Can the Organised and Unorganised Sectors Co-exits: A Theoretical Study

Manoj Pant and Shobha Bagai ()
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Shobha Bagai: Cluster Innovation Centre, Delhi

Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers from Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India

Abstract: In the past debates around protection are usual couched in terms of protection of the manufacturing sector from imports and are centered around the so called “ infant industry” argument. However, while this argument is difficult to apply in a post WTO world, the more pressing issue today seems to be in the realm of services where the unorganised sector is a major employer. Despite the usual efficiency arguments many developing and developed countries continue to restrict competition via zoning and other local restrictions. Yet there seems no analytical study to determine whether organised and unorganized sectors can co-exist in the absence of such restrictions. In this paper we have tried to model a scenario where organised and unorganised sectors compete and where the organised sector is only restricted by statutory rules of setting up business. The model indicates that coexistence of the two sectors is a knife-edge problem and generally unlikely. It is seen that while low growth rates of demand would eliminate the organised sectors, high growth rates and product competition will eliminate the unorganised sector. The political need to ensure coexistence for some time would require some market segmentation via regulatory restriction like zoning.

Pages: 18 pages
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