Economic transition, dualism and informality in India: Nature and patterns of household‐level transitions

Surbhi Kesar

Review of Development Economics, 2023, vol. 27, issue 4, 2438-2469

Abstract: We examine the Indian economy during a peak period of high growth between 2005 and 2012 to analyse the nature and patterns of household‐level transitions across different sectors, characterised by varying degrees of formality/informality and various production structures and labour processes. We find that even within this brief period, there has been a huge volume of household‐level transitions across sectors. However, the overall economic structure, and its segmentations, has continued to be reproduced, along with a regeneration of ‘traditional’ non‐capitalist informal spaces. To ascertain the nature of household‐level transitions in terms of economic well‐being, we employ a counterfactual analysis. We find that majority of transitions in the economy have been ‘unfavourable’ in nature, with large proportion of households undergoing sectoral transitions that are not optimal for them, given their socio‐economic characteristics. Furthermore, the likelihood of ‘favourable’ versus ‘unfavourable’ sectoral transition, on average, significantly varies with household characteristics, some of which, like social caste, are structurally given and cannot be optimally chosen by households. Drawing upon this analysis, we reflect on the competing strands of literature that seek to explain the persistence of informality. Our analysis highlights the complexity of India's contemporary development trajectory, whereby the pre‐existing economic structure is reproduced, paradoxically, through a continuous reshuffling and reconstitution of economic spaces, accompanied by significant volume of ‘unfavourable’ household‐level sectoral transitions.

Date: 2023
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