling Chikki in the trains that halt at Churchgate station. Similarly Ram, who is in the business of selling locks since the past seven years in trains going from Churchgate Station to Virar Station makes a profit of Rs. 100 – Rs. 200 every day while

only invests Rs. 500 every week. Another thing that I noticed was that most of them worked individually. Even though they are selling the same products, they have no groups as such. I interviewed Taramati and her friend Vimla together. They were selling similar products but did not share their cost or profits.

The people I interviewed travelled extensively. But most of them had no particular train they did business in, rather places they got on and got off and the time during which they took these trains. Martha took only fast trains at peak hours that are 8 am to 10 am and 8 pm to 10 pm every day. Sailesh who sells Chikki only does business in the Virar bound trains – irrespective of them being a slow or fast- during 6pm and 7pm every day. Taramati took only fast trains and got off at Dadar. She said she tries to take as many fast trains as possible from 1 pm to 9 pm.

Most of these people targeted trains at the peak hours as that is when they got maximum clients. Aamir , who sells Channa in the local trains of the Central Railways said that he did his business in the evenings because that is when people return from work. I also noticed that all the people who sold jewellery, hair clips, bindis etc bought their products from Malad – Dadar. Also these people bought products every day at different times. Taramati purchased all her products till 1 pm after which she started her day’s business while her friend Vimla preferred to buy her products from 5 pm to 9 pm.

When asked what

advantage they get from buying their products from Dadar, they said that on every item that they purchase they get a discount of Rs. 2 – Rs. 3. Apart from this, it seems like all the other items (like chikki, channa and locks) are purchased from individual dealers. Ram purchases his locks from a dealer in Mussafir Khana while Aamir bought his Channa from a supplier in Mulund. From the field work that I did, I realized that Train vending is an activity which attracts all kinds of people- kids, old women, girls and men.

However, most of them have been in this activity not out of choice. Most people I met during my field work have been doing this since they were little children and have no knowledge of all the other opportunities that they missed out on. Most of them believe that this is the only way of life for them. A CRITIQUE OF THE ACTIVITY. Importance of Self Employment in India: The informal sector plays a vital role in terms of providing employment opportunities to a large segment of the working force in the country and contributes to the national product significantly.

The contribution of the informal sector to the net domestic product and its share in the total NDP at current prices has been over 60%. At present Indian Economy is passing through a process of economic reforms and liberalization. It has been experienced that the formal sector could not provide adequate opportunities to accommodate the workforce in the country and informal sector has been providing employment for their subsistence and survival. SWOT ANALYSIS OF THE ACTIVITY OF TRAIN VENDING: STRENGHTS: The strong

point about this activity is that the workers tend to operate like monopolistically competitive firms. -No other cost except for purchase of goods is incurred and there are no machines, need for transport or rent required. -No education or skill is required in this activity. This is why so many children are involved in this activity. -There are no time constraints as the workers can get on and get off at any given time. Also trains are running all day and all night, so there is always an opportunity of doing business. The train vendors are not representated in any form, they are a hidden form of self- employment and therefore have to pay no taxes or follow any Government policies. WEAKNESSES: -The workers in this business get on to any train at any time. Due to this, many a times there are many competitors in the same train. Ram, who sells locks complained about this phenomenon. -As most of them work individually, there are no groups or informal unions backing them up. Due to which, if they get into trouble with the law there is no one to protect them. Most of them work during peak hours, during which the trains are very crowded. It is very difficult to function in such a situation. Due to this, their business is highly is affected. -The qualities of the products that they purchase are very mediocre and bad. Also the products are made of cheap quality material and are not long lasting. Due to this, not many people, especially the upper middle class and students prefer not buying these goods. -The major population that these products

attract are the lower classes and the middle class.

As the activity attracts people having low incomes, the people tend to bargain a lot, which in the end affects the profit and decreases the profit margin. In case of the channa seller, Aamir, he complained that many people try the channa but not many people buy it. Also, Sailesh, complained that there are not too many consumers for chikki. OPPORTUNITIES: -A large population commutes by train, so there is tremendous scope and opportunity for business. Also, varied people travel by train so varied commodities can be sold. The consumers, which consist of mainly the lower class and middle class, are extremely busy with work and household chores. They don’t have the time to a bazaar and buy household commodities for cheap prices. Therefore, they tend to buy certain household goods and other commodities while they are travelling in the trains. -The workers don’t have to look out for buyers; they don’t need to spend money on advertising their business. They themselves advertise their products at the time of selling. Also, people commuting by train is a given, thus they have a ready market.

THREATS: -The major threat that the workers face are the policemen and the ticket collectors as they don’t have monthly passes or tickets. In my field work I came to know that there is a weekly ‘hafta’ that they pay to the policemen. Martha told me that she pays Rs. 20 – Rs. 50 every week, but if she gets caught she has to pay a Rs. 1000 fine to clear her name. On the other hand Vimla and Taramti claimed to pay Rs.

1000 to the police every month, but if they get caught by the ticket collector they still have to pay Rs. 200- Rs. 300.

Therefore despite the money they pay, they still have no protection. This decreases their profit margin considerably and one would wonder how much of what they’ve earned is left at the end of the month. -Nowadays companies and brands are building strategies to attract the ‘common man’. They are offering great prices and discounts for their products. With this they also offer quality and longetivity. Due to this goods that are sold in the trains are less in demand. Why would a consumer buy cheap quality goods when he is getting better quality goods at the same price?

Train vending is a much hidden self employment activity and is not as recognised and discussed as street vending, rickshaw pullers etc. Therefore the first step to be taken is the recognition of this large activity. Also, to educate these people is the need of the hour. Only with education will they be able to branch out and get better opportunities and a better life. Almost all the train vendors are uneducated and illiterate. The quality of life is very poor, therefore, better living conditions must be provided. Also social security should be provided. It can be provided in the form of: Centrally funded social assistance programmes. • Social insurance scheme. • Social assistance through welfare funds of Central and State Governments, and • Public initiatives. The centrally funded social assistance programmes include the employment oriented poverty alleviation programmes such as Swarnjayanti Gram Swarojgar Yojana, Jawahar Gram Samridhi Yojana, and Employment Assurance Scheme. The social

insurance schemes include several schemes launched by the Central and the State Governments for the benefit of weaker sections through the Life Insurance Corporation of India and General Insurance Corporation of India.

In conclusion I would like to say that even though the informal sector is providing the people with many employment opportunities, there are a lot of problems that need to be addressed. They do not enjoy the measure of protection afforded by the formal modern sector in terms of job security, decent working conditions, and old age pensions. Their motivation is usually to obtain sufficient income for survival, relying on their own indigenous resources to create work.

Even though they find sporadic temporary employment in the informal sector as day labourers and hawkers, their incomes are insufficient to provide even most rudimentary shelter. Furthermore, there is concern over the environmental consequences of a highly concentrated informal sector in the urban areas. Many informal- activities cause pollution and congestion or inconvenience to the public (train vendors). (Todaro, M) The challenge of governments is to design a comprehensive system of protections that do not displace efficient informal mechanisms or dampen the otential for growth and poverty reduction of the sector. A combination of policy, institutional framework and strategy is essential for enabling both entrepreneurs and workers in the informal economy to forge an equitable symbiotic relationship. BIBLIOGRAPHY 1. “Does Class Matter? Class Structure and Worsening Inequality in India. ” Economic Political Weekly July17, 2010. 2. Gary S; Pfeffermann Guy (2003) “Pathways out of Poverty: Private firm and economic mobility in developing countries”. 3. Hart K. (1973), “Informal income opportunities and urban employment in Ghana”, Journal of Modern

African Studies. 4.

Jafa V. S (2001) “India: Labour and Employment scenario in the 21st century” 5. Papola, T. S. (1981), “Urban informal sector in a developing economy”. 6. Sen Gupta, Arjun (2007) “Report on conditions of Work and Promotion of Livelihoods in the Unorganised Sector” published by Dolphin Pinto Graphics. 7. Todaro, Michael P. (1970) WEBLIOGRAPHY 1. “Informal Sector in India” http://labour. nic. in/ss/InformalSectorinIndia-Approachesforsocialsecurity. pdf. Accessed on 3rd August. 2. “Informal Sector and Informal Workers in India” http://www. iariw. org/papers/2009/5a%20naik. pdf. Accessed on 1st September.

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