Informality or involuntary Exclusion: Re-considering the dualism of informal and formal economy in India

The term “informal” has been understood to brand a set of economic activities that were and would increasingly become marginal as economies developed in India. This is in relation to the influential exposition of the dualist paradigm concluding that the informal economy with its millions of enterprises has little to contribute to modern economies and should disappear with time. However, in Indian context, such empirical predictions of the dualist model may be analyzed in relations to the findings of national commission for enterprises in the Unorganized Sector (NCEUS 2008) that even as late as 2004-5, more than 86% of employment was in the informal sector and no less than 92% of all workers were as high as 80% (NCEUS 2008). With a focus to sustainable and a more context-sensitive assessment of the prospects and challenges facing the workers in the informal economy, the paper, based on existing literature presents an understanding of the informal sector i.e. social and economic conditions which determine the incentives for every actor to participate either in the formal, or the informal economies. This can help to understand whether the workers in the informal economy took a voluntary choice or had to involuntary opt-out from an institutional system. This connection between informality and involuntary exclusion can help us not only to understand the exponential growth of the informal economy but also the reasons behind the persistence of dualistic institutional framework activating the informal economic activities.