Informalisation In Developing Countries

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2.6. Informalisation in the Developing Countries
“Developing countries’ one third of national income comes from the informal sector. The informal sector reduces the unemployment problems”
The third world countries - especially those of Asia and Africa - are under the rapid transition phase and marked by rapid population growth. Hence, such countries face dual problems of economic development and sustaining such large populations. The size of the informal sector in developing countries excluding the agricultural employment ranges roughly between one-fifth and four-fifths and in terms of its contribution to GDP. The informal economy accounts for between 25 percent and 40 percent of annual output in developing countries of Asia and Africa.
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Urban poverty may be accounted to the poor interventions to engage sufficiently with rural poverty or due to failure of various policies or strategies to reduce rural poverty. This trend is predominant across cities of various developing countries.
This phenomenon is changing the entire urban face by introducing two major aspects/dimensions. The first is that the poor are being forced to live in slums to fulfill the residential foothold and the other aspect is that the poor are being forced to work in the informal sector to earn a living. The proportion of informal sector is higher than the formal in urban areas. According to the UN-HABITAT report of 2001 in Africa and Asia, 54 percent and 33 percent of the total workforce is in the informal sector, respectively.

Globalisation is pressurising the developing countries to restructure their economy so that it can compete at the global level as a result of which government is forced to downsizing, privatising the public sector and cutting the government expenditure and subsidies. Also the formal sector is forced to reduce the costs and maximize the value. Hence all these together have severe implications on the urban poor and are leading to loss of blue collared
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Hence health of this sector should be of primary concern for governments. However, at present informal sector is marred by several constraints. Chief constraints faced by this sector in developing countries are:

• Availability of capital: though the quantum of capital required is less as compared to the formal sector, but they lack good mechanisms to allow inflow of credits from formal institutions and only the informal mechanisms generally provide financial assistance.
• Lack of technical know-how: governmental institutions are responsible for providing skill assistance but due to political influence these aren’t disposed favourably towards the poor and the illiterate in the informal sector.
• Lack of training and credit: they are forced to stick to simple technology, escape from the rent by locating in unauthorized locations and also to cut the cost of regulations.
• Policy prejudice: this makes it naturally difficult to compete with formal institutions. This may be attributed to government’s belief that modernisation is equivalent to development and hence the formal sector needs to be

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