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The informal sector and urban poverty

By Rahul Srivastava

The informal sector accounts for 66.7% of total employment in Delhi and 68% in Mumbai. Workers engaged in this urban informal sector form the bulk of the urban poor

Studies have shown that the informal sector accounts for 66.7% of total employment in Delhi while the corresponding figure for Mumbai is 68% and for Chennai, it is 60.6%.

The term informal economy was coined by social anthropologist Keith Hart in 1971 during his field work in Western Africa . It basically refers to the survival economy of the poor whose individual economic transactions do not ever rise to the taxable limit and who occupy a grey zone of commercial exchange, mainly by offering their labour, which allows mainstream (and audited) economic practice to subsidise itself through their relationship with them. The privileged within poorer economies and polities find informal economic transactions very profitable, mainly since it keeps labour costs low. It also allows corrupt municipalities to exploit physical space for commercial gain rather than for the welfare of the poor and extort bribes from the poor entrepreneurs who are never given full status as valid citizens earning their livelihood. The only reason why the informal economy continues to grow is because it subsidises the economy by keeping labour costs low.

But it should be viewed in a deeper way when we consider that the contribution of the urban sector to the national economy is nearly 60%. Which makes the informal sector itself a major employer in the biggest metropolises in the country -- Mumbai, Delhi and Chennai.

A study by sociologists Sharit K Bhowmik and Nitin More, ‘Coping with Urban Poverty – Ex-Textile Mill Workers in Central Mumbai ’, provides a vivid portrayal of the state of the urban poor:

“Workers engaged in the urban informal sector form the bulk of the urban poor. Workers in this sector get low wages or if they are self-employed, their income is meagre. This implies that their living conditions are low and, if employed, their wages are less than the stipulated minimum wages. There are hardly any regulations on their working conditions and social security is virtually non-existent. A large section of this population consists of low-skilled rural migrants or migrants from smaller towns. Hence, for these people, right from the time of their entry to the city they become a part of the informal sector as they have neither the skills nor the opportunities to enter better-paid and more secure formal sector jobs. They thus move from one level of poverty, at their place of origin, to another level of poverty, at their destination. At the same time there is a growing section of workers in the formal sector who have lost their jobs and are compelled to work in the informal sector. For these people and their families this change means a reduction in their standard of living and insecure, unregulated employment.”

The study points out that there are two types of employment available in the city’s unorganised sector: casual or contract labour and self-employment. Both provide low and irregular income, lack of social security, little regulation in work, and absence of legal protection. Types of work include hawking and street vending, providing services and home-based work.

Sociologist Jan Breman provides a similar picture through his study ‘An Informalised Labour System, End of Labour Market Dualism’ (2002) focusing on Ahmedabad.  He points out that in the early-1970s the informal sector was estimated to account for around half of all work in the urban economy and by the end of the 20th century it had grown to between three-quarters and four-fifths. He defines informal sector work as work on one’s own account which generates income but is not regulated by an explicit employment contract and enjoys no protection. This includes people who work in the street, in homes, small-scale enterprises, powerloom workshops etc. The informal sector workers work for as long as their employers require them to. Sometimes, these workers may be working in the context of a secure, organised workplace but their relationship is contractual and therefore classified as informal. According to him, the move from formality to informality in the work context almost immediately means a fall in the standard of living. The lower-income classes are mainly visible in these new neighbourhoods as domestic servants, street vendors, repair and odd-job men, cleaners, day or night guards.

According to Breman, the realities of the informal sector are vividly expressed in the existence of slums. And the state of the informal labour in Ahmedabad too is manifested in the rise of its slums which, in 1998, had about 55% of the slum population living in tin shed houses, with 80% of households not having water connections and an overwhelming 93% with no toilet facilities of their own.

The typical urban landscape in India, in almost all the 100,000-plus cities/towns, is characterised by the presence of slums in some form or other. Even small cities in Goa, with a population of 50,000 to 100,000, reveal the presence of some slums. While in a city like Mumbai, the scale is enormous and is amplified by the dominant rhetoric of land scarcity, its presence in those cities where the immediate land pressure is not so strong makes us look at other reasons for the constant production of slums. One of the possible reasons, as Breman suggests tangentially, is the fact that the quality of work and livelihoods in the city is mostly ruled by the uncertainties of the informal economy. The strain it puts on the income of the worker translates itself into an inability to invest in housing. This ultimately manifests itself in the rise of slums which become cost-effective for a worker in an uncertain work situation.

The organised housing industry dominated largely by commercial interests makes sure that the price of land is constantly under pressure. The demand by those who are in the organised sector or are in middle- and upper-income levels keeps housing prices up and always out of the reach of the vast poor populations. This, combined with the pressure put by demand on land for commercial and infrastructural needs (rarely for public consumption) translates into a further state of housing insecurity.

So large populations become more and more resigned to living in abysmal conditions, often without access to a regular supply of water as well, and the urban landscape gets more and more divided.

A similar situation in some Latin American countries has ultimately resulted in a complete breakdown of communication between the rich and poor sections, manifested in the rise of walled townships. A phenomenon that is also on the rise in India, at least in cities such as Mumbai and Delhi

InfoChange News & Features, January 2005