Understanding Informal construction economies:

Construction companies that aren’t formally organised in the strict sense of the word. These companies are built completely on informal agreements and through personal relationships. Some experts even argue that informal construction economies may help reduce the infrastructural deficits in rural parts of the country. While these informal economies do have short term and in some cases a few long term benefits, they have very high potential for becoming exploitative too. These informal construction economies are based on word of mouth and good will in the market to come to arrangements for employment and contracts. These informal economies are generally small and restricted to its immediate areas given the nature of how work is sought and competed.

Employment in these economies are strictly base on relationships with either the person running the company or the people working there. Given the informal nature of these ventures, employee are susceptible to exploitation. Most employees do not have contracts of any sorts, the wages are also lower than the general standard, in addition to the risk to their lives. Bar

Given the lack of any formal documentation, employees are not eligible for any kind of benefits. Most of them function without a formal pension or set of benefits, instead biding their time until another job comes by. In case of injuries on the site, there are no provisions for any kind of compensations or employee benefits. The employees are dependent on trust and the relational network that they have become a part of.

Being informal companies, there are no laws or by laws for protection from mis treatment, exploitation or any other kind of wrong doing that one may experience when working with these systems. Lack of paper work also means no accountability to any one about the quality and maintenance of the rurl infrastructure that is created.

Getting jobs is relatively hassle free in terms of paper work and qualifications required, they are determined by informal bargaining allowing contractors greater control over their labour costs, work force stability and flexibility in scheduling work hours. Given east access to jobs, naive workers are willing to sacrifice guaranteed minimal hourly wage, over time pay, compensation for all the work hours put in etc. While these informal economies help create employment for peopled eventually aid to the growth of the area, it has its imperfections and drawbacks making it necessary for them to have some form of policing to ensure it doesn’t end up becoming a nuisance.

For the workers the rewards are non pecuniary, job security, autonomy, non -pecuniary and a wage of some form. It is better preferred that these workers are bound within the bounds of a formal contract but they are better off incorporated in the informal economy rather than have them being jobless. Its benefits however are very limited and short term.

In these economies trust networks being used along side promises of fast development and is resulting into the utility of such a process over powering the disutility. For example, workers are happier having access to jobs and a daily wage and are willing to forgo any chance at receiving monetary benefits as a guaranteed hourly wage, preliminary pay for overtime hours, and compensation for all hours worked.

Informal construction economy: Risks

Manufacturing and construction account for 76% of people in the non agricultural informal sector. Parallels to the formal economy there is an informal construction economy that is already massive in size and not some thing the government and policy makers can afford to ignore any more. The sustained success and large scale of the informal economy indicate that it does more than compete with the formal sector. They suggest rather that the formal economy has a complementary labor market good in the informal sector. Low informal wages and high informal flexibility can allow formal economies to become scalable and grow throughout the nation.

The reigning government’s demonetisation back in 2016 has been a major set back for the informal finance sector that majorly functions on cash. The drastic effects of demonetisation on the informal finance sector eventually led to disruption in the informal construction economy as many informally funded projects will come to a halt due to the lack of cash flow. The effects will overflow into the formal construction economy as well, as the labour demand goes down in the informal economy, it will shut off certain rural markets from adequate infrastructure development in a speedy fashion.

The problem with informal economies construction or otherwise is that they are massive with turn over of millions and billions of dollars and for most part self sustaining as an economy parallel to the main stream one. The informal economies fail to break the cycle of informality and scale into formal businesses.

While the informal construction economy, if formalised can help almost double the size of the country’s economy. By attaching skill premiums to educational attainment, the Indian government has shut off the pipeline from informal work to formal economies. Rather than re-emphasising the sector, the government bears the onus of ensuring informal economies are not a lifelong sentence. Studies confirm that the government policies and formal economy do more to push more and more locals deeper in the informal economy.

The informal construction economy can play a crucial role in integrating a parallel economy into the formal one. The economy is already a pre segmented one, the government need only work with the situation at drafting policies that can integrate the people in the informal sector to the formal one without loosing out on gains.

Education about workers welfare, rights, financial literacy and a properly charted plan can help integrate the informal construction economy the main stream one seamlessly. The government can capitalise on the progress of the informal economy and incentivise proper construction and completion of projects. The government can adopt policies that imbibe values like national pride into relational networks, simultaneously reinforcing them and leveraging them to build otherwise unreachable infrastructure projects. The final stage is helping people transition into the formal economy and reduce the exploitation of workers in the long run while still utilising the economy for development.