Innovation in India's Informal Economy

This paper examines the ubiquitous formal-informal duality of Indian economy through a case study of Arni, a Moffusil town of Northern Tamil Nadu. Arni is populated by about one lakh people; the majority of them are low castes. Informal sector dominates the economy of the town, but formal-informal linkages are strong and visible everywhere. The socio-economic life of the town is inextricably interwoven with the formal-informal duality which apparently lies at ease, unnoticed by the inhabitants and actors of the formal and the informal economy. Against the conventional wisdom, the informal economy of Arni is a crucible of innovations which are of various types. They are adoptive and adaptive, incremental and ruptural, for profit making and other uses, problem solving and solution oriented, filling the gap, and so on. Sometimes, they are meant for the promotion of collective interests and sometimes only for an individual like running the business of the family. These innovations are, however, not confined only to the domain of the informal economy, but are also part of the formal economy. In such an economy, the formal-informal duality is transposed to the level of institutions that results in 'hybridity" of institutions. The 'hybridity of institutions' is although functional, yet not without contradictions. Finally, the study emphasizes that the informal economy of India is not stagnant or resistant to changes. It is driving India's high growth rate. Innovations of the informal economy are an important driver of this high growth rate.