Informal Economy: Intangible Transactions

You go to the Department of Transport Management to fill the form to obtain a driving license. You don’t even have to reach the office, for outside there are rows and rows of makeshift stalls – a table, a chair, and a large umbrella over the open sky—where forms are sold. Not just that, but the people at the stalls also help you fill the forms: for Rs. 50 each.

The assistance continues as you work through the process of getting a license. After you give your written examination, the results are pasted on the walls of the premises, but only after several hours. For a small fee of Rs. 30, helpers will be ready to look up the number for you and give you a call. “You may pay us Rs.30, but you save petrol worth Rs. 60,” says Maya Chhetri*, 30, who has a stall outside the premises and often provides this service.

And that’s not all! If you’re hovering around with a form and a photo, a minder will appear magically by your side with a stick of gum, offering to paste the photo to the form. Since you don’t know where else to get the gum for a one-time use, this service seems a godsend (actually, government-issue gum and other necessities can be found at the gate, but most first-timers don’t know this). For this timely help, you can give him any amount you want to.

If you stick around long enough, you’ll also receive discreet offers to “speed up your process.” In other words, the license that would be delivered four days later can be delivered within ten minutes – for a mere Rs. 300.

It’s common for informal businesses like this to sprout up around busy places. Most government offices, including the CDO Office and Foreign Ministry, witness a fair number of them. Even registered businesses take advantage of busy areas by charging inflated prices for simple services like photocopies.

On the one hand, such businesses make life easier for consumers by providing essential services. Kush Shrestha, 26, who spent a long time in stationery shops outside an embassy, believes they made his visa application process more convenient.

“They were expensive, but they knew the exact specifications of the photos I wanted,” he reflects. Similarly, at the Department of Transport Management, Maya helps many people who aren’t comfortable with the formalities of official documents.

On the other hand, such businesses are seen as a sign of inefficiency of the offices in question. Once, Deepak KC, 27, and a student, was almost assaulted by a hanger-on near the CDO office, who asked Deepak if he wanted to register a marriage. Deepak was with a female friend and the question embarrassed them both. The person would make the marriage process easier for a small fee by walking couples through the lengthy and tedious documentation process.

“If offices ran as they should, there would be no need for such overenthusiastic assistants,” says Deepak who usually avoids such middlemen.

Availing of these services also makes you vulnerable to deception, because the task may not even be accomplished at the end of the day. Many places, like the Foreign Ministry, are sensitive and cannot be influenced by brokers, but there’s no shortage of people claiming to get your work done for a fee.

“And when the middlemen do manage to get the work done, it’s even more disastrous. It tells us how the officials are open to corruption,” Deepak explains.

Economist Dilli Raj Khanal informs that such informal transactions occur in every economy. According to reports from World Bank and other economic institutions, informal economy makes up 35-40% of the economy. In Nepal, as much as 94% of the labor market, which includes wage laborers, builders, coolies, agricultural helpers, vendors, etc, is informal.

“Such transactions are invisible in the eyes of the state,” says Khanal.

It follows that illegal or criminal activities that cannot be officially registered, like high-level corruption or the global trade in drugs, fall under informal economy. At the same time, informal economy also includes perfectly harmless transactions. Like many students of Kirtipur, Prasiddha Pokharel goes to the pond at Doodh Pokhari to wash his clothes. As big plastic bowls to wash clothes are available there for hire at a nominal cost of five rupees, he doesn’t need to worry about carrying cumbersome items when he goes there.

But most often, informal economy straddles the uneasy border between the legal and illegal, like the activities listed above. Because these businesses are unregistered, they easily gain unsavory reputations. Stalls around the Department of Transport Management have been banned for charging unreasonable fees and deceiving people. The services still exist but in a more covert manner.

Stall owners are wary of admitting they provide these services, and even more wary of giving their names because they have been constantly hounded by the police.

“Police and journalists don’t go after big criminals who swindle millions but hound people like us who are just trying to make a living,” said Mahesh Lama*, who has worked in the area for years soliciting passengers for his driving schools apart from the regular services.

“It’s better than doing nothing,” said Mahesh. “The business is none too lucrative, but I can at least buy lunch for my children.” He believes he isn’t doing anything wrong.

But since such transactions are invisible, their contributions aren’t counted in the GDP and other indicators. As a result, the picture of economy is always incomplete.

“The percentage of informal transactions in a country’s economy is an indicator of development,” says Khanal. Those in informal economy have no social security, no fixed wages, not even guarantees of their livelihood. Since they are invisible to the state, they can easily avoid taxes too.

“In developed economies, like the US, I’m sure far fewer people get away with not paying taxes,” says Khanal.

High activity in the informal sector, like in Nepal, is a sign of a system still in development. The sign of a developed economy is when informal elements are gradually formalized, and every transaction is accounted for. And Nepal still has a long way to go before its informal economy is sufficiently minimized for it to be called “developed.”