BOMBAY Behind Indias $700 billion economy lie a host of unregistered companies that pay no taxes and legions of workers who have no benefits, an informal economy that makes up more than half the countrys gross domestic product.
Such activity on the periphery of regulated business exists in all developing countries and even to some extent in the industrialized world, but Indias informal economy is worryingly large and shows little sign of shrinking as the country gets richer.
More than a decade into Indias liberalization drive, which has seen its average growth rate accelerate to 6 percent a year from 4-5 percent, formal employment, which gives workers benefits such as pensions, has stood still.
The government insists it wants even higher economic growth rates to reduce poverty in Asias third-largest economy, but economists and bankers say the informal workforce is an obstacle to the sort of growth needed to really pull up living standards.
"Merely focusing on the top end of the economy, which is doing very well, that will take us to 6-7 percent growth and thats a big improvement, but it wont take us to 11 percent," said Nachiket Mor, executive director at ICICI Bank Ltd., Indias second-largest bank.
The number of registered employees was only about 27 million as of March 2003, the latest date for which comprehensive figures are available. That is much the same as 10 years earlier, even though the population has grown at about 2 percent a year, economists say.
"The question of jobless growth arises it is jobless in the sense of formal workers," says Anushree Sinha, an economist at the National Council of Applied Economic Research, an independent think tank.
"What is coming up from case studies is there is an expansion of informal workers," Sinha said, adding that 87 percent of the workforce operated in this informal economy, according to data she had culled from national sample surveys.
National accounts data from the Central Statistical Organization show formal, registered economic activity accounted for only 40 percent of gross domestic product.
The informal employees are often poorly paid and unprotected by safety regulations, unable to claim compensation if injured and vulnerable to being fired at whim. Ninety percent of the women in the workforce are employed informally. …