• While the informal sector has always existed in developing economies, there is ample evidence that globalisation has exacerbated the process of informalisation. The forces of globalisation have created conditions for informalisation in two ways.

(a) The dismantling of barriers to trade and capital flows has made way for the unhindered mobility of commodity and capital (both financial and real) across national boundaries. Faced with competition on the global level, firms in the formal sector of developing economies are engaged in a battle of competitive cost cutting. They are increasingly relying on outsourcing of production processes to informal units where wage costs and costs associated with complying with labour and environmental standards are considerably lower.

(b) The inflow of cheaper imports has caused a contraction of import-competing industries in the formal sector, but the expansion of the export sector has failed to generate sufficient employment to compensate for the loss. Moreover, global competition has forced domestic private as well as state enterprises to raise labour productivity and adopt lean production methods involving large-scale retrenchment of workers. Further, the neoliberal focus on fiscal discipline and inflation-targeting has eroded the power of the state to otherwise create employment. In other words, job destruction has outpaced job creation in the formal sector, forcing those thrown out of employment to eke out a living in the informal sector.

• These two types of informalisation relate to two distinct spheres within the informal economy. The first expands informal production activities within the circuit of capital, connected to the latter through a complex network of subcontracting and outsourcing; the second expands the economic space outside the circuit of capital. Thus, while both types of informalisation constitute a reversal of Fordist capital-labour relations,1 they have different implications for the labour force as it relates to capital. The heterogeneous locations of labour with respect to capital calls for recognition of the plurality of contradictions that constitute capital-labour relations.
• There is yet a third process, probably more significant even as it is less recognised, by which capital in the formal sector relates to the informal economy. The classic paradigm of economic growth in developing countries was based on the pre-supposition that the modern (capitalist) economy would expand by breaking up traditional (pre-capitalist) economies, transferring both economic resources and labourers from the traditional to the modern economy. Yet, the experience of economic growth in developing countries shows that while the capitalist economy did expand by breaking up traditional economies, it did so by transferring resources, not l abourers. As a result, a “surplus” labour force emerged in developing countries consisting of dispossessed producers whose traditional livelihoods were destroyed but who were not absorbed in the modern sector. A significant part of this “surplus” labour force fell back on agriculture dominated by peasant production – the largest surviving traditional (pre-capitalist) economy in the world. The rest of the “surplus” labour force survived on petty nontraditional manufacturing as well as service activities, most importantly, retail. Wherever the “surplus” labour force settled, the following economic characteristics emerged – the clear preponderance of self-employment largely assisted by family labour, the household as a major site of production, particularly in case of nonagricultural activities, and community or kinship networks involving trust and reciprocity in place of impersonal exchange relations.
• Further, exclusion is a constitutive process of the capitalist economy such that the reproduction and expansion of the latter involves repeated invasion of resources which lie outside it. Globalisation exacerbates the process by unleashing competitive pressure on capitalist firms to expand at minimum cost, often by dismantling social barriers to such dispossession. This low-cost expansion of the capitalist sector often involves a flow of economic assets – especially when they are cheaply valued by the market – from the informal to the formal economy either through coercion or compulsions of the market.
• Globalisation has its particular impact on each of these three tiers of the labour force in the Indian context. For reasons already mentioned, the forces of globalisation have constrained employment growth in the first-tier. Public sector employment has steadily declined over the period 1999-2005, from 19.058 million in 1999 to 18.007 million in 2005 (Economic Survey 2007-08). Private enterprises in the formal sector have generated additional employment entirely in the category of unprotected regular, casual or contract wage-workers which constitute informal employment within the formal sector. Most of the growing labour force is accommodated in the other two tiers. A part of the additional labour force has been accommodated via putting out and subcontracting to informal producers in the rural non-farm and urban informal sectors. The growth in informal employment in the formal sector along with the growth of informal producers in subcontracting relationships with formal sector enterprises is together often referred to as informalisation of capitalist production and constitute a reversal of Fordist capital-labour relations– which is at the heart of the debate on globalisation.