Informal Sector in India: A Critique of Inclusive Transition

The objective of the study is to explain the puzzle of the non-transition of the vast informal sector in India. To this end, we argue that such a non-transition of the informality and, hence, a lack of structural transformation of the overall economy itself develop the symptoms like the dual phenomena of high rates of growth in the formal sectors along with a persistence of the informality. In explaining these intriguingly dichotomous phenomena, we have hypothesised that there are dualities within the informality across its rural/traditional and urban/modern segments. While the urban segment bears a complementary relation with the formal sector, the rural counterpart is engaged in a bitter resource conflict with the former. Agriculture is considered as the proxy for the overall resource base (water–forest–land–mines–space) outside the circuits of formal–informal sectors. Since growth of traditional agriculture-linked modern informal segment needs to be sustained for maintaining the growth of the formality, the formality cannot go on grabbing these resources and grow beyond an optimum rate. Consequently, the formal sector itself does not want to transform the formal–informal composite towards comprehensive capitalism. Our empirical exercise supports this argument showing the inherent conflicts and complementarities between formal–informal segments through the lens of expropriation of agricultural resources.