I is for Informal Economy

Hi Folks!

First, congratulations to India’s national cricket team for winning the World Cup of Cricket this past weekend. It was their first win in 28 years — Woo hoo!

Since this next entry’s subject is from the field of economics, I invited Surya (an economics professor) to be my first guest poster on this blog. So, without further adieu…


Growing up in Calcutta is synonymous with getting used to the constant cacophony around you. I think that is why most of the memories I have of my childhood days are auditory, not visual.  I remember cuckoos and other birds singing their heart away in search of potential mates, and hundreds of crows perching themselves on the over-head electric wires every Sunday for their incredibly noisy weekly meetings.  The street dogs (our version of Neighborhood Watch) barked incessantly at night, trying to keep the area free of thieves and drunks. Owls and foxes hooted in the mysterious unlit marshes in the distance. Occasionally, a family of langurs would pass by. Three generations of monkeys, led by a stern looking grandfather (who I named Indiana Jones) would whoop by the neighborhood, destroying anything in their way. Children squealed, while grand-moms ran frantically to the roof to see whether their clothes lines (and their supply of pickles drying in the sun) were still intact.

But most of all, I remember the seemingly infinite stream of sales people passing by our door every day, crying out and advertising their wares. During the day time, the milkmen navigated the narrow streets with two giant drums of milk attached to the two sides of their specially designed bicycles. Young boys sold vegetables they lugged around in three-wheelers; fruit vendors offered assortments of mangoes, plums, pears, berries and bananas; tribal women carried stainless steel utensils on their backs, which they exchanged for old clothes.  Older men with vats full of water on their heads carried around precious dinner. The fish inside splashed around as a testimony to their freshness.

The most delightful sounds, though, came in the afternoon. That was the time when the snack food guys passed by. The ice-cream trolley was the most anticipated. Then there were the fuchka kaku (literally translated to “Uncle Water Balls”), who sold delicious-mouth-watering gol-gappas (hollow flour balls with a spicy potato filling and tamarind water) , the ghoogni (a chick-pea snack) guy, and an Afghan gentleman who sold delicious homemade cakes and pastries in a little black trunk that he carried around on his shoulder.

If all of this sounds very tropical and idyllic, it was. Every day, we had a mobile supermarket pass by our front door, and we all loved it.

All these sellers were (and are) a part of India’s huge “informal economy,” an un-regulated, no-benefits-no-taxation society, where the government policies and regulations are conspicuously absent. Although the size of this economy is shrinking relative to the formal sector, it still constitutes the overwhelming fraction of India’s net GDP.  The majority of Indians not only purchase within the informal economy, but they also find work in it.

The Indian government has been trying to bring these participants under the umbrella of the organized sector. Various incentive-laden policies, like tax amnesties and promises of welfare and social security have been tried with, diplomatically speaking, mixed degrees of success. It is not difficult to understand why.

Take the neighborhood convenience store near our place in Calcutta.  Naran-da, as he is affectionately called by everyone, runs a deceptively tiny-looking shop, well stocked with rice, lentils, milk, pops and other day-to-day necessities of life. The shop is adjoined to a slum, which houses about 2000 residents. To these people, Naran-Da is not just a shopkeeper, he is much more. He is their financial planner, their instantaneous source of credit (especially at the end of the month, when the money is tight), their spiritual advisor and the local politician. All transactions are done in cash, and the shop is open 18 hours a day.

If this shop fell under the “organized” sector, Naran-da would have to pay taxes which would jack up the prices of all the goods in his shop. For the people who depend on this store and are living on the margins of economic ruin, this can be a matter of life and death. It is no wonder all the government policies aimed at the informal sector meet with such lukewarm response.

As India becomes wealthier and wealthier, these shops and the door-to-door salesmen have been disappearing from public view. Instead of buying groceries at the door or at the local bazaar, young urbanites prefer Western Supermarkets. The mobile snack shop jaunts in every neighborhood are being slowly replaced by organized trips to the mall.

But there is hope. Maybe one day the local bazaar will make a comeback, a la the Farmers’ Markets in the West, where the Bengali yuppies of the future will yearn for a simpler time, where service was personal, haggling for prices encouraged, the food organic, and the quality, well, unpredictable.

Meanwhile, life goes on.


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