informal sectors have expanded in those districts in India where the formal sectors have expanded. Finally, in the spirit of the Harris-Todaro (1970) analysis outlined in Section 3, informal sectors in cities attract the poor people. They don’t make them poor.

However, despite these caveats, it is the strong association between informality and poverty that is the driving concern of policy makers, and their chief worry is when they see persistence of informality despite rapid growth. In addition to the income-education-health dimensions of poverty, there is also the exclusion of the informal sector from the decision making processes of the city, and outright harassment by police and agents of government. The experiences of the Self Employed Women’s Association (SEWA), which is a union of women who earn their living in the informal sector, are telling. As a recent publication notes: “Delhi is a place where people migrate in search of work. But as each day passes, people become invisible among the crowd and glitter. The less educated migrants find variety of work like labour work, ironing work, vending work, home based work, domestic work, driving rickshaw, etc and they earn well enough. With rapid development happening in all major cities of India, the poor are displaced ruthlessly. Similarly, the situation of street vendors is no different in Delhi. The street vendors are harassed by MCD [Municipal Corporation of Delhi], Police, Goons and Mafias, in the process of beautification, modernization and development.... The Goons and Mafias with support from Police and MCD set up the markets at various places and charged illegally for the space from the vendors. In desperation, vendors pay Rs 500-1000 to Goons or Mafias to make a living. Besides, MCD charge penalty from the vendors for setting up illegal markets. Thus, vendors are exploited by both, Mafias and MCD.”<sup>1</sup> Along with lower levels of income, lower levels of productivity among enterprises in the informal sector are well documented (Jutting and de Laglesia, 2009). Most recently, careful work by Busso, Fazio and Levy (2012) for Mexico argues that Total Factor Productivity (TFP) is much higher in the formal sector than in the informal sector—so much so that “one peso of capital and labor allocated to formal and legal firms is worth 28% more than if allocated to illegal and informal firms, and 50% more than if allocated to legal and informal firms.”. However, other studies have pointed out strong evidence for manufacturing convergence. In a cross-country study of 100 countries, using industry data for formal sectors, Rodrik (2012) finds that industries that start at lower levels of labor productivity grow faster.

Figure 5a, plots labor productivity levels in the unorganized industry at the district level in India. Each dot in the scatter plot reflects labor productivity in the unorganized industry in a district. The horizontal axis is the initial labor productivity in 1989. The vertical axis shows the growth of labor productivity in unorganized industry for that district for the period 1989-2205. A downward sloping line suggests that districts that started with a lower level of labor productivity in the initial period experienced a faster productivity growth rate in subsequent periods. But there is a lot of dispersion. No doubt, the pace of convergence will accelerate with better infrastructure, improved policies, and stronger institutions, as discussed earlier. The convergence in the unorganized manufacturing sector can have a huge impact on aggregate manufacturing convergence, given that more than 80% of manufacturing employment in India is in the unorganized sector. The impact of formal manufacturing on aggregate manufacturing convergence is reduced by its small share of employment.

> 1 SEWA Newsletter No. 39, http://www.sewa.org/Thirty_nine.asp  Accessed August 26, 2012

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