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The Informal Sector

The Informal Sector
and some Development Paradigms

Hari Srinivas
Concept Note Series E-058. May 2015.

A number of development paradigms that have been in vogue is compared to the informal sector concept:

  1. Growth:
    The development decades of the 50s and 60s first threw up this strategy of 'growth.' Aiming for an economic growth of five percent of the GDP, it was assumed that the benefits of this growth would reach all the sectors of the economy. This did not actually take place. Consequent to the pursuance of this strategy, inter-personal and inter regional disparities, in fact, increased. The urban informal sector could be seen here as an answer or solution to the failure of the 'trickle down' growth strategies.

  2. Growth with Distribution/Equity
    Since the growth strategies brought about disparities, later economic and developmental strategies stressed on 'growth with distribution/equity'. It was assumed that strategies which stressed on equitable distribution of growth would be more appropriate. For various reasons, this distribution again did not take place. In this respect, the urban informal sector, in fact, ensures a more equitable distribution of income among the poor, by employing migrants to the city, through it may be thinly spread (since the job which could be done by one person, is actually done by five or ten persons)

  3. Employment Generation
    As a result of the failure of the 'growth with equity' strategy, the focus of development shifted to strategies on 'employment generation, since it was found that the growth-with-equity strategy did not actually generate employment. Even though this did work to an extent, the formal sector, which these developmental strategies were aimed at, was not able to absorb the multitudes of semi-skilled and unskilled migrants to the city. The urban informal sector has been able, on the other hand, to generate employment for these people with few skills or 'undesirable personal characteristics', since it used technologies which were appropriate and labour-intensive.

  4. Appropriate technology
    One glaring drawback thrown up by the employment-oriented strategies was a lack of technology which suited the less developed countries' economies. Blind adoption of western technologies only compounded the the problem. So later strategies stressed on 'appropriate technologies' as a necessary ingredient of development. But then, the urban informal sector had been using appropriate technology all the time: using local resources, efficiently using or not using scarce resources, reusing and recycling 'waste' materials etc.

  5. Human resource development
    While the stress on appropriate technologies was a desirable direction in development strategies, a need for developing skills for these technologies arose. Thus, there was a shift in focus towards the development of human resources. The urban informal sector has, in this respect, absorbed migrants with little or no skills, trained them in various skills in an informal apprentice way and used it in its own growth - using very little of the formal education processes.

  6. Basic needs
    The present thrust of most strategies has been the provision of basic needs like food, clothing, shelter etc. to the population and effect overall long-term growth as a result. The urban informal sector has been providing basic needs for urban populations and migrants at affordable prices and qualities.

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