*RETHINKING THE INFORMAL ECONOMY IN *THE * *NEO-LIBERALIST PHASE TABLE OF CONTENTS *RETHINKING THE INFORMAL *ECONOMY IN THE * *NEO-LIBERALIST PHASE Introduction : The labour markets in developing countries is markedly different from that in the developed countries. The most striking feature of labour markets in the developing countries is its non-homogeneous character. The status of the vast majority of workers in the developed countries is of wage and salary earners. Whereas in the developing countries there is a predominance of self-employment. This non-homogeneous character of labour markets in developing countries also implies that the nature of employment and the manner in which it is created is different in the two world’s. In the developing countries the vast majority of the population is left to fend for itself and create employment out of its own ingenuity, skills and capital. This leads to vast differences in the nature of employment and the creation of dualistic structure of ‘formal’and ‘informal’ components of the labour market. A large proportion of the workforce is in the unorganised or informal sector. These workers are engaged in economic activities with lower productivity resulting in lower incomes. They are also engaged in activities with less stable employment contracts (including the self-employed) and fewer social security benefits. While the wages and salaries of the formal sector workers are periodically revised to counter inflation. No such benefits accrue to the large proportion of workers in the unorganised sector. Inspite of growing literature on the informal sector, there are several gaps not only with respect to the data on the size of the sector, but also with respect to the concept and definition of informal sector, characteristics of the sector, its contribution to the national economy and the areas for policy/programme interventions. In fact one can say that a comprehensive understanding of this sector is still eluding us. The following paper aims to provide a comprehensive understanding of the dynamics of the informal sector in India in the post-reform period. Informality in the Labour market- Concepts, Characteristics and Definitions: Concept The informal sector covers a wide range of labour market activities that combine two groups of different nature. On the one hand, the informal sector is formed by the coping behaviour of individuals and families in economic environment where earning opportunities are scarce. On the other hand, the informal sector is a product of rational behaviour of entrepreneurs that desire to escape state regulations. The two types of informal sector activities can be described as follows: Coping strategies (survival activities): casual jobs, temporary jobs, unpaid jobs, subsistence agriculture, multiple job holding; Unofficial earning strategies (illegality in business): (1) Unofficial business activities: tax evasion, avoidance of labour regulation and other government or institutional regulations, no registration of the company; and (2) Underground activities: crime, corruption - activities not registered by statistical offices. The informal sector plays an important and controversial role. It provides jobs and reduces unemployment and underemployment, but in many cases the jobs are low-paid and the job security is poor. It bolsters entrepreneurial activity, but at the detriment of state regulations compliance, particularly regarding tax and labour regulations. It helps alleviate poverty, but in many cases informal sector jobs are low-paid and the job security is poor. The size of the informal labour market varies from the estimated 4-6% in the high-income countries to over 50% in the low-income countries. Its size and role in the economy increases during economic downturns and periods of economic adjustment and transition. The concept of the Informal Sector was first used 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 formal sector. Characteristics: The concept of the informal sector was introduced into international usage in 1972 by the International Labour Organization (ILO) in its Kenya Mission Report, which defined informality as a “way of doing things characterized by (a) ease of entry; (b) reliance on indigenous resources; (c) family ownership; (d) small scale operations; (e) labour intensive and adaptive technology; (e) skills acquired outside of the formal sector; (g) unregulated and competitive markets”. Since that time, many definitions were introduced by different authors and the ILO itself. The ILO/ICFTU international symposium on the informal sector in 1999 proposed that the informal sector workforce can be categorized into three broad groups: (a) owner-employers of micro enterprises, which employ a few paid workers, with or without apprentices; (b) own-account workers, who own and operate one-person business, who work alone or with the help of unpaid workers, generally family members and apprentices; and (c) dependent workers, paid or unpaid, including wage workers in micro enterprises, unpaid family workers, apprentices, contract labour, homeworkers and paid domestic workers. Definition Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study. To further confound attempts to define this process, informal economic activity is temporal in nature. Regulations (and degrees of enforcement) change frequently, sometimes daily, and any instance of economic activity can shift between categories of formal and informal with even minor changes in policy. Given the complexity of the phenomenon, the simplest definition of informal economic activity might be: any exchange of goods or services involving economic value in which the act escapes regulation of similar such acts. The informal sector has been given a number of interpretations by different authors. The following definition prepared by ILO and UNDP, 1972 refers "to the non-structured sector that has emerged in the urban centres as a result of the incapacity of the modern sector to absorb new entrants". The term ‘Informal sector’ is giving way to the term ‘Informal economy’. The concept of ‘informal economy’ in fact tries to characterise workers depending on their work status. This is more useful to persons concerned with wages, working conditions and access to social protection to work. The new definition of the ‘informal economy’ focuses on the nature of employment rather than the characteristics of enterprises. Categories of informal workers: Picture any crowded Indian city or town you know well. Except in its modern commercial and residential areas, the sidewalks are lined by barbers, cobblers, waste recyclers and vendors of vegetables, fruits, meat, fish, snack foods etc. Other categories of informal workers are casual workers in restaurants and hotels, subcontracted janitors and security guards, casual or day labour, office helpers etc. Even in developed cities like New York there exists a share of pushcart vendors, street vendors, street-side performers, shop workers, etc.. Across these various segments of informal workers one thing lies common - the lack of formal recognition. In short, there are 4 groups: Owners of informal enterprises (employers) Own Account workers Informal wage workers Home workers Informal Economy Centrestage – Measuring Informality: Obviously it is not easy to obtain empirical estimates of informal workers of different categories. However, we can arrive at an approximation of the first component of the informal economy, non-wage employment or self-employment, by addition of employers,own account workers and unpaid family helpers. While, it may be relatively safe to assume that own account workers and unpaid family helpers are part of the informal economy, this assumption may not be very accurate for the category of employer. Employers, however, form a very small proportion of the workforce. The second component of the informal economy -employeesis even more difficult to demarcate since there is really a continuum in the degree of informality in the employer-employee relationships. The official data distinguish only employees. The Indian labour force surveys further classifies them into casual and regular. All regular workers do not necessarily belong to the formal category, as they often do not receive a variety of benefits due to the formal worker such as provident funds, paid leave etc. An approximation of the second component can be made by assuming that all casual employees definitely constitute a part of the informal economy since they are less likely to obtain any of the benefits accruing to formal economy workers. Another indicator or measure of the nature of informality of the work status or sector is earning differentials. The informal economy can be distinguished by the inferior quality of work and inferior terms of employment, both remuneration and benefits. Among the non-wage component, inferior technologies lead to low productivity and hence to low earnings. On the basis of a survey of concepts and definitions, two scholars (Jeemol Unni and Uma Rani) report the results of an empirical study conducted in the city of Ahmedabad. The study attempts to measure the informal economy and its contribution to output, wages, savings and so on by covering the two components of informality. The results show that in the city of Ahmedabad informal employment constitutes around 75% of the total employment. In terms of income, around half the income generated in Ahmedabad city comes from the informal economy. The second study (by Anushree Sinha, N.Sangeetha and K.A. Siddiqui) is based on social accounting matrix of the Indian economy disaggregated into formal and informal production sectors and formal and in formal households. An informal household is one ‘if the major share of household income comes from activities that are informal.’ It says that a large section of the Indian population is involved in informal operations. And it also says that there are certain sectors, apart from agriculture and livestock, where the informal sector dominate in production. The last study (by Anil Gumber and Veena Kulkjarni) deals with the issue of social security for informal workers by focussing on the health needs and health insurance availability of workers in Ahmedabad district. The households were divided into those with some health insurance cover and those without. The former included the health insurance scheme of the well-known Self Employed Women’s Association, popularly known as SEWA. The study reports that despite a higher net cost of treatment and also out-of-pocket expenses per house of the SEWA scheme(compared to the non-insured households) , it is preferred by the households viz-a-viz other insurance schemes. The reasons cited are ‘low premiums’, maternity benefits and coverage of woman-specific issues. However, rural households report a higher level of dissatisfaction with the SEWA scheme compared to the urban ones. Operationalizing the concept of informality for the purpose of measurement is not easy both because the two categories of the informal sector overlap and because the border between the informal and the formal sector is blurry. First, if unofficial earning strategies are exercised by a low-profit small enterprise with low quality working conditions, then workers of this enterprise and the enterprise itself can be classified as belonging to both informal market categories. An example of such a case is an unregistered one-person low-profit street trade enterprise - these characteristics combine unofficial and survival activities. Second, some formal market jobs or enterprises can be classified as informal if it is found that they have poor work protection or if the life style and opportunities they entail are considered undesirable. If the street trader from the previous example registers her enterprise, the enterprise and the trader herself could be categorized as belonging to the formal sector if the profit is considered above the survival level. Source: World Bank - ECA, "Informal Sector in Transition Economies Compiling statistics on the size, composition and contribution of the informal economy is an extremely difficult exercise. The most serious limitation is that very few countries have undertaken regular surveys on the informal sector and only two or three countries have collected the data that provide for measures of informal employment outside informal enterprises. Further,the available data are not comprehensive. Most countries exclude agriculture from their measurement of the informal sector and some measure only the urban informal sector. Link between Globalization and Informality: Globalization has led to increasing Informalization and Casualization of the labour force in developing countries like India in the post-reform period By the 1980s, the focus of the informal sector debate expanded to include changes that were occurring in advanced capitalist economies. In both North America and Europe, production was increasingly being reorganized into small scale, decentralised and more flexible economic units. Mass production was giving way to ‘flexible specialization’ or, in some contexts, reverting to sweatshop production (Piore and Sabel 1984). These new patterns of capitalist development were (and are still) associated with the informalization of employment relations – standard jobs being turned into non-standard or atypical jobs with hourly wages but few benefits or into piece-rate jobs with no benefits – and with sub-contracting the production of goods and services to small scale informal units and industrial outworkers. In the process, the informal economy becomes a permanent, albeit subordinate and dependent, feature of capitalist development (Portes et al. 1989). Why does employment in the informal economy tend to expand during periods of economic adjustment or transition? When private firms or public enterprises are downsized or closed, retrenched workers who do not find alternative formal jobs have to turn to the informal economy for work because they cannot afford to be openly unemployed. Also, in response to inflation or cutbacks in public services, households often need to supplement formal sector incomes with informal earnings. During the1990s, globalization of the economy contributed to the informalization of the workforce in many industries and countries (Standing 1999). Whereas globalization generates new jobs and new markets, available evidence suggests that not all the jobs are ‘good’ jobs and that the most disadvantaged producers have not been able to seize new market opportunities. This is because global competition tends to erode employment relations by encouraging formal firms to hire workers at low wages with few benefits or to sub-contract (or out-source) the production of goods and services, and global integration reduces the competitiveness of many informal firms or self-employed producers vis-à-vis imported goods (in domestic markets) and vis-à-vis larger, more formal firms (in export markets) (Rodrik 1997). The globalization drive resulting in intensification of competition has prompted firms to adopt a ‘low road’ strategy of cost-cutting exercises via seeking numerical flexibility, downsizing, sub-contracting and outsourcing of production, and so on. Thus, informalization is a process of sub-contracting either to subsidiaries or locally independent firms, often by local contractors or middlemen to small units or home-based workers (Cheru 2001). These tendencies towards informalization are evident even within the formal sector thanks to numerous flexibility strategies; consequently temporary, casual and contract workers suffer from job attributes usually associated with the informal sector. Apart from these interdependencies between formal and informal sectors, the rigidities inherent in the former are said to spawn the growth of the informal sector. Another facet of globalization is the privatization of public sector firms (Standing 1999:73-4). The drive for privatization, at least in the short run, is associated with loss of jobs. Arguably, these tendencies force not only men but also women and children into poor quality employment in the informal sector. The link between globalization and informalization has been noted by several scholars (e.g. Beneria 2001; Cheru 2001; Hensman 2001). These developments pose a serious challenge to traditional unionism which must redefine its goals and strategies in order to play a socially productive role of providing voice to the disadvantaged and promote equity. This paper attempts to locate the problems of unions and examine their prospects for renewal. An increasing differentiation of workers, the rise of a new working class, and a rise in the numbers of flexible and informal sector workers has created a crisis of union representation. Clearly, traditional unionism in trouble. The current model of organizing labour markets, namely liberalization, privatization and globalization (LPG) has created multiple insecurities, viz. job, employment, income and interest representation insecurity (see Standing 1999). As Standing (1999:388-92) rightly points out, effective voice regulation must take into account the concerns and needs of the workers on the margins of the labour market: they too must become ‘a part of the shadow of the future.’ The need for representation is greater now than in the past. Employment Scenario in the informal economy: The informal workforce in India is an estimated 370 million workers, nearly 93% of the total workforce.5The informal workforce is comprised of three main segments: informal employment in agriculture (including small farmers and agricultural labour), informal employment in informal enterprises (including employers, own account workers, and employees), and informal employment outside informal enterprises (including industrial homeworkers sub-contracted by formal firms and domestic workers engaged by households). Women account for about one-third of the total informal workers. Informal employment is particularly significant in agriculture, trade and construction accounting for 94-99% of workers in these sectors. The informal sector alone, or the unorganized sector as it is called in India, accounts for 60% of NDP, that is, the Gross Domestic Product minus depreciation. For several decades, from the 1950s-1980s, neo-liberal economists assumed India had a large informal economy because it pursued an import substitution strategy, it enforced excessively protective labour legislation. This is because much of the growth has been capital and information intensive rather than labour intensive. For example, there has been limited growth in formal employment in the manufacturing sector. Also, as public enterprises are closed or downsized many of the retrenched workers have not found alternative formal employment. As a result, a growing proportion of the workforce in India is informal. Despite the population increase in urban areas, open unemployment, that is ‘not working but seeking work’ has not risen at a proportionate rate. In the absence of social protection policies, the only coping mechanism that the poor have, no matter how inadequate, is work. In this scenario, employment in the urban informal economy, mostly self-created, has expanded in most developing countries. In the informal economy, which for many is the ‘employment of the last resort’, work is often distributed among more people, leading to large scale underemployment. As a share of urban employment, the informal economy accounts for over 60% of employment in Africa, between 40 to 60% in Asia, and around 40% in Latin America. Moreover, women constitute a major proportion of all workers in the informal economy.2Work in the informal economy is mainly a means of survival. Joan Robinson as early as 1937 had noted that, ‘In a society in which there is no regular system of unemployment benefit, and in which poor relief is either non-existent or "less-eligible" than almost any alternate short of suicide, a man who is ...out of work must scratch up a living somehow or other by means of his (sic) own efforts’ (Robinson 1937: 83). Sub-contracting jobs to informal manufacturing enterprises is a means of cost reduction for the larger firms in the formal economy, and this trend has been steadily increasing in recent years. It is in the work of these micro enterprises that the links between the formal and the informal are most evident. For owner-managers of informal enterprises on the other hand, the lack of regulations and taxes in the informal economy as opposed to the formal sector is an advantage. The intense competition between informal enterprises, however, leads to their high birth and mortality rates. For many work in the informal economy is ‘employment of last resort’. This is because in general, entry barriers are few in the informal economy. However, becoming an employer in an informal enterprise is certainly more difficult than being an own account worker or a home worker. This is because the capital and the skills required to set up informal enterprise are probably higher than those involved in other informal activities. Globalization and the growth of sub-contracting have pulled many informal manufacturing enterprises into the global production chain. The risk reducing flexibility and the lower cost associated with sub- contracting have made it an attractive option for many big firms and multinationals. This has increased competition within informal enterprises and has exposed them to foreign competition. The transfer from agricultural sector to urban areas has certainly been a predominant characteristic of most developing countries. However, instead of being absorbed by the modern industrial sector (or the formal sector) these rural migrants join the vast numbers employed in the urban informal economy. Though the Lewis model was developed to understand the dynamics of developing economies with unlimited supplies of labour, as Lewis (1979: 223) commented, it described better the development process in 19th century Europe which also had the necessary capital to employ the labour being transferred to urban areas. The informal economy is neither always stagnant, nor always a feature of stagnant economies. The nature of growth of the informal economy has much to do with the economic environment in which it operates. If there were successful macroeconomic growth with strong employment effects, it would stimulate the economic environment for creating good quality jobs. This is confirmed by the ILO (1998) finding that there is a significant negative relationship between GDP growth rates and employment in the informal economy. Mitra (1994) also finds a negative correlation between the rate of growth of employment in the formal sector and that in the informal sector. No matter what the nature of work, the informal economy provides many with a purchasing power which would have been absent without this source of livelihood. As noted earlier, in this sense the informal economy is a ‘coping mechanism’. It may be argued therefore that supply creates its own demand in the informal sector. However, it is highly unlikely that the compensatory increase in demand that is created by supply of goods and services in the informal economy will on its own counterbalance the low rate of growth of labour demand that gives rise to such survivalist activities in the first place. We can say that it is not informality per se, but the nature of work and its relation to poverty that makes the crucial difference between men and women’s economic situation in the informal economy. Women are more vulnerable, particularly in the changing economic context, due to their poor endowments in education, skill and capital. These more or less structural disadvantages create a nexus between gender, informality and poverty which women find difficult to overcome the informal economy constituted nearly 93% of the total workforce and 83% of the non-agricultural workforce. A gender disaggregation of the informal workforce showed that about 252 million male and 118 million female workers were engaged in this sector, including agriculture. The informal segment in the non-agricultural sector alone engaged 107 million men and 27 million women. The women workers constituted about 32% of the workforce in the informal sector, including agriculture, and 20% of non-agricultural workers alone. Among all non-agricultural workers, the proportion of men and women in the informal economy was 82.9 and 85.6% respectively. That is, there was little difference in the overall significance of informal work by gender. Estimation of Informal Employment By using the revised definition of un-organized / Informal sector and using the criteria of availability of Provident fund in the case of regular salaried / wage employees, the estimates of informal employment in India have been worked out on the basis of data available from 55th round labour force survey. The total informal employment is 362.08 million out of a total employment of 396.77 million. The sector –wise informal employment is given in Table 1 The largest numbers of informal workers are in Agriculture. In fact, 98.84 percent of the employment in agriculture is informal. In the non-agricultural sector, the highest numbers of informal employees are in retail trade, construction, land transport, textiles etc. Table 1: Estimates of Informal Employment in India Source: Expert Group on Informal sector statistics, New Delhi, India. Though the employment in the informal sector in India is about 340.31 million, the informal employment in the country is 362.08 million. Out of 56.45 million employees in the organized sector, about 25.79 million are informal employees. Among 340.321 million informal sector employees, 4.02 million are formal employees. The relationship between informal sector employment and informal employment is indicated in Table. 2 Table 2: Distribution of Employment between Organized and Unorganized Sector Source: Expert Group on Informal sector statistics, New Delhi, India. Women Workers and the Informal Sector: It is essential to examine the nature of women’s employment in the informal sector. Most of these women work as casual labourers in agriculture, construction, brick-making, coir, or as own account workers in handloom weaving, basket weaving and vending fish/vegetables. Some of the newer activities are floriculture, poultry and livestock rearing, garment making, food processing and fish processing, as can be inferred from changes in the pattern of employment [Eapen 1994]. Informal sector employment is irregular and more so for women who are willing to take up any jobs. This is reflected in the much larger difference between all women workers (including subsidiary workers) and those engaged ‘full-time’ in work that is, principal status workers. An aspect which however, has been neglected in the formal/informal sector discourse is the extremely strenuous work and physical hardships involved in some activities in the informal sector, which impact severely on women’s health. Few micro-level studies have pointed out the travails of fish-processing workers, paddy transplanters, coir workers in the husk-beating and spinning sector, and the headload transporters in the brick-making and construction sectors. It is not just informality that puts women in vulnerable positions. It is their dominance in certain kinds of ‘invisible work’ such as home-based work, subcontracted homework or outwork and street vending. The women workers in non-agriculture, particularly the self-employed workers, are more likely to be working at home. They are also more likely to be engaged in sub-contract work on a piece-rate basis. Both these factors – their location of work and the nature of the contract arrangements – make these women open to exploitation as workers. This large proportion of women in home-based sub-contract work is a classic recipe for poverty. One of the main areas where poverty is generated is among such home-based workers in the manufacturing sector. The analysis above showed that women workers were more likely to be in the informal segments of the economy compared to men. A larger proportion of them were in economic activities without stable contracts and steady incomes, that is in self-employment and casual work rather than regular salaried employment. Women in the informal sector were less likely to have a designated business place. All this indicates a clear link between gender and informality, which leads to women at work being in more vulnerable situations than men. TABLE 3: Share of Women Workers in the Total, Informal and Formal Workforce, 1999-2000 In the informal economy the level of income differs by gender and kind of activity that the worker is involved in. The average annual income per worker for all workers was Rs 14208. The women workers’ annual individual earnings were lower (Rs 12192) compared to men (Rs 16704). Across the activity status, piece-rate workers had the lowest incomes (Rs 7488), lower than casual workers, self-employed and definitely the salaried regular employees. Most of these piece-rate workers were women employed in home-based work in the manufacturing industry, concentrated in specific industries like agarbathi making, bidi rolling, garment and kite making, most of them with very low incomes and in relatively low skilled occupations. They continue to be engaged in home based work despite such low incomes in the absence of better alternatives, due to lack of education and skills, and also due to the burden of domestic responsibilities. Women workers face further disadvantages due to household and childcare responsibilities at home. Part-time, irregular work was a major factor contributing to women’s lower incomes; to a large extent this was due to the double burden of work. Irregular work therefore becomes both a cause and a consequence of low incomes and poverty of women in the informal economy. In order to make up for poor income and irregular work, a higher proportion of women undertook multiple economic activities. This is a form of security, both work and income, and compensates for both lack of and the low productivity of their existing work. Such work also allows them to manage their dual responsibility in a much more efficient manner. Apart from having irregular work a large proportion of women salaried employees also faced the problem of having unstable contracts at work and lack of fringe benefits like paid holidays, sick leave, health insurance, workers’ compensation, retirement benefits and so on. A large proportion of these women in the urban areas were employed as domestic workers, in cleaning and caring, while in the rural areas they were employed in community and health services. Formality and informality of work is a continuum and per se does not create poverty. It is the nature of economic activities due to the poor endowments of workers that creates vulnerabilities. Education and skills: Women, it is often claimed, are less productive because they are less educated and less dynamic, and because they take more time off to deal with family responsibilities. Under-investment in human capital is a major insecurity faced by women workers in the informal economy. Thus, informality of work and gender related constraints combine to result in irregular work, multiple activities, low productivity work such as piece-rate outwork, and all this implies poverty for the women and their households. However, women in poor households contribute substantially to the economic resources of households and their material standards of living. It is worth noting that women make this financial contribution despite the fact that a large proportion of their employment is in the form of part-time or informal work. They are low paid, less secure and less protected by legislation or trade union organization. Women partly seek such work because of the unpaid care work they do, the prime constraint being the needs of the children. What might appear secondary from the point of view of the labour market is, however, enormously important from the point of view of families and the society at large. Sudha Deshpande’s “Tale of Three Slums” in Mumbai draws attention to some revealing developments for women in the post liberalisation period. Based on primary survey in the slums, the paper shows that there is some positive impact on women workers in the post-reform period in terms of better employment opportunities. However, her study of a sample of 300 poor working women, with poor education and skills, show that they remained poor even after reforms. The uncertainty of work and income increased much more for men than for women in the post-reform period. The study shows that the labour market in Mumbai has become more flexible now than before the reforms. Though the National Sample Survey Organisation (NSSO) data do not reveal this, the study clearly shows that poor households in Mumbai are the worst victims of changes in the labour market in the post-reform period. There is a great need to provide support for the informal sector in terms of technology and skill formation, credit and micro-finance, as well as social protection and organisation. In fact, organisations such as SEWA (Self- Employed Women’s Association) have helped asset-poor women workers in the unorganised sector. This, approach, however, calls for democratic structures and participative decision-making within NGOs and capacity –building for poor women. According to Ela Bhatt, organisation of poor women or social mobilisation is the key factor in promoting unorganised units and workers. Trade Unions and Informal Sector- ORGANISING THE UNORGANISED: **Trade unions have neglected informal sector workers over a long time. The informal sector was generally perceived as a transitory phenomenon that would, through development, be eventually absorbed into the formal sector (Gallin 2001a; ILO). As such, it was not considered prudent to invest resources in it. Second, the informal sector is small in size, widely scattered, unstable, heterogeneous, complex and invisible – factors not conducive to organization. Third, unions face heat in the formal sector and given the organizational constraints it was neither possible nor advisable to embrace the informal sector. Fourth, all the identities that serve as a basis for organizing, viz., employment relationship, contract, wage earner tag – do not generally obtain in the informal sector; they possess little organizational basis. Fifth, the self-employed constitute a significant portion of the informal sector and are seen more as entrepreneurs than workers (see WIEGO; ILO). Trade unions expected and even advocated state intervention, but this strategy has been either ineffective or counter productive. Also, the issues, problems and concerns of the informal sector workers are unique and different from those of formal sector workers. They constitute a mixed bag. Their issues/ concerns include land security, permanent space for operation, easy access to cheaper credit, lack of training to upgrade skills, absence of income security, and so on. As is evident, they do not emanate from the workplace and involve multiple agents: employer, community, government agencies, financial institutions and so on. But the presence and growth of the informal sector threatens ‘to undermine the acquired rights and conditions of workers in regular employment’ (ICFTU 1992 cited in ILO). It is not only the threat aspect that should prompt and compel trade unions to organize informal sector workers both at national and international levels (see ILO, for international union federations thinking on this issue). There are other reasons also. One, the informal sector is not a transitory phenomenon as was assumed; it is here to stay. Its share vis-à-vis the formal sector is increasing. Though the informal sector is considered atypical in a moral sense, in numerical terms it is the formal sector that is atypical – for example, the proportion of the informal sector in India (including agriculture) was 92% in 1998 (Gallin 2001a: 228). Two, the organizing potential of the formal sector is decreasing. Three, universality of representation, which the union movement should aim for, means coverage of all sectors, including the informal sector. This would ultimately lend stability to formal sector unions. On both grounds of organizational growth and social legitimacy, the trade unions cannot afford to ignore the informal sector any longer; also NGOs’ entry into this sector adds muscle to their organizational efforts. Four types of organizing informal sector workers have taken place: (1) All the major central union organizations (CTUOs) in India (like AITUC, BMS, HMS, INTUC) have attempted to organize workers in the informal sector. We review briefly here the attempts and strategies of CTUOs and the problems faced by them. The CTUOs, used as they are to easy ways of organizing workers in the formal sector, find similar efforts in the informal sector a tough terrain. The differences in the effectiveness of organizing workers in the two sectors were summed up by a union leader: ‘In the organized sector, 20% work gets 90% result. In the informal sector 90% work gives 10% result’ (quoted in Venkata Ratnam 2000b: 70). The logic of cost effectiveness led unions to focus on workers who are in large numbers – male, full time, regular, native, blue collar workers employed in large scale factories. They paid little or no attention to women, contingent, young, immigrants, workers in small establishments and in the informal sector. The former set was deemed socially important and politically relevant, hence a fertile ground for operation. The market legitimacy of the union lay in securing ‘differential terms of employment’ (i.e., union gain) for its members, gains that were denied to non-members (DeMartino 1999). These factors, resulted in their obsession with the formal sector at the cost of ill-organized minority workgroups in the informal sector. The historic neglect of women, contingent employees and informal sector workers, coupled with erosion of its traditional base, considerably affected the viability of unions. * *An important aspect of organizing in the informal sector is the relationship between trade unions and NGOs. The dynamics of such a relationship is of interest and concern. Some trade unions advocate a separate but cordial relationship with NGOs so as to not mix labour issues with other agendas and dilute the former. Others welcome NGO assistance but want unions to lead the coalition. However, the NGOs prefer to work with unions on an equal footing. Union renewal is visible: they are now more relevant to workers and society than ever in the past. The union is a powerful voice institution. It can and should play a pivotal role in building a larger social movement. Various social organizations like NGOs are important players in the labour arena, whose contributions in organizing informal sector workers cannot be ignored. We emphasize complementarity, a sense of social partnership between the social and labour organizations working in the labour sector. Finally, in spite of the problems of organizing workers in the informal economy, the trade union movement will need to rethink its position vis-à-vis the informal economy because it appears that additions to the labour force in the coming years are likely to be from here. And since the current political economy climate is in favour of moving the onus of job creation and job retention from the state to the individual, having a legitimate voice in the labour market by affiliation to a union assumes even greater importance for socio-economic security for already disadvantaged workers in the informal economy. Government Intervention/Measures: **To both reduce poverty and increase growth, a comprehensive and innovative policy response to the informal economy is required. After all, in most developing countries, well over half the workforce and a sizeable share of economic units operate outside the scope of existing legislation, regulations and policies and, therefore, do not receive the incentives, benefits or protection thereof. What follows is a working policy framework developed by the global research policy network Women in Informal Employment: Globalizing and Organizing (WIEGO). Comprised of membership based organizations of informal workers, labour-related NGOs, research and statistical institutions, and international development agencies, WIEGO seeks to increase the visibility and voice of those who work in the informal economy and to promote supportive policies for the informal workforce worldwide. It does so by promoting improved research, statistics and policy analysis on the informal economy, and by helping to strengthen the research and policy analysis capacity of membership based organizations of informal workers. Clearly, there is no single policy prescription for the informal economy. Instead, what is both desirable and feasible is a working policy framework, outlining an approach to policy formulation that can be applied in different contexts by different stakeholders. The policy-making process should be participatory and inclusive – consulting informal workers and their organizations and involving as many different stakeholders as possible. It should also allow for policies to be developed through negotiation between appropriate government departments and relevant stakeholders, based on a shared understanding of the economic important of informal workforce and informal enterprises. Four policy areas have particular impact on the informal economy: (_i_) macroeconomic policies – tax burdens, incentives and statutory benefits (e.g. unemployment insurance and pension funds) should be more equitably distributed between micro, small and big businesses, and between employers and employees (of all kinds); (_ii_) labour policies – the scope of labour legislation, labour policies, and collective bargaining agreements should be expanded to cover all categories of workers; (_iii_) urban regulations – appropriate regulations and equitable allocation of urban space should be developed through a consultative process and negotiated settlements between all stakeholders; and (_iv_) social protection measures – the scope of statutory schemes should be expanded to cover as many categories of workers as possible, and alternative schemes that target informal workers should be encouraged. The Government of India has set up two recent commissions that have drafted legislation and/or recommended policies in support of the informal economy, notably, the National Commission on Self Employed Workers and the recent National Commission on Labour. Also, recently, the Ministry of Labour adopted a National Policy on Street Vendors. And one or two state governments have drafted legislation and/or policies in support of informal workers, most recently, the Government of Madhya Pradesh. The government can play a facilitating role by providing many of those in the informal economy with a legal status, advance loans, provide training and so on. In a sense that may be ‘formalising the informal’. However, the heterogeneity within the informal economy needs to be recognized. Heterogeneity in the informal economy encompasses skills, work status of workers, their productive capacity, their links to other sectors and to the state. There are some activities in the informal economy that cater to strong markets and have strong linkages with other sectors of the economy which can benefit from government intervention. Community bodies, non-governmental organizations, which are already working with parts of the workforce in the informal economy, also have important roles in this regard. Consequently, with the exception of some vocational training in poverty alleviation programmes, the government and other training agencies ‘play an insignificant role in the development of the informal sector skills’ (Mamgain/Awasthi 2001). Training for workers in the unorganized sector has so far mainly been imparted by NGOs and member based organizations (e.g. trade unions or cooperatives) or by traditional forms of skills transfer through master craftsmen, on-the-job training, and within the family or community outside the formal training system. One possible reason why training was confined only to the organized sector and thus exclusively limited to secondary level students, has been the implicit assumption inherent in the dominant development model that the unorganized sector workforce would be absorbed by the organized sector during the process of industrialization. A flexible vocational training and education system needs to be developed to provide the space for workers to switch between work and training as per their requirements, be it in the organized or the unorganized sector. The NCL recommends a competency based training approach (CBT), which would provide both the market sensitivity and flexibility required for the overall workforce and the unorganized sector workforce in particular. Positives and Negatives of Informal Sector: At the present juncture policy-makers are looking to the informal economy to solve the employment crisis – ‘decent work in the informal economy’ being the slogan. This is because employment creation in the informal sector is relatively cheap. At a time when there is pressure on governments to diminish the size of the public sector and disinvest, advocating employment creation in the informal economy could be an alternative. Moreover, in policy circles the ‘small capitalist’, ‘entrepreneurship’ view of informality is steadily gaining prominence. However, policy-makers need to be careful about putting too much emphasis on the informal economy to solve the current employment crisis. Insecurity in the informal economy is high, while coping mechanisms available are inadequate. In fact, the informal economy itself may be looked upon as a coping mechanism for a vast majority of workers who are unable to find jobs in the formal sector in the face of non-existent social protection policies. For local governments who are responsible for the development and management of cities in developing countries, the informal sector represents a dilemma. It presents both advantages and disadvantages that need to be taken into account when designing policies targeted at the sector. YES With the multitudes of rural families migrating to cities either due to lack of opportunities in rural areas, or in search of a better job in cities, the formal sector finds it difficult to offer jobs to the migrants. It is ultimately the informal economic sector that absorbs these migrants and provides them with opportunities to find jobs, create entrepreneurship and raise incomes in comparison to rural levels. With inefficient and overwhelmed municipal and public services, local governments and public institutions are hard pressed to provide even basic services to low-income slums and squatter settlements. In such cases, the informal sector responds to such basic needs by converting it into a market opportunity, even for infrastructure needs such as water, electricity, toilets etc. Slums and squatter settlements are an integral and inevitable part of most cities in developing countries. On one hand they represent shortcomings in both the public sector institutions (including local governments), and the migrants themselves; on the other, they represent the need and desire of migrants to invest in improving their life. A house is a fundamental/basic need, and very few opportunities and alternatives are available to the very poor. Local governments are politically hard pressed to provide necessary services and infrastructure to a group they essentially feel "does not contribute to the city's economy". The urban informal sector steps in again to provide the necessary services informally (albeit sometimes illegally) whether it is land parcels, building materials, labour etc. BUT It is true that low-income groups do not pay any taxes - whether residential, business or income tax. This makes local governments reluctant to provide services or facilities to such groups, particularly in face of the 'fear' that this may attract more migrants to the city. Despite the lack of capacity of low-income groups to pay taxes, they are however an integral and important part of the urban economy, providing a smooth continuum of cost-effective products and services to urban residents on a daily basis. A scalable system of fees and at-cost contributions for public services provided (such as toilets) should be upgraded to regular taxes as the groups improve their income levels and standard of living and move out of slums. This is true though the situation is no different from any average middle-class family. Comparatively, however, they produce much less wastes and recycle most waste where possible (or release it back into the informal economy for another enterprise). It is also important to realize that the pollution and waste generation by the informal sector may be more 'visible' as they are not generally served by formal urban infrastructure networks, or urban garbage services. The first thing we need to recognize with respect to the informal sector is that they provide important, daily services for the smooth functioning of a city. From laundry service and vegetables, to flowers and haircuts, informal enterprises (whether a one-man enterprise or a family enterprise) respond quickly to market needs and consumer demands, much more so than formal enterprises. The problem arises when these contributions to the urban economy are not recognized and no clear policies are made by the local governments or other formal entities - even if these policies/initiatives are ad hoc and 'informal' themselves. Evidence from cities in most developing cities show that informal housing and enterprises usually squat on marginalized and vulnerable lands that are not attractive to other users or developers. These include marshlands, river banks, hill sides, and buffer areas around railway lines or expressways. Besides, living densities in these areas are much higher than those achieved in the private or formal sectors (albeit, these levels may not meet minimum comfort standards).Informal sector is organic in nature i.e. different conditions produce different patterns of informal sector activities. The informal sector in a market is so ever changing that it would be beneficial to observe it on a regular basis. But due to lack of man power regular observation of selected markets is difficult. Also the Informal Sector suffers from the problem of lack of social security.* **There exists no job guarantee and lack of ‘**decent jobs’*.Post-reform growth is characterised by Labour Market Flexibility*.**The employers follow a ‘**Hire and Fire policy’*.There is downsizing, subcontracting and increasing casualization and informalization of the workforce.Thus the impact of insecurity on those in the informal economy is stronger mainly because the coping strategies that are available to them are inadequate. Thus, the informal sector plays an important and controversial role. Positives and Negatives: It provides jobs and reduces unemployment and underemployment but in many cases the job security is poor. It bolsters entrepreneurial activity. But it is detrimental to the state regulations compliance , particularly regarding tax and labour regulations It helps alleviate poverty. But in many cases informal sector jobs are low paid. Its form may enhance the spatial characteristics of the market. But it is a burden on the existing services, which get overloaded. Resolution of the problems of informal sector enterprises The United Progressive Alliance Government had committed in its Common Minimum Programme to set up a National Commission on Enterprises in the Unorganized/Informal Sector. Accordingly, the Government has set up on 20th September, 2004, the National Commission on Enterprises in the Unorganized/Informal Sector as an advisory body and a watchdog for the informal sector. The Commission will recommend measures considered necessary for bringing about improvement in the productivity of these enterprises, generating large scale employment opportunities on a sustainable basis, particularly in the rural areas, enhancing the competitiveness of the sector in the emerging global environment, linking of the sector with the institutional frame work in areas such as credit, raw materials, infrastructure, technology upgradation and the marketing and formulation of suitable arrangements for skill development. *“While addressing the Governors of the States, the Prime Minister, *Manmohan* * Singh remarked, “There is a need to make our growth process more* *inclusive; to ensure that the marginalized and weaker sections * *benefit* * from* *income* *growth; and to ensure that social infrastructure, particularly in health and education improved.” (The Hindu**, 16.06.2005) Current Scenario(Reforms and Growth): Informal Sector is gaining much importance in the current economic scenario, especially, in the context of the developing and the third world economies.The new policy follows the Flexibilisation of employment. In India the low road approach has been adopted [Horstrom 1994]. The low road strategy of flexible employment model in a deregulated and labour surplus market economy effects the labour adversely specifically in the absence of collective bargaining institutions. Reforms have led to the rapid expansion of the informal sector in the post-reform period. The main objectives of the industries setup under deregulated and liberalised market system is obviously to make quick profits to become ‘a world class company’. In pursuits of the objectives these industries introduced changes in the organisational, managerial, technological and operational setup. These changes are so designed that they prefer low skills, female workers and opt for informalisation and segmented employment. Some of these jobs are contractual, casual, insecure, flexible, result informal work relations. This is called a ‘ low road flexible’ employment strategies which causes vicious downward spiralling effects. As 94% of female workers are engaged in informal jobs, they are more hard hit by these market changes. This is in addition to the fact that traditionally the wages of female workers have been fixed lower than male workers in the male-dominated informal industries. The nature of the employment is on hierarchical and segmented basis. This segmentation increases the vulnerability of the workers and the management’s stranglehold over workers. The arrangement of workers or work division in ‘process lines’ is mainly designed from the cost effective angle. This entails flexibalisation , informalisation of work relations and casualisation of employment which together leads to maximization of profits. CONCLUSION: The informal sector is a very varied and heterogeneous sector operating in a number of fields providing services at low cost and within the reach of the consumers. Many of the persons working in that sector have low levels of education and have learnt some elementary skills on the job. They are not attracted to the training centres to go for the improvement of their knowledge or skills. However, these small enterprises are providing more than 50% of the employment in the non-agricultural sector and thus contributing in minimising the unemployment problem. Hence, the proposal to use a ' specially equipped coach' to reach a maximum of these entrepreneurs will go a long way in improving the productivity and the quality of the products in this sector.The investment will in the long run repay back dividends which will make the project worthwhile and sustainable. The informed and trained workers will in the end form associations and gain the critical mass to exert pressure on the different stakeholders to obtain the incentives and other support needed for their growth and development. In sum, from a global perspective, the informal economy in India represents a very important and interesting case that serves to illustrate the key elements of the new understanding of the informal economy. Given the size and significance of the informal economy in India, and its linkages with both poverty and growth, it would be difficult to fully understand the workings of India’s economy, its development strategy and associated transformations without understanding the informal economy. Thus, from a national perspective, deepening the understanding of the informal economy in India would appear to be an important – indeed, essential – exercise. BIBLIOGARAPHY: Hirway Indira, Economic and Political Weekly- Tough Challenges In Informal Sector,(September 22-28,2001), Vol.XXXVI No.38, Sameeksha Trust Publication. Jeemol Unni, Economic and Political Weekly-Gender and Informality in Labour market in South Asia, (June30-July 6, 2001), Vol. XXXVI No. 26, Sameeksha Trust Publication. M. 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