India’s informal economy and climate change

BARBARA HARRISS-WHITE

back to issue

THIS issue of Seminar asks how landscapes of work and of living within India – explored at different scales – will relate to human-induced ecological shifts. Rather than examine regions, occupations, classes and identities, this contribution focuses on regulation, its absences and distortions in informal markets and states, and their implications for nature, especially climate change and vice versa.

What is India’s informal economy (IE)? The IE existed long before it was identified as a term of art and adorned with fuzzy concepts such as unorganized, unregistered, second, parallel and black. It has had to be estimated through extrapolations and proxy indicators. Surveys and case studies are disproportionately important for our understanding of how it works.

It is the economy outside state regulation, often outside state registration. It consists of unlicensed firms, usually small, transactions that are verbal and casual, contracts that are incomplete, deprived of protection or guarantees of continuity. It is work that is intermittent, often seasonal, often done at home, often done at night. Workers in the IE have precarious access to utilities and infrastructure. Even when social entitlements are provided to them as citizens not as workers, their access to social security and social transfers is incomplete. They are also the most vulnerable to shocks (of disease, politics, weather, contractual disputes). Women, in particular, have heavy reproductive burdens on top of productive work.

Since the 1990s, the contractualization and privatization of large public and private corporate entities has expanded this precarious, informal workforce.

The significance of India’s IE cannot be overestimated, first due to its huge size – the largest in the world – some 85-90% of livelihoods (including hi-tech services), though its proportion of the measured economy has declined in the face of the corporate sector, to about half of GDP. It is found in all sectors, including finance (where shadow banking institutions provide at least 20% of loans) and agriculture (where, even though plantations are an official exception, their labour forces are being casualized and informalized). Informality pervades not only India’s classes of labour but also its classes of capital. It extends throughout the continuum of occupations – from bonded labour to family business – and all types of enterprise – from petty commodity production and trade through family business to incorporated business houses and firms which sub-contract work to them.

In processes of selective engagement with regulative law, firms develop complex economic behaviour: they may be registered and licensed, have (up to a dozen) bank accounts and their family land is officially recorded. But their warehouses, workshops and shops flout the building regulations, their waste disregards environmental law, their labour relations defy the factories acts and labour laws, electricity may be drawn illicitly from telegraph poles and transmission lines, they avoid and evade income, property, professional taxes and try to evade GST.

 

Officially recognized as unorganized, the IE is not disorganized. Outside the reach of the state, economic order is achieved by forms of regulation ranging from parallel states and mafia raj through ‘collective action’ (by business associations) to the practice of ‘soft regulative power’ expressed through aspects of identity (such as gender, locality, caste, ethnicity and religion). Neither the animal spirits of markets nor the steel cage of the state are dissolving these forms of authority. They are mostly reworked from cultural life to span the economy, meshing into a social structure which stabilizes accumulation.

A persistent culture of fiscal non-compliance starves municipalities just as it supplies great international streams of fleeing capital. The state (in its executive, legislative and judicial branches) and the formal (corporate) sector are far from being proofed against the penetration of a wealth of unauthorized practices of which corruption is the tip. India’s economy cannot be understood without its informal economy.

Paradoxes abound. First, while the economic significance of informal wage-labour provoked attention in the 21st century,1 its exclusion from the Factories Acts actually predated Independence.2 Second, theories have proliferated but, under empirical scrutiny, many may have to be discarded, while all may be valid – coexisting in a given society. The IE is not separate from the formal economy (as posited by Hart); it is not transient and being phased out (as in early ILO theories); it is not (only) a parking place for unemployed or surplus labour or for reserve armies (as Alvater concluded); it is not (just) a subsistence sector, a non-capitalist ‘needs economy’ (as in Sanyal’s formulation); nor is it a bye-product only of the labour laws (as Marjit and Kar theorized); or an entrepreneurial sector whose potential is thwarted by regulations (in the framing of de Soto). It is possible for these depictions to coexist if the economy is socially segmented.3

 

Third, the IE is the abode of poverty but also the site of wealth where the balance of the distributive share has shifted over the last five decades from wages to profit. Fourth, outside the practical reach of the state, the IE is not outside the global economy. Informal workforces – home working, out- and in-sourcing – generate labour intensive exports to global supply chains and service those who service the export services.4 Fifth, the IE is differentiated but while small firms may have high rates of bankruptcies and low business-life expectancies, resources shifted in marriage alliances and inheritances ensure that firms in the IE expand through the multiplication of small units.

Last, while the post-reform Indian economy is described as one of dynamism and commoditization, 1991 was not a cusp for the IE. Since by definition it has developed as unregulated, the IE displays continuity while commodities proliferate. The era of deregulation has not altered forms of ownership or market behaviour so much as heralded a vast expansion of unregulated/ socially regulated small firms. Some 5% firms have more than five wage workers and the average labour force shrank from three in 1990 to two in 2011.

 

Despite its importance to livelihoods and GDP, India’s IE is excluded from debates about climate-change along with the other eight planetary bio-geophysical subsystems.5 Knowledge of its materiality and energetics is construed unevenly and incompletely through case studies. Our discussion here is necessarily raw and provisional.

When the significant polluters are known to be energy, iron and steel, aluminium, cement, chemicals and paper, what are the implications of India’s IE for climate change? Why bother with a sector containing the poorest, least-polluting, lowest emitting workers?6 These questions are explored here through three cases I have studied since 2011.

1. Agriculture: the paramountcy of feeding cities has made the measurement and mitigation of agricultural GHGs a low priority. But they are non-negligible: 20% India’s GHGs – up to 35% if the post-harvest system and forest conversion are added. Throughout the agri-food system, registered and unregistered, formal and informal activities are interleaved.7

2. Waste: all economies produce waste energy and waste materials at all stages. In a direct relation which declines slowly as energy and materials efficiencies rise, 0.5 kg of waste GHG is generated per PPP $ equivalent of GDP. Physical waste itself generates 5% of India’s GHG, as CO2 methane and nitrous oxide – and rapidly rising.8 Low in status, India’s waste economy is not confined to cash-strapped municipalities and their public sector labour forces. Informal waged and self-employed labour are structurally essential to the functioning of the waste economy and to the economy which generates waste.9

3. Black coal. Coal comprises a third of India’s GHGs.10 Coal mined illegally to cater for unregistered demand from brick kilns, workshop industry and heating could be 20% of coal mined in Jharkhand. Black coal draws attention to the environmental implications of criminal activity and to the distinction between informal activity not covered by regulative laws and criminal activity flouting the law – and the further problems of recognition when law is not implemented and so not socially regarded as broken.

 

These three case studies generate three questions: (i) the problems of evaluating environmental/climate change impact of unregistered activity; (ii) the capacity of India’s IE to pursue an innovative low carbon transformation; and (iii) the old question ‘What is to be done?’ – by the state?

 

Agricultural-production-distribution systems and GHGs – India’s rice production accounts for 20-25% of total agricultural GHGs. From field research on GHGs in four techno-production systems and three marketing/distribution systems in Orissa, Andhra Pradesh and Tamil Nadu, we concluded that the formal-informal intertwining of firms and of labour could not be disentangled. We combined life cycle assessment (LCA) from environmental science with supply chain analysis from business studies using field evidence for energy, materials, labour and tasks, farms, firms and their costs and returns.

FIGURE 1                                                                            FIGURE 2

Source: Gathorne-Hardy (2013)11                                               Source: Gathorne-Hardy (2013)12

All four production technologies (intensive, organic, SRI and rainfed) produced GHGs in quantities that were not statistically significantly different. Roughly 1 kg of paddy generated 1 kg GHGs – see Figure 1. It was the composition of this kg that varied. The largest single component was methane – generated from soils in intensive, SRI and organic production and emitted by draught animals used for rainfed rice. Rainfed rice cultivation maximized nitrogen pollution as nitrous oxide from chemical processes in water-soil and minimized net CO2 emissions in excess of carbon sequestration – because tractors and irrigation could not be deployed.

Figure 2 which combines environmental and economic information for intensive rice demonstrates a counterintuitive result which holds for organic and SRI production technology as well. Most GHG pollution in rice is generated by the coal in the electricity used to lift subterranean irrigation water. GHG from chemical inputs, transport and milling are of small relative consequence. Whereas most environmental effects are concentrated in production however, informal labour and fossil energy are spread throughout the production-distribution system. Labour is most poorly paid in production while profit is captured by activities in distribution. GHG hotspots are agricultural electricity and technologies requiring electricity, parts of the rural economy pervaded by informal labour.

 

The waste economy and its environmental impacts – In 2015, we turned to study the social relations of liquid and solid waste. While all economies/ societies produce waste, GHG are not conceived as ‘waste’. They are referred to as emissions. Other kinds of contaminations to water and soil resulting from agriculture are also not labelled as waste. They are pollution.

‘Waste’ is set of substances (extruded in production-distribution-consumption-reproduction systems) which have no value for periods which may be fleetingly fast or geologically long. Waste is disregarded as an ‘externality’ or as a non-recyclable ‘public bad’: its costly disposal being part of public expenditure. But waste also provides raw materials for an expanding private economy of re-processing. One of India’s fastest growing, unstable sectors, India’s daily waste is estimated at anywhere between 150,000 and 250,000 tonnes, one third each from agriculture, industry and households. ‘Peak waste’, the point beyond which absolute quantities of waste are predicted to stop growing, is possibly a century hence.13

 

The rapid growth of urban waste from productive, distributive and consumption activities – increasingly non-biodegrable, mixed, toxic and disordered – is not matched by municipal/metro revenue. The permanent municipal workforce is victim of a culture of neglect and contempt, experiencing deteriorating terms and conditions. Overdetermined by the New Public Management, by neoliberal ideology and by the contractualization of public sector activity, the IE is essential to the disposal and recycling of waste. Without it, urban economies would rapidly grind to a halt. Private contractors are hired who can only turn profits at lower costs than the municipalities if they exploit bonded, migrant labour forces paid below the minimum wage. Wherever waste can be recycled, a growing army of informal self-employed workers supplies raw materials to propertied wholesaler/bankers. They operate licensed but with no other regulation except for police raids. Informal self-employment has also become an essential supplement for wage-labour privatized from waste departments of large organizations such as railways and hospitals whose earnings have collapsed. In this system some waste regains value.

One brief look at waste reveals the reductionism in conflating the ecological crisis with climate change to which waste contributes. Not only does the public and private, informal waste economy contribute to climate change, it also transforms and toxifies fields, water systems and their habitats, propagates infectious diseases and parasites, obstructs drainage systems and in so doing accelerates biodiversity loss.

 

Informality, criminality and natural resources – While distinctions are made between informality and criminality, worldwide, for John and Jean Comaroff, anthropologists of crime, ‘criminality is the new normal’.14 As one of eleven case studies of criminal economy, we researched illegal coal in Jharkhand, where its organization ranges from petty mining and distribution through syndicates of coal cycle wallahs to large-scale predatory extraction by organized crime dynasties and mafia – from abandoned mines and tailings to the collusive penetration of state corporations, from villages perched unsustainably over subterranean fires to New Delhi. At every stage, organized trade unions collude with criminal organizations but also attempt (and fail) to exclude informal labour.

 

As with agriculture but for different reasons, formal and informal activity is intertwined – and both are criminalized. Unionized labour works in parallel in mines and on dumps and railways overloading and diverting, extracting rents and conniving with tax fraud. The black coal sector could not operate without being fused in a system of transactions that are interlocked both economically and politically and extend with few exceptions throughout the state’s public sector institutions (figure 3).

Apart from climate change and atmospheric pollution, illegal coal mining contributes to the devastation of land surfaces and their productive use; it encroaches onto commons, blocks transport networks, causes the destruction of subterranean non-renewable resources; contaminates and destroys water bodies and irrigation.15

In so doing, the direct extraction of black coal provides exiguous livelihoods to an estimated army of 300,000 pauperized and un-organized workers in Jharkhand alone. The criminal extraction of natural resources enables mafias to accumulate international portfolios, and to penetrate state apparatuses to such an extent that the state is indistinguishable from criminal organizations. Interests in environmental degradation protect their hegemonic power. And the culture of fiscal non-compliance reduces public resources for a low carbon transition (were that ever to be the intention of the state).

FIGURE 3

Source: Singh and Harriss-White (2019)16

We cannot avoid the conclusion that natural resources are extracted under a regime of plunder, blurring the conceptual and practical boundaries between the IE and the criminal economy which underpins party political funds and thus electoral democracy. The informal and criminal economies penetrate agriculture and the big polluting industrial sectors to the extent that they are structurally necessary to their operation.

 

Three questions – First: how can the environmental impact of the informal economy be evaluated? The question of the impact of these arrangements on the environment has hardly started to be addressed – it is not even ‘work in progress’. One of the preconditions for an answer is the measurement of impact and one of its problems is indeterminacy.

 

Standards and untested theory – On aggregate, India is thought to emit twice the global average GHGs per unit (formal plus informal) GDP, though the ratio has been declining from 1:1 in 2014-18 to 0.5:1 in 2019 as the economy starts decarbonizing. To evaluate GHGs, internationally accepted coefficients are used in life cycle assessments (LCA) of GHGs in a product cycle.17 The jury is out on the question whether these are reasonable or alternatively over- or under-estimates of GHGs in the IE. On the one hand, when labour substitutes for fossil energy and informal labour emits lower GHGs than formal labour (as we know is the case in agriculture for example), the international standards could be overestimates. With fewer emissions per unit of product, the informal economy could be more efficient than the global average.

 

On the other hand, because technology in the IE is not at environmental efficiency frontiers, nor are there supposed to be scale economies, while capacity utilization is often low, the life cycle coefficients could be underestimates. On this count, the IE would be more environmentally inefficient than the standard. A third possibility is that the IE is simultaneously more and less efficient than the formal equivalents. This is because, in sectors like food processing, mining, construction, a wide range of technologies and organizational forms coexist; so, the balance is an empirical question.

We can extend the question to the measurement of the effect of the criminal economy on climate change. If the registered and regulated public and private sectors are using cutting-edge technology (an assumption needing empirical validation) then the criminal economy is likely to be less efficient per unit of output. Comparative econometric analysis of the growth rates of night-light intensities in constituencies run by politicians charged with criminal offences and those of uncharged politicians shows that growth rates are reduced by up to 22% in the former compared with those of the latter.18 Since decarbonization accompanies growth, those ‘criminal’ constituencies may be atmospherically dirtier as well as more poorly provided with infrastructure.

Second, is the Informal Economy capable of Innovation? From productivity data, the IE is concluded to be underdeveloped and low productivity. The High Powered Expert Committee19 records that smaller towns with prominent IEs are ‘visibly deficient in the quality of services they provide’. The same goes for infrastructure and utilities. So, were India to embark on a low carbon transition, would the urban informal economy be a barrier to innovation? The answer can be suggested by two researchable subsidiary questions: Does the IE innovate? If so, how?

 

Some indications come from field studies of a one-lakh town in Tamil Nadu. It bristles with innovations of all kinds: inventions, adaptive and adoptive innovation in products and processes, not only by capital but also by informal labour. Take inventions (for instance gadgets to adapt three-phase equipment for two-phase power supply by the town’s undereducated and unlicensed self-employed electricians). ‘Bricolage’: experimentation underpinned by a substrate of learning by doing has been triggered by state failure in power infrastructure; with economic risk and physical danger insured in an ad hoc way by the local electrician’s trade association; it has been encouraged by lack of property rights and by a culture of collegiality and sharing; with customers and clients proxying for research labs, compensated if experiments fail and the germs of informal formalization – through certification based on experience.20

Formal and informal institutions are intertwined yet dynamically unstable. Is there an informal innovation system substituting for that of the state and incentivizing innovation? Key enabling institutions are the family firm (self-employment); institutions of identity (caste, religion and gender); business associations (which regulate information, innovations, certification and the cosmopolitanization of occupations); education (the private informal tutorial economy and the system of informal apprenticeships – still shaped by class and caste identity); banks (for working capital, fast transactions and loans) and the deployment of gold as a hedge against risk. Not a classic innovation system so much as an informal innovation cradle.

The future low carbon transition requires a global technological revolution. Despite a formidable structure of political interests opposing this transition, low(er) carbon technology exists but often with lumpy upfront costs. For low carbon technology to be developed and retrofitted at scale, economic incentives need planning for both public and private sectors. By definition however, India’s uniquely large IE is out of planning control and moving in an opposite, polluting direction.

 

Finally, what is to be done? – the informal economy and the state’s engagement: There is no scholarly consensus about the state’s capacity to regulate, incentivize and/or tax the informal economy. One conclusion justified by its lack of mention in budgets from 2014 onwards is that the IE is an ‘invisible other’ for which there is no project. But the opposite conclusion can be drawn from the stream of projects for microfinance and financial inclusion.

Accepting both, it is a small step to a third conclusion: that the state’s project is incoherent. Incentives (such as self-help groups/last mile mobile banking) coexist with indirect support (hard and soft infrastructure) and indirect protection (trade policy, new raw material sources). Direct safety net protection relies on citizenship rather than work status but reduces the impact of risk factors at work (rudimentary social protection, PDS, relief packages). The state also tolerates the informal economy whenever it invests in municipal marketplaces. Yet a stream of policy innovations such as demonetization, GST reforms, the Covid lockdown, the displacement of market yards under the Farm Bills, and urban beautification have had destructive outcomes or faced hostile opposition due to active threats they pose to the IE.

So, outside its direct reach, the state engages with the IE mostly indirectly, selectively and without coherence.

 

Other processes complicate this depiction: Informal procedure inside the state – The cases of slums and waste can act as referents for an hypo-thesis to be confirmed, refined or refuted: informal behaviour is constitutive of the state. When informal amnesties are given to illegal activity by capital (encroachments) while those of labour are physically destroyed (slums) it is also hard to avoid concluding that the informal state expresses and maintains a class logic protecting capital.21

Laws may be sidestepped because they are of poor quality and inappropriate. Law may actively invite its criminal flouting. Laws based on divergent principles may collide and be ducked. Policies may originate from different parts of the state and may clash when they intersect. Laws may duplicate regulation and be played off; the reverse may happen, and significant gaps exist in the law – let alone in its practice. Policy labels are sectoralized and labelled in ways which make no sense to daily life. Policy reforms concretize interests that may be deposited in bureaucratic ‘geological sediments’.

When policies and bureaucracies lack coordination, brokers and fixers emerge whose remit/jurisdiction may cover territories, sectors or networks. Delays and sabotage add to the incoherence of the formal-informal state.

Faced with institutional scarcities, permeated by subcontracting and new public management practices, unable to change the norms and practices of pollution and land degradation, substitutes for official vigilance enforce their order; budgets are shared; rents are sought and shared.

When non-state forces penetrate the state and make it cede power, the constitutive context for state competence is reconfigured – at its extreme forming a mafia state or intreccio.22

 

We find that the Indian economy is constituted through its uniquely large informal economy. The IE is not confined to certain low-emitting sectors or types of small enterprise or casual labour processes – but is interleaved throughout the major emitting sectors (energy, iron and steel, aluminium, cement, chemicals, paper etc) – in such a way that the formal economy would not function without the IE. Meshed with the informal economy, the criminal economy may also be essential to the formal economy. The state seems unable to affect informal work except by destroying it without alternatives. Its social security provisions, grounded in citizenship rather than work-status, are vitally important to the quality of life of the workforce.

But the state is permeated by informal practices and not immune to collusion in the CE. Such processes require a rethink of the orthodox policy conceptualizations that they delegitimize. But informal bureaucratic politics are sidelined in climate change discourse. At the very least, both the enabling institutional preconditions and the ways to counter the forces that obstruct policy implementation as intended need mainstreaming into all policy activism and proposals.

Even accepting case study evidence, little is known about the quantitative effects of the IE and CE on GHG emissions and other bio-geophysical subsystems. So, a pressing agenda for field research and action needs developing. The mobilizations needed for new development trajectories that are less harmful to nature need new knowledge fields. The new knowledge must be specific and generated from ways of knowing which are long-established but mostly marginalized: it cannot avoid deepening the current epistemological chasms between interpretive ethnography and positivist planetary modelling.

 

These reflections invite thoughts about their implications for sustainable development (SD) technology. Rather than deploring the front-loaded costs and large-scale of green technology inappropriate for the informal economy, the latter needs the creation of institutional and price environments enabling it to innovate at small scale consistent with principles of SD. These principles involve stopping elements mined from the crust, or invented artificially, from concentrating in, and poisoning, ecosystems at the surface; and stopping the physical degradation of the crust and the biosphere. Here is a role for capital, for labour and for the state.23

 

* barbara.harriss-white@qeh.ox.ac.uk. This paper was originally a remote-lecture to the Teachers against the Climate Crisis group (TACC), April 2020, whose discussion I gratefully acknowledge. https://teachers-againstclimatecrisis.wordpress.com/

Footnotes:

1. M. Chen, ‘The Informal Economy: Definitions, Theories and Policies’, WIEGO Working Paper 1. Women in the Informal Economy Globalizing and Organizing. Harvard, 2012.

2. K. Wielenga, ‘The Emergence of the Informal Sector: Labour Legislation and Politics in South India, 1940-60’, Modern Asian Studies 54(4), 2020, pp. 1113-1148.

3. B. Harriss-White, ‘Waste, Social Order and Physical Disorder in Small-Town India’, Journal of Development Studies 55, 2019, pp. 1-20.

4. M. Chen and F. Carre (eds.), The Informal Economy Revisited: Looking Back, Thinking Forward. Routledge, London, 2020.

5. J. Rockström, W. Steffen, K. Noone, et al., ‘A Safe Operating Space for Humanity’, Nature 61, 2009, pp. 472-475.

6. D. Roy, ‘A Subaltern View of Climate Change’, Economic and Political Weekly 50(31), 1 August 2015.

7. B. Harriss-White, A. Gathorne-Hardy and G. Rodrigo, ‘Towards Lower-Carbon Indian Agricultural Development: An Experiment in Multi Criteria Mapping’, Review of Development and Change 24(1), 2019, pp. 5-30.

8. http://www.ghgplatform-india.org/waste-sector

9. V. Gidwani, ‘The Work of Waste: Inside India’s Infra-Economy’, Transactions of the Institute of British Geographers 40, 2015, pp. 575-595.

10. https://www.downtoearth.org.in/news/energy/coal-here-to-stay-but-measures-can-cut-down-emissions-by-22-cse-74640

11. A. Gathorne-Hardy, ‘Greenhouse Gas Emissions from Rice’. RGTW Working Paper No. 5. SIAS, Oxford, 2013. Retrieved from http://www.southasia.ox.ac.uk/sites/sias/files/documents/GHG%20emissions% 20 from%20rice%20-%20%20working% 20 paper.pdf

12. Ibid.

13. D. Hoornweg, P. Bhada-Tata and C. Kennedy, ‘Waste Production Must Peak This Century’, Nature 502, 2013, pp. 615-17.

14. J. Comaroff and J.L. Comaroff (eds.), Law and Disorder in the Postcolony. University of Chicago Press, Chicago, IL, 2006.

15. N. Singh and B. Harriss-White, ‘The Criminal Economics and Politics of Black Coal in Jharkhand 2014’, in B. Harriss-White and L Michelutti (eds.), The Wild East: Criminal Political Economies in South Asia. UCL Press, London, 2019.

16. Ibid.

17. Op. cit., fn. 12.

18. N. Prakash, M. Rockmore and Y. Uppal, ‘Do Criminally Accused Politicians Affect Economic Outcomes? Evidence from India’. Working Paper, University of Connnecticut, 2019. http://yuppal.people.ysu.edu/criminal_mla_2019.pdf (accessed on 21 April 2021).

19. High Powered Expert Committee (HPEC), ‘Report on Indian Urban Infrastructure and Services’. Ministry of Urban Development, Govt of India, New Delhi, 2011, p. xix.

20. B. Harriss-White, ‘Rethinking Institutions: Innovation and Institutional Change in India’s Informal Economy’, Modern Asian Studies 51(5), 2017, pp. 1727-1755.

21. A. Roy, ‘Urban Informality: The Production of Space and Practice of Planning’, in R. Crane and R. Weber (eds.), The Oxford Handbook of Urban Planning. Oxford University Press, Oxford, 2012.

22. Op. cit., fn. 4; L. Michelutti and B. Harriss-White, ‘South Asian Criminal Political Economies’, in B. Harriss-White and L. Michelutti (eds.), 2019.

23. G.O. Broman, and K. Robèrt, ‘A Framework for Strategic Sustainable Development’, Journal of Cleaner Production 140, 2017, pp. 17-31.

top