While Informality is a way of life in India, the developed world is marching forth from the formal sectors of the economy to the E-markets. While the developing world is marching forth towards the path to sustainable development, the definition of sustainable development is seeing an alteration for the first world nations. As such, each specific country of the world is marching forward on its own unique path to development with a set of characteristics and hurdles that are indigenous to its own economy, society, culture and polity.
The traditional academic developmental theory predicted that the developing nations after a lag would follow the developmental pathways of the developed world. The very first industrial revolution arrived as a self-exploratory process in the now developed world. Scientific progression slowly and steadily took place, innovations were being undertaken in all the five forms as Schumpeter dictated, the government and the nation states were discovering and determining the best ways to run their respective countries. The cumulative effect of all these and other related changes led to the specific growth patterns that the now developed world has had.
On the contrary, the outcome based on empirical investigations analysing the developmental paths and trajectories of the developing world are completely different. No nation from outside the developed world has ever reflected a developmental pattern cloning that of the former. The time lag has played its part in-terms of creating a diversity in knowledge and advancement in technology; both factors coming together to chart-out a unique path to their indigenous development.
There is practically no Indian or at most a negligible Indian who hasn’t had an interface with a person employed informally or transacted from the informal economy. Most of the Indian households belonging to different income strata prefer buying vegetables from the local vendors. The domestic home-help market in India is completely organized in an informal manner. The culture of taking tuition classes as complementary to the formal school education system is again informal in existence and appeal across India. There are ‘n’ number of examples highlighting the common-parlance presence of the informal sector in India.
Over the course of past few decades, the Indian economy has reflected multiple dynamic growth numbers. All the major parameters of the Indian economy have been yielding positive and growth-centric outcomes. To a very good extend India has succeeded in overtaking some major nations across the world in-terms of the global comparative indices like GDP. But at the same time the fact needs an acknowledgement that the Indian economy very well has followed its own indigenous strategy and pattern of growth.
On the eve of independence, when the Indian economy was designed in a mixed manner, the vision of the new India was different from what was felt at the eve of launching the major economic reforms of 1991. As such just like the needs and demands of the people, the needs and demands of the economic systems change and vary from time to time. And in response to the changing needs of the economic systems, the policies need to change simultaneously. At the same time, the effective policies are always supposed to be informed and flexible knowing what the economy needs to grow rather than being stringent in the face of stubbornness. In light of the informal sector, the policies of the Indian government till date have been latter than the former. The Indian policy has for a very long time has took the prescriptions from the traditionalist school of developmental economics that favours the formal sector in absoluteness. In this manner, the government of India has hampered a smooth existence and growth of the Indian economy leading to the growth of unemployment and decline in the income of the people.
In defence of the indigenous development school of thought, the Indian policymakers need to acknowledge the peculiar factors of the Indian people, their culture, the traditions and the societies. At the same time the policymakers are supposed to incorporate the huge diversity that the union of India consists of; from North to South and East to West. Now is the immediate hour to understand the fact that in no parallel universe, nor in this one; is there any chance and scope for the Indian economy to follow the exact same path to development as the USA or the UK or any other country from the first world has ever been on.
A growing body of empirical literature from across India (like; Majeed et al., 2022; Nagaraj & Kapoor, 2022) highlights the importance of the informal sector in the Indian economy. The overlapping backward and forward linkages between the formula on the informal segments of the Indian economy have been validated by a number of contemporary studies (like; Harriss-White, 2020; Majeed & Rashid, 2023; Singh, 2023). From the day-to-day consumption to the intermediate production, infinite links exist between the formal and informal segments of the Indian economy, between the consumers and producers and even the government and its agencies at various levels. It has been observed that in the absence of the informal sector engagement in the Indian economy at all the levels, practically no task can be accomplished to the full. An average Indian market would never clear in the absence of the informal segment of this specific market.
Drawing on the same, it can be resolved that the contemporary policymakers in India need to understand and acknowledge the indigenous path to the developmental process of India. Designing of the policies intended to wind-up and close down the informal sector is potentially the most dangerous thing that can be done and eventually result in the reversal of the growth trajectory of the Indian economy. The easiest transition from the non-waged in-to the waged-economy in India has been facilitated by the informal segment of the Indian economy. A closure of this segment of the economy in the contemporary times, would bring with itself starvation and highest levels of unemployment ever to be witnessed by the Indian economy.
Instead, as the need of the hour calls, the policymakers in India need to extend their shadow and umbrella towards a positive growth of the informal sector. Only after the informal sector has grown considerably with positive outcomes and growing linkages with the formal segment of the economy, can a policy move be taken towards their formalisation. As such, the Indian formalisation is not something that can be started from the very beginning, it is rather going to be a transition and conversion of the informal economy and its allied sectors steadily with the realization of rigorous growth into the formal one. However, the realisation of this transition, is still decades away and as a process which would slowly unwind itself. Till the distance is covered, the informal sector justifies to be supported towards the attainment of better outcomes.
