Interrogating inclusive growth: formal informal duality, complementarity, conflict

Abstract

I find through analyses of across-state, across-industry-over-state and pooled data (involving state and time) on the Indian economy that the behaviour of the urban informal/unorganised sector is explained by the modern formal/organised sector besides petty agriculture, but the vast rural informal sector is like ‘surplus population’, associated only with petty agriculture. I also show there could be interactions between the formal sector and modern agriculture. These empirical relations are analysed and theoretical departures from the literature are identified. I propose using a Structuralist Kaleckian framework: with accumulation in the formal sector a large part of petty agriculture is modernised or converted to suit the needs of accumulation, and thereby we have a long-run drain of resources from petty agriculture and hence from informal sectors as well. However, even under such a resource drain, the urban informal sector may sustain or expand due to productivity advantages and due to pull from the formal sector, at the cost of its rural counterpart. In the short run when the formal sector and hence the urban informal sector expand or when the government promotes the urban or ‘productive’ part of informal economy, a basic conflict between urban and rural informal sectors is exposed, given the generic agricultural supply constraint. Thus, the paradigms of ‘inclusive growth’ and ‘development management’ are questioned.