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Shadow Lives: Urban India’s Informal Economy

by Patralekha Chatterjee

A street “tailor” in Bangladesh: The informal economy has won the numbers game in many Asian countries. - © Anwar Hossain/Mother Jones International Fund for Documentary Photography

Take a typical day in the life of the Kapoor family in Delhi, India’s capital city and a teeming megapolis of nearly 12 million people. It is early morning. Reclining on the easy chair in his front verandah, Mr. Kapoor sips his cup of tea. The day’s papers, hand-delivered by the newspaper boy, do not bring good tidings. Mr. Kapoor scans the headlines, glances at the life-style pages and quickly turns to the sports page. The doorbell rings. It is the man who washes the car. Every month, for a fee of US$ 3. Mr. Kapoor, like other residents in his apartment block can spare himself the drudgery of cleaning his own car. Just as he is leaving for work, the doorbell rings again. It is the sweeperess. She cleans the toilets and picks up the daily trash of the Kapoor family for a monthly fee of US$ 2.

The Kapoors have two maids. A part-time domestic help sweeps and swabs the floor, and washes the dishes. Then there is the live-in cook cum girl-Friday. The vegetable vendor who comes to their doorstep every morning saves Mrs. Kapoor a trip to the market.

On Sundays, the bell keeps ringing incessantly. A phalanx of odd-job men arrive at the Kapoor household one after the other - something or the other always need mending and you can always spot a plumber or an electrician or a carpenter making his way to the Kapoor household. One man without whom the Kapoor household would grind to a halt is the local scrap dealer. His ‘boys” traverse lanes and by-lanes of Delhi’s neighborhoods scrounging for rubbish - empty bottles, old newspapers, plastic cans, junk metal - just about anything which you or I consider unsightly and would like to throw away. It is the ultimate take-away service. The boys come to the Kapoor household, sort the rubbish, pay a price and cart it away in gunny bags.

The man who washes Mr Kapoor’s car, the woman who cleans the dishes in the Kapoor family, the vegetable vendor and the waste-picker are part of the “informal sector” - the economist’s jargon for a vast pool of poorly trained, low wage workers who sometimes work in dangerous environs. Without the intricate web of services provided by these people, families such as the Kapoors would not have their existing comfort level. And yet, the linkage between their lives and the shadow lives of the men and women outside the regulatory framework of the city’s economy is not easily understood and rarely figure in public discussions.

The informal economy has won the numbers game in India. As Amitabh Kundu, a professor at Delhi’s Jawaharlal Nehru University puts it: “ Given the nature of industries experiencing rapid growth in recent years, employment in the organized sector would not grow in any significant manner. A steady decline in the proportion of regular/salaried workers is likely in the future. The multinationals that have come so far, have high capital intensity and low potential for employment generation. Much of the employment growth in the economy is taking place through the process of subcontracting, use of casual or self-employed workers”.

So, as formal sector employment shrinks and influx from the jobless countryside continues, the shadow economy remains the only hope and source of livelihood for the swelling ranks of the urban poor. But there is still no coherent policy on how to tap the productive potential of this sector optimally. Most middle-class educated Indians don’t even know that the informal sector accounts for an astounding 66.7 per cent of total employment in Delhi, that the corresponding figure for Mumbai is 68 per cent and for Chennai, it is 60.6 per cent.1

The new migrants settle in already overcrowded slums where safe drinking water is scarce and sanitation facilities virtually non-existent. Worst is the insecurity of tenure. Anyday, a hut can be demolished. Even if a shanty dweller has the money, h/she is reluctant to invest in upgrading his/her dwelling. And yet, as case study after case study from the developing world demonstrates, providing slum dwellers security of tenure has dramatic results. The face of a colony changes where the residents have security of tenure. It becomes cleaner. The slum dwellers themselves, often in partnership with NGOs, learn quickly how to negotiate for better facilities. It often leads to occupational mobility. An authorised settlement, even if it is a one-room house, can be used as collateral for a bank loan with which the informally employed can diversify. Clearly, there is a self-interest argument here for all concerned. But these are issues which have been on the back-burner.

One fall-out of the continuous neglect of this vital and growing sector of the economy is a complete lack of standards and accountability. The informal services sector is low-cost and equally low-value. Lack of capital, working space, education, skills and training severely undermine the efficiency of the informal sector. Ultimately this impinges on the productivity of the formal economy. Talk to anyone who has had a brush with an electrician or a carpenter in India, and you will hear horror stories. An electrician with no technical qualifications learning on the job can blow up your most expensive gadget, a carpenter can bring your roof down, a plumber can leave behind a greater mess than he found.

Or take the case of the scrap trade. Waste pickers are at the bottom most rung of the shadow economy. Their work is dirty and dangerous and they get paid a pittance. Usually, such work is done by illegal migrants and those without recourse to any other work. But the situation at the bottom cannot change dramatically till the whole chain is revamped. Typically, the scrap dealer’s shop is not registered. He does not pay any tax. He cannot get a loan to expand his business because dealing in scrap is not recognised as an economic activity by bankers though India has one of the highest levels of recycling in the world. The scrap dealer cannot even mortgage the land where his shop is located - he is a squatter. He sells his scrap to bigger dealers who sell the plastic to remoulding factories, the old newspapers to paper mills. If he needs a loan, he taps this network. The vicious cycle continues.

Quite apart from issues like the need for credit, until recently, other requirements for activities within the informal sector were also ignored. The City Master Plans, for instance, concerned themselves only with the space requirements of activities within the formal sector. Therefore even if those in the informal economy could access credit, employment options within the informal sector necessarily had to be restricted by the availability of physical space. It was in the Indian Government’s 7th Five-Year Plan (1985-1990) that a thrust was given to urban employment generation as a means of tackling urban poverty. One official initiative was the Self-Employment Programme for the Urban Poor.2

Non-governmental initiatives

One area which is witnessing reform is domestic service, a major source of informal employment for women in Indian cities. Traditionally, no minimum standards guided domestic work. This left the field wide open for the employer and the employee to try to constantly exploit each other. A few years ago, in Delhi, an initiative called the Delhi Domestic Workers Forum was launched under the aegis of the Indian Social Institute, a non-profit body. The Forum is a lobby group of domestic workers. The Forum’s members enter into a written agreement with employers, by which they are guaranteed a minimum salary and working conditions. The employer too benefits. (S)he is assured of integrity and a basic quality of service. In case there is violation of any of the terms of the contract, both parties can approach the Forum. Only a fraction of Delhi’s domestic helps are organised and members of the Forum so there is still a great deal of exploitation. But it is a welcome beginning.

Such initiatives try to bring the semblance of a structure to the unregulated economy. Even at the community level, in many cities in India, one is witnessing a move forward by Residents Welfare Associations. For instance, in many colonies and apartment blocks in Delhi, identity cards are issued to scrap collectors, vegetable vendors, plumbers and electricians and others. This establishes that the antecedents of the card-carriers have been verified. It is the first step towards bringing in an element of quality control.

Initiatives such as these are welcome but they alone will not dramatically increase the productive potential of the informal economy. To do that, a whole re-think on the policy front is required. Security of tenure and access to credit would dramatically alter the shape of the informal economy. Alongside, there is the need for basic services, skills and training. Unless these are addressed, the informal sector will continue to be stuck in the current low cost, low value matrix.

As we inch closer to a new millenium, one of the biggest questions before urban India is how to balance the interests of the “real” economy with the “shadow” economy so that they mutually fortify each other. There is no one solution or one approach to the problem. Rather, the answer lies in a variety of strategies and initiatives - both official and at the community level.

Patralekha Chatterjee, a New Delhi based journalist, reports on urban trends in Asia for several national and international publications.


1 Statistics from UNCHS (Habitat)’s Global Urban Observatory.

2 Venkateshwaran, Sandhya, The Wealth of Waste, Friedrich Ebert Stiftung, 1994.