VOICE & VIEWS
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1.How do labor, technology, and informality interact in shaping economic development in countries like India?
Respondent: The relationship between labor, technology, and informality plays a crucial role in shaping economic development in countries like India. Despite significant economic growth since independence, a large informal sector continues to persist. While growth has brought technological advancement, it has not been sufficient to absorb informal workers into the formal sector. This remains one of the major challenges for the Indian economy.
Technology adoption is indeed taking place, but it is largely concentrated in a few industries within the formal sector. As a result, some level of structural imbalance has emerged. The informal sector, which includes a significant portion of production and consumption activities, has not been able to effectively access or adopt modern technologies. Even when some level of adoption occurs, these sectors continue to lag behind in terms of productivity and efficiency.
Another important issue is the recurring economic crises that tend to occur roughly every decade. While these crises primarily impact large producers and high-investment sectors, they also severely affect the informal sector. This further limits their ability to improve productivity and sustain growth. For instance, with the emergence of advanced technologies like Artificial Intelligence, India is still significantly behind in terms of widespread adoption. Although technology adoption is happening within the formal sector, it is relatively delayed and uneven.
Moreover, the formal sector in India is predominantly capital-intensive. This limits its ability to absorb labor from the informal sector. As a result, workers who are unable to find employment in the formal sector are left with no option but to remain in informal employment. Overall, the inability to integrate the informal sector into the formal economy, combined with uneven and delayed technological adoption, constitutes one of the most critical challenges facing India’s economic development.
Another important issue is the recurring economic crises that tend to occur roughly every decade. While these crises primarily impact large producers and high-investment sectors, they also severely affect the informal sector. This further limits their ability to improve productivity and sustain growth. For instance, with the emergence of advanced technologies like Artificial Intelligence, India is still significantly behind in terms of widespread adoption. Although technology adoption is happening within the formal sector, it is relatively delayed and uneven.
Moreover, the formal sector in India is predominantly capital-intensive. This limits its ability to absorb labor from the informal sector. As a result, workers who are unable to find employment in the formal sector are left with no option but to remain in informal employment. Overall, the inability to integrate the informal sector into the formal economy, combined with uneven and delayed technological adoption, constitutes one of the most critical challenges facing India’s economic development.
2. With increasing digitalization, do you think it is reducing informality or creating new forms of informal work?
Respondent: First of all, I would like to point out that there are several cross-sectional studies across countries that examine this issue. Based on this body of research, digitalization does not necessarily reduce informality; rather, it often leads to the emergence of new forms of informal work.
While digital technologies can improve efficiency and expand market access, their benefits are not evenly distributed. In many cases, digitalization has created platform-based or gig work, which often lacks job security, social protection, and formal contracts. As a result, instead of eliminating informality, it transforms it into more modern, technology-driven forms.
Moreover, the ability to benefit from digitalization depends heavily on access to technology, skills, and infrastructure. Workers in the informal sector often lack these resources, which limits their ability to transition into more formal employment even in a digital economy.
Therefore, digitalization has a dual effect: it can enhance productivity and opportunities in the formal sector, but at the same time, it can also reinforce or even expand informal employment in new forms.
While digital technologies can improve efficiency and expand market access, their benefits are not evenly distributed. In many cases, digitalization has created platform-based or gig work, which often lacks job security, social protection, and formal contracts. As a result, instead of eliminating informality, it transforms it into more modern, technology-driven forms.
Moreover, the ability to benefit from digitalization depends heavily on access to technology, skills, and infrastructure. Workers in the informal sector often lack these resources, which limits their ability to transition into more formal employment even in a digital economy.
Therefore, digitalization has a dual effect: it can enhance productivity and opportunities in the formal sector, but at the same time, it can also reinforce or even expand informal employment in new forms.
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Students with Prof. Dibyendu Maiti
Manuprasad K P
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