Out of the Shadows? The Informal Sector In Post-Reform India

In recent years, developing economies, including India, have undergone considerable structural change. The informal sector continues to be a significant component of manufacturing activity in these economies. Yet, despite its large presence, the sector does not seem to contribute much to India’s economy, which has grown rapidly since the 1991 reforms. This volume examines the presence of ‘manufacturing dualism’—a large but less productive informal sector alongside a modern and more productive formal sector—and assesses how informal manufacturing firms have responded to economic liberalization in India. It views informality through a ‘production’ lens and studies the determinants of enterprise growth and performance along the entire continuum of the informal sector micro-level household enterprises to larger enterprises employing wage labour. The chapters analyse the various aspects of informality in India’s manufacturing sector using rich firm-level data from large, nationally representative surveys spanning two decades of reforms. They argue that concerted government action is needed to allow the informal sector to come out of the shadows and contribute more to India’s economic growth.