Perspective

Urbanization envisaged as a process of transformation of ideas and ideologies is expected to counter social backwardness. Poor cultural practices and strong gender biases are expected to get eroded with modernization following as a concomitant of urbanization. This chapter proposes to focus on how the women workforce participation rate (WFPR), which is considered to be a variable influenced more by cultural factors than economic changes, responds to the shifts in the levels of urbanization. Further, Odisha being one of the backward states in India is expected to be within the realms of gendered division of labour, and hence, as a matter of illustration, this state is considered for an in-depth analysis though the district-level data across India are also included. In this context whether urbanization is able to mitigate the influence of social backwardness is a critical question. Which types of rural transformations are in progress and whether they allow women to participate in the labour market more explicitly is a pertinent question. Similarly, in the urban context, whether economic growth is ushering in opportunities for women to participate in remunerative activities is a key issue. Overall, the chapter looks at urbanization, economic growth, and poverty on the one hand and the changing role of women in this dynamic context on the other.

Among various supply and demand side factors, which impinge on women WFPR, economic growth and urbanization are said to be strong determinants (see Mathur, 1994; Agarwal, 1985; Durand, 1975; Sinha, 1965). Initially, growth is found to have a negative impact on WFPR but at higher levels of growth WFPR tends to increase, thus giving rise to a U-shaped relationship. Cagatay and Ozler (1995) also suggest the possibility of a U-shaped relationship between the long-term development and women's share in the labour force. Even the historical records of developed countries indicate such a relationship between economic development and women's labour force participation rate (LFPR) (Goldin, 1994).

With urbanization and industrialization, female-dominated home-based production is expected to decline as it would be largely replaced by male-dominated factory production (Boserup, 1970). This falling part of the U-shape curve corroborates Boserup's analysis of women's contribution to home-based production.

Perspective

In what way human behaviour intermingles with changing economic activities and results in better sources of livelihood for making the urbanization process inclusive is a pertinent issue. The disadvantaged section can be conceptualized in a number of ways. The most convenient way of capturing it is to focus on those who suffer from housing poverty. In what way the slum households located at the lowest rungs of urban space do or do not benefit in the process of urbanization can then be analysed with profundity.

Focussing on the survival strategies of the slums we note that migrants, particularly from the rural areas, access information on the urban labour market through various informal channels, and hope to experience upward income mobility by migrating to the urban areas. However, one missing area of research relates to the segmented nature of the urban labour market due to specialization of activities in different areas (zones) within a city. Segmentation along the lines of caste, skill, and education has of course drawn adequate attention of the scholars, but the physical segmentation of the labour market is an issue that has received relatively less attention. By physical segmentation we mean inaccessibility of certain kinds of jobs by certain group of individuals, primarily because of the distance factor within a city: high-income jobs may be available in a particular locality, but their physical distance from the place where one specific group of migrants resides in the city could be so enormous that such jobs may remain inaccessible to them. Even inexpensive (intra-city) transport for commutation need not eliminate these labour market barriers, especially in developing countries. Hence, occupational choice is greatly determined by the narrow spectrum of jobs available within the geographic area where the migrants reside, rather than by what they are capable of pursuing. Contact-based migration tends to provide jobs in neighbourhoods close to their residence: the early settlers help their relatives, friends, members of the same caste groups and co-villagers to migrate to the city by providing information on job and space to settle down, which is often in the same gamut of space and activities that they themselves have access to.

Introduction

The agglomeration framework suggesting higher productivity gains in larger cities can be extended to argue that part of the productivity gains benefits workers in terms of higher wages (Duranton, 2016) compared to those in small towns. Higher economic growth originating from large cities is likely to have some percolation effect even when it is accompanied by a sizeable increase in inequality. Increased earnings may result in better living standards in terms of food as well as non-food consumption and also through enhanced investment in dwelling conditions and basic amenities. Thus size, productivity, and amenities all three can be in relationship. Also, in the size–productivity literature, infrastructure is seen to be a major driver of agglomeration economies. One may then argue further that infrastructure enhances the quality of living in large cities. Initially, government investment encourages concentration of activities which in turn motivates private investment and expands the city size further, unfolding simultaneity between investment and city size. Enhanced investments coming from the government, private sector, and households result in improved living standards including accessibility to various amenities. This would mean that deprivation defined in terms of the lack of access to assets, amenities, and quality housing would be in relationship with city size.

On the whole, the agglomeration economies in large cities are seen to benefit not only the business firms but also consumers. In large cities there are usually a number of labour recruitment centres (informal), and as new contacts develop, individuals tend to access more than one labour recruitment centre simultaneously, which in turn breaks the labour market segmentation and raises the number of options, leading to occupational diversification and upward income mobility (Mitra, 2010a, 2010b). Skilled workers are more likely to prefer megacities than the unskilled ones (Glaeser, Ponzetto, and Zou, 2016). Better connectivity, cheap transport system, and availability of alternative modes of transport help individuals commute faster, which does not restrict them to secure jobs in the neighbourhood of the place of residence. Further, labour exploitation in large cities is less as unions and various voluntary organizations in some form or the other safeguard the interest of the general public.

Introduction

Because of the agglomeration effects and rise in total factor productivity growth, economic growth is expected to be positively associated with urbanization. Also, in the process of urbanization, employment opportunities for all sections of the society including the unskilled and semi-skilled variety of the workforce are expected to grow through several forward and backward linkages between the dynamic sectors and the informal sector. In other words, even the activities that were residual in nature to begin with may acquire productivity gains in the process of urbanization and, thus, offer better levels of living to the workers located in the lower echelons. Since the cost of providing services in urban areas is usually less than that in rural areas (as a result of agglomeration effects), the decline in the incidence of urban poverty is likely to take place at a higher pace with rapid urbanization. Even the rural poor benefit in the process of urbanization through inter-linkage effects.

Growing inequality and increasing poverty are likely to have a direct relationship. Given the level of per capita income if inequality rises, it results in an increase in poverty. However, when both growth and inequality rise simultaneously, the poverty outcome is a bit uncertain. The beneficial effects of growth on poverty tend to get neutralized by the adverse effects of increasing inequality on poverty and thus the net decline in poverty can be quite modest. However, at higher levels of growth when inequality tends to decline, poverty is certain to fall. As economic growth, particularly its compositional change, is expected to bring in rapid urbanization, one may therefore infer that at higher stages of urbanization, the overall poverty is also expected to decline substantially. Since urbanization can offer opportunities to rural migrants to escape poverty—more so because of the agglomeration effects in large human settlements—the relationship between urbanization on the one hand, and rural and urban poverty on the other, can be an inverse one even at the lower levels of urbanization. If rural–urban migration is directed to large cities and much of the economic growth also originates from large cities, the decline in poverty and rise in urbanization can occur simultaneously.

Urbanization in development economics literature is expected to bring in a spectrum of social and economic transformations. In the backdrop of this understanding, the volume on the one hand focuses on various aspects of urbanization in India and on the other, analyses its impact on different socio-economic variables. Urbanization envisaged as a process in a developing-country context is then able to decipher a wide variety of positive changes which are occurring, though mildly. On the flip side, the rigidity of the social system is also on display, which possibly can be mitigated through significant interventions in addition to the rapid changes in some of the economic variables. The policy implications of evidence-based research are unfolded at the end of each of the chapters.

The volume begins with an analytical frame encompassing various factors that not only lead to urbanization but also unequal urbanization in particular. As per the received theory on urbanization, particularly in the conceptualization of modern economic growth by Kuznets (1966), industrialization per se is the driver. The ‘overurbanization’ thesis of Hoselitz (1953), on the other hand, looked at the urban phenomenon in the absence of adequate industrialization and opportunities for the rural population to shift to productive activities while agriculture pushed them out from the rural areas. The transfer of rural poverty to the urban space with the urban informal sector being the outlet for a residual absorption of labour stands central to this argument. However, with large-scale labour-intensive industrialization, the mobility of population is seen to be accompanied by a reduction in poverty as Lewis (1954) and Kuznets (1966) both had envisaged. Thus, the entire evolution of development was centring round the growth of factory. Since then the urban changes have taken place on a massive scale and the drivers of urban growth have deviated significantly from the traditional conceptualization. The growth of the services sector, international trade, infrastructural hubs, and, more importantly, even activities without much scope for labour-intensive methods have played a strategic role in the urbanization process, highlighting the mutual reinforcements between urbanization and economic development. As Hardt and Negri (2009) suggested, the contemporary metropolis has become a locus of socio-political mobilization analogous to the role of the factory during the initial phases of industrial epoch.

Introduction

Though in his book Kuznets (1966) had considered fifteen characteristics to define modern economic growth he later compressed them into the now famous six characteristics, falling into three main groups: (1) aggregate growth (a. high rates of increase in per capita product, accompanied by substantial rats of population growth and b. high rates of increase in output per unit of all inputs), (2) structural transformation (c. a high degree of structural transformation, encompassing a shift from agriculture to industry and services and d. changes in the structure of society and its ideology, including urbanization and secularization), and (3) international spread (e. opening up of international communications and f. a growing gap between developed and underdeveloped nations). Quite clearly he envisaged social changes alongside economic transformations. More specifically, urbanization and modernization of thoughts and ideology are seen as concomitant phenomena. The functioning of the rural labour market may be largely caste-based, but that is expected to get faint in the urban job market (Mitra, 2006). In other words, urbanization follows and results in commercialization, which in turn is likely to erode the influence of the caste factor in the job market although the job seekers may access information pertaining to the urban labour market on the basis of caste and kinship bonds (Banerjee, 1986; Desai, 1984; Mitra, 2003). From this point of view it becomes pertinent to assess if the caste factor which remained deep-rooted in the Indian social system for centuries started subsiding after the economic growth and development started off in the post-Independence era. In this chapter we try to examine if within the universe of the low-income households (slums) the caste factor matters or all social categories are equally vulnerable.

Many argued that the disadvantaged (social) classes usually get uprooted from the rural areas and strive hard in an alien urban situation to access livelihood sources (Singh and D’Souza, 1980). However, in an anonymous urban space the caste factor is usually expected to get blurred and, hence, caste-based occupations which might have been pursued in the rural setup prior to migration may change significantly, implying availability of jobs in the urban labour market being independent of caste. Similarly non-availability of jobs may also cut across castes.

Introduction

Though in the initial stages of development, urbanization follows as an outcome of development, subsequently it also results in development (Mills and Becker, 1986; Fujita and Thisse, 2003). One of the reasons for both being associated with each other is that with urbanization economic opportunities are expected to grow significantly for all sections of the population and thus an inclusive society is likely to emerge. The interactions among different classes at the workplace and in various facets of life may become so intense that the traditional barriers of caste, class, and religion may get dissipated, offering opportunities to those at the lower echelons to experience upward mobility. This is, of course, only a theoretical expectation, the realization of which depends on a variety of preconditions.

The advocates of balanced urbanization often oppose population concentration in a handful of large urban centres (Mills and Mitra, 1997). But it is difficult to ignore the positive outcomes of agglomeration economies associated with population concentration (Mills and Mitra, 1997). As mentioned in the preceding chapters, productivity gains are higher in large urban settlements and thus, there is a tendency for new firms to reap the locational advantages (Mitra, 1999). However, beyond a certain stage these gains tend to get neutralized and subsequently overshadowed by the increasing costs or diseconomies associated with population increase in large cities.

In the Indian context, many mega cities, which once upon a time attracted a lot of investment and accounted for a large component of economic activities, have started indicating signs of decline, possibly because they have attained the saturation limit. Thereafter, whether the next tier cities are ready to take over the lead role, substituting the role that the mega cities once played, is an important question. However, this may not always follow. A usual outcome of this is that as a large city gets saturated, new economic activities gradually come up in the rural hinterland. This is the second best solution for new firms because by being invested in these activities, they are able to avoid the diseconomies that the core city generates and at the same time they may have access (due to locational proximity) to the agglomeration economies that the core city offers. In the backdrop of this perspective we analyse the new trends in Indian urbanization, particularly the small (census) towns which have emerged between 2001 and 2011.

Introduction

As discussed in the previous chapter on the impact of corruption on performance, bribe has ubiquitous flow from industry to government officials in India. In this chapter, we focus on what determines bribery using micro-level data. To analyse the issue of corruption and bribery at firm level, we specifically seek to know why some firms pay bribe while others do not in an economy when they face the same macroeconomic environment, policy and regulations. Specifically, we are interested to investigate the factors that determine payment of bribe to government official. In the recent years, on this issue, there is a surge in evidence based on firm level data. This is a clear departure from the traditional literature which had mainly focused on macroeconomic and social factors (for example, Sanyal, 2005; Treisman, 2000).

Studies based on micro-level evidence have hypothesized several important firm-level characteristics which lead to bribery. Kenyon (2008) attempts to explain that firms which are evading taxes are more or less likely to face demands for informal payments from government officials and they have more or less confidence in their capacity to influence regulations that affect their business. Gaviria (2002) has shown that bureaucratic interference is higher in firms which are more likely to pay bribes and this is a clear defiance of the conventional wisdom, suggesting that bribes can increase efficiency by allowing firms to circumvent bureaucratic harassment. Svensson (2003) argues that the control rights stem from the existing regulatory system and the discretion that the public officials have in implementing, executing and enforcing rules and benefits that affect firms such as business regulations, licensing requirements, permissions, taxes, exemptions and public-goods provision. Therefore, bureaucratic and regulatory environment is crucial for bribe payment. Linking the issue of profitability with bribery, Clarke and Xu (2004) show that firms which have relatively higher profitability are more likely to pay bribes. Svensson (2003) pointed out that higher profits weakens the firm's bargaining position, since the public official can demand a higher bribe for a given service and the firm can also afford to pay it.

Introduction

The estimation of personal income tax evasion is vital and relevant as it alters the competitiveness of the market, introduces inequities among equals and modifies the outcomes of public policies. Although measuring tax evasion is a challenging and formidable task, as Schneider and Enste (2000) describe, tax evasion measurement is ‘a scientific passion for knowing the unknown’. It is widely argued that a better understanding of tax evasion is necessary for designing suitable tax policies in the country which has direct implications for employment generation, economic growth and welfare (see for example, Disney, 2000). The issue has become somewhat more relevant in present circumstances, when most of the countries including India are facing unsustainable high fiscal deficit.

The approach for estimating tax evasion based on the availability of data can be grouped into two broad categories: the macro and micro approaches. The macro-level studies mainly focus on the shadow economy or underground economy (for example, Tanzi, 1983; Schneider and Enste, 2000 and Schneider, [2005] 2007), while the micro level analyses use micro-level data, i.e., household survey and institutional data. This route is also well traversed in the standard literature (for example, Pissarides and Weber, 1989; Merz and Wolff, 1993; Fiorio and D'Amuri, 2005; Marino and Zizza, 2010; Hurst et al., 2011). However, most of the micro-level studies focused on the developed countries and in the case of developing countries the issue has not been widely followed (though some of the interesting studies, as mentioned in chapter 1, are noteworthy). This is mainly due to non-availability of micro level data or the available data is not suitable for the purpose. Nevertheless, the micro level studies are considered to provide better estimates (Pissarides and Weber, 1989).

In this study, an attempt is made to provide an estimate of the personal income tax evasion by utilizing a rich microeconomic dataset that is representative of India's population. Our approach in this study is somewhat different from the previous micro level studies as we attempt to follow a direct route and project income and tax liability of individuals in India.

Background

The effects of corruption on growth and development across countries are not only an interesting area of research but also a major concern among policy makers. Corruption is widely considered as one of the critical obstacles to growth, development and welfare of the people. It creates a system of willful incentives for government officials and the public. Its effects on redistribution programs are severe and it distorts market conditions (Shleifer and Vishny, 1993; Rose-Ackerman, 2004). The literature has shown that at the macro level corruption affects investment adversely, which in turn hurts economic growth and employment. In a pioneering study, Mauro (1995) observed that it affects investment, which finally dampens the economic growth and development. The findings were later supported by Brunetti and Weder (1998), Lambsdorff and Cornelius (2000), Doh and Teegen (2003). In an important study, Lambsdorff, (2003) has also shown a direct impact of corruption on capital inflows and investment. However, some others support the hypothesis of ‘grease the wheels’, in which it is argued that corruption may be beneficial in the ‘second best’ world because of the distortions caused by ill-functioning institutions. Furthermore, an inefficient bureaucracy constitutes an impediment to investment so that some grease money may help circumvent (Leff, 1964; Huntington, 1968 and Leys, 1965).

For example, with bribe a small or loss making firm may secure a government tender or license, which is otherwise not possible to get while competing with multinationals. In the present context of globalized market, such incidents very often provide lifeblood to small local firms, which finally lead to better allocative efficiency. As the debate has been continuing in the standard literature, the hypothesis is again tested by Meon and Sekkat (2005) and their findings reject the hypothesis of ‘grease the wheels’ and instead it supports the hypothesis of ‘sand the wheels’. Very recently, Zelekha and Sharabi (2012) have also shown that the effects of corruption on economy and trade of any given country is significant, stable and negative.

The rent seeking behaviour of individuals tends to gain momentum in a society with stringent regulations. In a free economy it is usually feared that the individual's choice to decide what is good or bad for himself may involve substantial conflicts of interest and thus there is the need for interventions and regulations. But ironically regulations empower a selected few who then in turn earn a rent using their position and power to render benefit or impose punishment by distorting facts or mitigate penalty by suppressing part of the unlawful activities. Of course in a society without regulation individuals may harm each other to serve their own interests leading to pure chaos and therefore there could be a genuine need for economic policy. So determining an optimal mix of freeness and regulation is perhaps the biggest challenge that a society faces in order to keep itself at a safe distance from chaos and at the same time not allowing regulations to corrupt its members.

Why people take recourse to unfair means is an age old question, bothering thinkers to find an easy solution with an effective strategy to curb this tendency. The simplest answer perhaps lies in the fact that some, if not many, have a tendency to experience gains more than proportionate to their efforts or endowments they have. And in order to materialize this they often stoop down to take recourse to corrupt means of bribing. Religion takes the route of fear to caution while spiritualism reminds the transitory satisfaction that material wealth can offer and the negativity that the mind develops by cultivating the desire to receive disproportionate gains. All this, however, does not have an effect on those who do not believe in preaching. Hence, there is the need for a body to punish the greedy, be it through law or any other entity.

A more hazardous situation appears when one individual does not believe in corruption but another believes and the latter stands on his way until the former compromises. Of course the former can take a strong stand and get prepared for any dire consequence that may come in his way rather than succumbing to the pressure applied by the corrupt.