Reclassifying economies by the degree and intensity of informalization: The implications for India

Abstract

Until now, classificatory schemas of economies have differentiated countries by the character of their formal economic systems, such as by their levels of gross domestic product (GDP) or gross national income (GNI) per capita, whether they are control, market or mixed economies, or liberal or coordinated varieties of capitalism. Based on this, India has been depicted as an Asian tiger pursuing a market or liberal variety of capitalism. This would be appropriate if the majority of employment globally was in the formal economy. However, this is not the case. Consequently, the aim of this chapter is to develop a classification of economies according to the degree and intensity of employment in the informal economy and to reconsider the depiction of India’s economy. This reveals that India finds itself at the top of this new global league table that classifies economies by the degree and intensity of informalization. If India is to move away from its current position at the top of the league table of countries by their degree and intensity of informalization, moreover, then it reveals that there is a need to pursue wider economic and social policy measures associated with development and greater state intervention in the form of higher tax rates and social transfers to protect workers from poverty. This sits in stark contrast to the remedies currently celebrated by the Asian tiger status which intimates that the higher performance of the country is due to its liberal market-oriented variety of capitalism.