Tag Archives: Informal Economy in India

What are Indian economists smoking these days? Gobar!


Two op-eds published in The Indian Express today are enough to boil your blood. One is by the member of recently constituted Economic Advisory Council, Mr. Surjit S Bhalla and the other one is by Mr. Sajjid Z. Chinoy. The op-eds force you to question what are our economists smoking these days? It must be gobar which is making them hallucinate about growth and ejaculate numbers.

Mr. Bhalla is telling us that poor benefitted the most with an increase in wages because of demonetization and introduction of Good and Services Tax.

Dear Bhalla Sahib, demonetization destroyed the backbone of poor. They didn’t have money to even enter the labor market. There are costs of mobility. One needs food to have energy. Demonetization ensured reduced mobility, access to food. People weren’t able to go to work because they had no money.

Many informal workers (garment workers) need thread and other stitching material. They had no cash to buy that material. The shopkeepers weren’t selling them on credit. This ensured that home-based workers like those engaged in stitching have no work.

Illustrations above are the tip of the iceberg.

They are enough to state that demonetization reduced the supply of labor and those who were working needed higher wages to survive and help others survive. Similarly, due to the cash crunch, they were to be paid later. The only reason as a worker you’ll wait for the wages for longer duration is the promise that you’ll be paid extra. Demand for labor was already there, but the government pursued to reduce the supply through artificial measures and here we are with so-called ‘higher wages’.
Further, you’ve not even accounted for the opportunity cost loss to those who stood in the queue to withdraw cash. Their numbers stand in thousands and millions. Leaving their work aside, they were standing in front of ATMs and banks.

Another example which is worth quoting here to demystify this higher wage narrative is the prices of recyclable plastic material. All over India, after the introduction of Goods and Services Tax (GST), scrap plastic material prices crashed. Reasons of price crash have been provided below. An interesting phenomenon emerged in Indore, the prices of recyclables rose in Indore. Prices of PET bottle went up from INR 20/kg to INR 25/kg, cardboard INR 03/kg to 05/kg. This was strange.  A well-versed economist will say, ‘O dear, poor waste-pickers are benefitting from GST in Indore’. Mr. Bhalla will say ‘higher prices’- good for poor. This will be replayed multiple times without finding the reasons of price rise.

Swachh Bharat Abhiyaan in Indore has brought in private players for the door to door collection of waste, it encouraged mechanization of collection and transfer. Waste-pickers aren’t able to access the waste anymore. Waste including recyclables is reaching the landfill or prospective incineration plant.  With reduced access to waste, waste-pickers can’t earn their livelihood. They have no money. An artificial scarcity of recyclable material has been created in the market resulting in rising prices as scrap dealers want material.  They are reducing their own margins to look for waste. If they don’t do that they will be out of business. Did the poor benefit from the price rise? Waste-pickers are out of business and scrap dealers are reducing their margins. This case is probably a hint to help us understand the ‘increased wages’, in addition to already mentioned factors.

The informal economy suffered the most because of the government’s misadventure.

You are celebrating Goods and Service Tax (GST). The government wants to formalize the economy with the introduction of taxation reforms, where every item is taxed. GST on recyclable plastic, which was a source of income and survival for wastepickers (who form the bottom of the informal economy) is now around 18 percent. Earlier, the tax on scrap plastic was 5.5 percent. Recyclable material is in competition with virgin material. Thus, its prices have to stay lower than the prices of virgin material. The taxation cost cannot be transferred to the consumers (who in this case are manufacturers). If the cost is transferred they will move towards the virgin material. To keep the consumer base together, the suppliers have transferred the increased tax to the people lower in the supply chain. This has taken a snowball effect in cities like Mumbai and Bengaluru, where prices of recyclable material have gone down sixty percent, reducing the income of waste-pickers. Now they have to do more work for less pay.

Mr. Chinoy termed this process as formalizing of the supply chain by disruption of informal supply chains.

Does he know what disruption means particularly in this case? Disruption here means that poor have nowhere to go. There is no food in their platter, no way to take care of themselves and their families, no way to enter the labor market. Disruption of the informal supply chains will not bring ‘fair prices’, ‘fair wages’ or social protection cushion. Disruption has reduced the prices, particularly of the material sourced from informal workers, due to increased taxation cost. The much hyped disruption has destroyed the livelihood of many. This disruption is not innovation. It is enforcement of an order which is destructive for economy. Disruption in this context is destruction. The taxation cost because of this destruction has not been passed to consumers, as that will increase the price of commodities and demand for it will go down, and there will not be an equilibrium. The cost has been passed down to the poor – waste-pickers and garment workers with reduced prices of their commodities and labor. In certain instances, it may look like that this destruction has increased the wages, while the number of those benefiting from increase became very small.

Formalization means a lot of many things, and disruption is not one of them. This our dear number-crunching economists will never understand.


The Bangladeshi ‘Menace’ and Questions of Migration

Bangladeshis are coming and taking away our jobs is an old rhetoric. History informs us that people unlike trees migrate. They move from one place to the other. Reasons for migrating can be different, for some it is better livelihood opportunities, for others socio-political freedom. In South Asian continent, like most of the modern day world, nation – state boundaries, passports and visas are just seven decades old. Partitions of the sub-continent polarized identities and hindered migration, but people continue to cross borders. Most without passport and visas. Age old treaties with Nepal and Bhutan- ensure that either passport or visas are not required for citizens of India and Nepal, Bhutan to visit each others’ countries. Sri Lanka has a provision of visa on arrival for most countries. India may replicate the same measure for Sri Lankans as announced by Narendra Modi during his visit to the island. Migration from Pakistan is all time low, except in rare circumstances. Hindus- one of the most persecuted minorities in the neighborhood are crossing borders, at times with visa or without. They stay back as they fear for life.

Question here is about migration from Republic of Bangladesh. India had age old welcoming attitude for Bangladeshi Hindu migrants, but despises those with skull caps and beard.  That hasn’t stopped the migration. People cross borders for better economic opportunities. All of us know that there are Bangladeshis in India. As national laws in India and Bangladesh are silent about it, we call them illegal. Most Bangladeshi migrants lack identity proof and are either ‘illiterate’ or ‘semi-literate’. For the same reason, they are not absorbed in formal workforce. The illegality of their identity pushes them in informal economy. They live in informal settlements with little to no amenities, suffer from malnourishment and remain absorbed in vicious cycle of poverty. Recent project brief ‘Social, Economic and Health Vulnerabilities of Cross-Border Male Migrants in South Asia- Findings of Bangladeshi, India and Nepal’ published by Population Council, CREHPA and UK AID highlights the same. Their sample size was fairly small- 504 Bangladeshi male migrants and 500 Nepali male migrants. According to the brief, migrants from Nepal are slightly better off. In its conclusion the brief points out ‘Bangladeshi migrants appear to be more vulnerable compared to Nepalese migrants’.

As has been cited in the post earlier, migrants from Bangladeshi are absorbed in informal economy work force. In informal economy they provide valuable services like wastepicking from streets and dump-yards, construction work, domestic work amongst many. The empirical evidence of their proportion in informal economy vocations is yet to be formulated. Indian academicians shy away from conducting research on these matters, thanks to the political rhetoric of the day. There are few researchers from European universities who are trying to undertake the arduous task. Most of the professions mentioned are not something the suited booted class of ‘anti-Bangladeshi’ rhetoricians would like to take up. Instinctively I can say that Bangladeshis don’t steal the jobs, they fill the vacuum in labor markets, sometimes at lower wage than the others.

The nature of migration in Urban India is masculine has been pointed out by Chinmay Tumbe, Assistant Professor, Tata Institute of Social Sciences- Hyderabad, in a session on ‘Historical and Emerging Pattern of Urbanization in India’ as a part of ‘International Conference on Sustainable and Inclusive Urban Development in India’, organized by Institute of Human Development in collaboration with National Institute for Transformation of India (NITI) Aayog and University of Florida. There are going to be gender dimensions of competition in labor markets considering the masculine nature of migration. During my own research in Ahmedabad, I found Gujarati women wastepickers complaining about ‘Bangladeshi men taking away the waste. They are able to do so because they are men.’ Hearsay from Bangalore points out the opposite. Few ‘Bangla-speaking’ (as their national identity has not been established) wastepickers were detained by police. One of the Kannadiga women wastepicker opposed their detention on the basis of class and vocational solidarities.

The additional aspect, which has not been touched in the post, is the fear of hounding faced by Bangla speaking Muslims. They are easily termed as ‘anti –India’, thanks to their un-established and divided Bangla identity. I’m consciously taking a decision to avoid writing about it here, as the orientation of this piece is different and remarks on that issue may make it go haywire.

Half a million Indians live in Bangladesh and account for $3.7 million remittances. Number is double when it comes to remittances from India to Bangladesh. Contribution in local economies is yet to be calculated. Migration –formal and informal are fueling economic growth in both countries. Considering that the migration from Bangladesh will not fade away. It will be better if humane way is institutionalized. On humanitarian grounds and for economic development, governments in both countries have to devise a way which is conducive for movement of labor across borders. Bangladesh Government floated an idea of work permit during the visit of Sushma Swaraj, External Affairs Minister. Details are not out and so far no progress has been made. India also needs a comprehensive refugee citizenship policy which is not hijacked by ideological propaganda. Last day, an announcement has been made in that regard. The current framing of amendments in the citizenship law limits the possibility of citizenship to ‘Hindus, Sikhs, Jains, Buddhists and Christians’ fleeing religious persecution in Bangladesh and Pakistan. The proposed amendments fail to recognize that there Ahmaddiyyas (both in Bangladesh and Pakistan), Shias, Hazaras all face severe restrictions and are condemned to death. It’s a different topic. Still it is necessary to mention here and extrapolate it to the fact that the with ever increasing inequality and inequity, violations on economic grounds in all South Asian countries is far more in numbers than the religious ones, the refugee citizenship policies have to account for that also.

Allotment of work permits for migrant workers by both governments without passport and visa process has a potential of opening new avenues. Lesser stringent norms and low pricing will reduce the harassment faced during ‘illegal’ crossing of the borders. It will also recognize the workforce from neighborhood. De-criminalization of Bangladeshi ‘menace’ will be possible. Provision of basic amenities in India is attached to the identity proofs. Special work permits can provide for it. It is a very touchy topic. Political class will take a lot of time to accept it. Compared to past governments, current government is better off. It has numbers in Lok Sabha and support of ultra nationalists. It can move in the direction of humanitarian solution to ‘Bangladeshi problem’.