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Rethinking Institutions: Innovation and institutional change in India's informal economy*

Published online by Cambridge University Press:  12 January 2018

BARBARA HARRISS-WHITE
BARBARA HARRISS-WHITE*
Affiliation:
Wolfson College, University of Oxford, UK Email: [email protected]
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Abstract

India has the largest informal, unregistered economy in the world, infrastructurally backward, yet vital for both growth and livelihoods. In the first section of this article, five economic institutions that shape this economy are introduced: small firms, informality, non-metropolitan towns, innovation and innovation systems, and the state's regulative impact on the economy it does not directly regulate. In the second section, we trace the development of the commodity economy of a South Indian town taken for case study over 40 years, before exploring three kinds of innovation in the third section: invention, adaptive, and adoptive innovation. In the fourth section, the formal and informal institutions that nurture informal innovation are analysed: family business, business associations, banks and finance, informal insurance and gold, hybrid state–private institutions, and informal innovation inside the state. The conclusion confirms the innovative dynamism of the informal economy and the complex pathways of institutional change that both shape, and are shaped by, innovation.

Type
Research Article
Information
Modern Asian Studies , Volume 51 , Special Issue 6: Institutions and Economic Development in South Asia , November 2017 , pp. 1727 - 1755
Copyright
Copyright © Cambridge University Press 2018 

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Footnotes

*

The fieldwork for this study was carried out with Gilbert Rodrigo to whom I am extremely grateful. I am also grateful to Partha Mukhopadhyay and the Modern Asian Studies reviewers. The fieldwork was funded through a DFID-ESRC grant RUYGO-ES/I033769/1 ‘Resources, Greenhouse Gas Emissions, Technology and Work in Production and Distribution Systems: Rice in India’. The topic was suggested by the need to understand possible obstacles to innovation in a low carbon transition. The funding agencies are not implicated in the arguments and interpretations made here.

References

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13 For the history of the concept, see Martha Chen, ‘Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment’, United Nations Department of Economic and Social Affairs Working Paper No. 46 (New York: DESA, 2007).

14 Raj and Sen, Out of the Shadows, pp. 7–10.

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19 Kunal Sen, ‘The Indian Economy in the Post-Reform Period: Growth without Structural Transformation’, chapter 2, pp. 27–63, in Davin and Harriss-White, China–India and citations to De Long (2003) and Rodrik and Subramanian (2004) therein.

20 Corbridge, Harriss and Jeffery, ‘“Lopsided”, “Failed”, or “Tortuous”’, p. 160; Ayona Datta, ‘City Forgotten’, Open Democracy, www.opendemocracy.net/opensecurity/ayona-datta/city-forgotten, [accessed 17 July 2017]; Sen, ‘The Indian Economy in the Post-Reform Period’.

21 ‘The percentage of urban population in these two city size-classes increased from 15.6 per cent in 1981 to 22.6 per cent in 2011, and from 12.1 per cent in 1981 to 20.0 per cent in 2011 respectively’: Sen, ‘The Indian Economy in the Post-Reform Period’, p. 56.

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24 Ibid. See also Remi De Bercegol and S. Gowda, ‘Slumdog Non-Millionaires: Small and Medium-Sized Towns in India on the Fringes of Urban Development’, Metropolitiques EU (2014), www.metropolitiques.eu/Slumdog-Non-Millionaires.html, [accessed 17 July 2017].

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27 Ranjeet Laungani, ‘Demand Spotting: The Rise of the Indian Small Town’ (Nielson, 2013), www.nielsen.com/content/dam/corporate/india/reports/2012/Featured%20Insights_Demand%20SpottingThe%20Rise%20of%20the%20Indian%20Small%20Town.pdf, [accessed 17 July 2017].

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29 See Prahalad, C. K. and Hart, Stuart, ‘The Fortune at the Bottom of the Pyramid’, Strategy and Business 26, no. 1 (2002), pp. 1–15Google Scholar. This fortune is not new. Shampoo and soap were being retailed in sachets in periodic marketplaces in South India in the early 1970s.

30 See Birtchnell, Thomas, Indovation: Innovation and a Global Knowledge Economy in India (Basingstoke: Palgrave, 2013)CrossRefGoogle Scholar; Radjou, N., Prabhu, J., and Ahuja, S., Jugaad Innovation: a Frugal and Flexible Approach to Innovation for the 21st Century (London: Random House, 2012)Google Scholar; R. Tiwari and C. Herstatt, ‘India—A Lead Market for Frugal Innovations? Extending the Lead Market Theory to Emerging Economies’, Working Paper No. 67 (Hamburg: Institute for Technology and Innovation Management, Hamburg University of Technology, 2011).

31 Agricultural innovation systems (AIS), for instance, are systems of individuals, organizations and enterprises that bring new products, processes, and forms of organization into social and economic use to achieve food security, economic development, and sustainable natural resource management.

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36 Data for the organized sector in the latest 2015 round of national accounts is boosted by the expansion of the private corporate sector's data base. This would shrink the relative contribution of the informal sector were it not for the fact that the top 100 companies provide 75 per cent of GVA, leaving the contribution of the ‘real universe’ of close on a million other working companies unknown (R Nagaraj, ‘Size and structure’). The unorganized sector is a residual, using census indicators of labour and gross value added extrapolated from benchmark indicators. Since the organized manufacturing sector has been reclassified to be more inclusive than the earlier registered manufacturing sector, some informal enterprise may have been reclassified as formal and the sector shrunk as a result: Ministry of Statistics and Programme Implementation, Changes in Methodology and Data Sources in the New Series of National Accounts, Base Year 2011–12 (New Delhi: Government of India, 2015), pp. 13–19.

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42 M. V. Srinivasan, ‘Arni's Workforce: Segmentation Processes, Labour Market Mobility, Self-Employment and Caste’, chapter 3, pp. 65–96, in Harriss-White (ed.), Middle India and Urban-Rural Development.

43 N. Arikkuvarasi, ‘The Making and Unmaking of Handloom Silk Weaving in the Arni Region’, chapter 8, pp. 201–28, in Harriss-White (ed.), Middle India and Urban-Rural Development.

44 Schmitz, Hubert, ‘On the Clustering of Small Firms’, Bulletin Institute of Development Studies 23, no. 3 (1992), pp. 64–69 CrossRefGoogle Scholar; Jason Stanley, ‘A Future Not So Golden: Liberalization, Mechanization and Conflict in Arni's Gold Ornaments Cluster’, chapter 5, pp. 131–50, in Harriss-White (ed.), Middle India and Urban-Rural Development.

45 Though without the implication (from Schmitz, ‘On the Clustering of Small Firms’) that there is a consensual development culture underpinning collective efficiency.

46 Barbara Harriss-White and Gilbert Rodrigo, ‘“Pudumai”—Innovation and Institutional Churning in India's Informal Economy: A Report from the Field’, Oxford, School of Interdisciplinary Area Studies, Working Paper 9 (2013), www.southasia.ox.ac.uk/sites/sias/files/documents/PUDUMAI%20-%20INNOVATION%20AND%20INSTITUTIONAL%20CHURNING%20IN%20INDIA%E2%80%99S%20INFORMAL%20ECONOMY%20a%20report%20from%20the%20field.pdf, [accessed 17 July 2017].

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53 Notably in motorcycles and looms.

54 Automated Teller Machine (cash machines); National Electronic Fund Transfer—instant cash transfer.

55 Some 27,000 motorcycles, new and second hand, were sold in Arni between 2008 and 2012.

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59 Caste is defined as a hierarchy of social status associated increasingly loosely with occupations, by Basile, Capitalist Development.

60 Arni's silk association has a long history of state-connived containment of informal wages for weavers.

61 This requires published maximum retail price indication, lists of inventory, certified weights and measures and quality control in retail, none of which was being observed in Arni, which was resolved (conceded by the state) by an agreement for incremental and delayed implementation.

62 Including those for rice, silk cloth, groceries, gold, the Red Cross (reflecting human rights impulses in town), the Lions, Rotary, and the Chamber of Commerce.

63 Achievements through the ministerial route include a reduction of power-cuts for rice mills and an informal agreement to let women apprentice themselves, so as to enter tailoring.

64 de Soto, Hernando, The Mystery of Capital (London: Bantam Press, 2000)Google Scholar.

65 Up to Rs 100,000. In 2012, Rs 1–2000 was reported to be a common outstanding amount for Dalit sanitary workers. This has subsequently risen.

66 See the earlier suggestion in Roman, Camilla and Harriss-White, Barbara, ‘On the Insecure Lives of Tamil Nadu's Silk Weaving Families’, Frontline 20, no. 24 (2003)Google Scholar, www.frontline.in/static/html/fl2024/stories/20031205001408800.htm, [accessed 17 July 2017].

67 Stanley, ‘A Future Not So Golden’; Barbara Harriss-White, ‘Local Capitalism and the Development of the Rice Economy, 1973–2010’, Chapter 4, pp. 97–130, in Harriss-White (ed.), Middle India and Urban-Rural Development.

68 Those with formal threshold qualifications for driving are fit for employment in information technology and will not work on lorries.

69 Mahatma Gandhi National Rural Employment Guarantee Scheme.

70 In 2012, one president called them ‘Rs 15–25,000 officers’.