Service Sector Micro Enterprises: Informality ,Migration and Productivity

Abstract

In spite of the growing prominence, the service sector (SS) has remained less researched than manufacturing and agricultural sector, in the last decades. The scenario has changed, and the SS has successfully gained the attention of researchers and policymakers, but this is concentrated on few sub-sectors, such as finance, commerce, transport and those most closely linked to tourism. In any case, the services sector is experiencing prominent changes due to new technological advancement, digitalisation and economic globalisation. These changes demand specific and in-depth analyses to explain their causes and to understand their spatial and territorial effects. The objective of this work is to investigate the role of the service sector (organised and unorganised) and the less researched service sub-sector in the Indian economy and examine the relationship between the service sector, Informality, Migration and Productivity of diverse service sector enterprises operating in urban areas. Based on various theories that have developed since the inception of the service sector this study reconnoitre the journey of the Indian economy towards tertiarisation (structural change). In the study, we attempt to examine some of the most debatable issues of the service sector like what is the relationship between growth in GDP contribution by the service sector and employment growth? Is the service sector growth a jobless growth? Is the contribution of the service sector underestimated or overestimated? The author explores the significance of the informal service enterprises towards employment generation and income generation and also explores the reasons why the rate of formalisation of informal service enterprises is extremely low (quite negligible). Further, the study investigates the possible determinants of the informal economy using MIMIC approach which is an extensively used method in the literature on the informal economy.
For effective study three rounds of surveys were conducted, in state capitals of Odisha, Jharkhand, West Bengal, and the national capital Delhi, which is a Tier I city, the reason for choosing Kolkata is that it the largest and oldest metropolitan Tier I city of eastern India, these cities draws migrants from all over the country. Ranchi and Bhubaneswar are Tier III city representing semi-urban settings. This study is an attempt to understand the role of the service sector in general and informal service sector in particular in the Indian economy. To achieve the formulated objectives empirical study using cross-sectional data of 574, 605 and 150 participants are analysed using various statistical approaches like Multinomial regression, RIDIT approach and MIMIC approach along with trend analysis (secondary data).
The key findings of this study suggest that the growth of the service sector has changed the traditional perception of the country from the “land of beggars” and “snake charmers” to “the land of knowledgeable workers”. The Indian economy is experiencing the transition from the agricultural based economy to the service economy, which is a modern form of economic transition. The Indian economy has been an outlier as it has experienced a transformation directly from agriculture to services based economy. Based on the identified variables in the study, the author highlights the most dominant factors due to which the firms are hesitant in moving towards formalisation, some of the identified factors according to the study are competition, lack of awareness, state and local taxes and the regulatory burdens. The study also identifies the determinants of the Informal economy; the informal activities in the Indian economy are indicated by factors such as AIGE, HTE, and IMJ, which means that these factors will experience an increase with the increase in the size of the informal economy (service sector). A unit increase in the size of the Indian informal sector leads to respective 0.343, 0.512 and 0.316 points increase in the preference. This study identified six factors which robustly determine the size of the informal service sector. The six identified factors are state and local taxes, regulatory burdens, lack of credit, lack of awareness, tax morality and perceived level of corruption in the registration system.