Economic Contribution of the Urban Poor

The illegitimate status of our urban poor has generally classified this section of the society as a ‘burden to the city’. However, a recent study by Society for Participatory Research in Asia and Indicus Analytics is an ‘eye-opener’. The study examines and reconfirms the high ‘Economic Contribution of this Urban Poor’, in the city’s GDP. Thereby, contesting that this ‘illegitimate’ child of the city, is significant and respects the same rights and services as its legitimate other.

A primary survey of 50 top cities in India was conducted to achieve the study objective. The survey captured various socio-economic–demographic dimensions of urban informal settlements dwellers in these cities. A total of about 5350 households and about 24500 individuals were covered in the survey. The focus of the questionnaire was to capture information about income–expenditure, employment, nature of job, education, living conditions and the similar information to understand the economic component of their life as well as their standard of living.

Subsequently, a social accounting matrix (SAM) of India was constructed that includes urban informal sector as a component. SAM is the best possible tool that takes into account the inter-linkages among various economic agents within an economy. One of the advantages of SAM is that it can incorporate certain sections of households into a framework whereby the impact of that section on the economy in terms of contribution to income (GDP) as well as the multipliers can be computed, thus allowing precise quantification of the informal settlement population’s contribution to urban economy. In addition, the study also captures the perceptions of non-informal settlement households regarding the role of the target segment of population in a city life. This qualitative analysis provides an understanding of the shadow cost of non-existence of this section of population in the urban centres.

The following are the significant findings of the research study:

  • In the million-plus population cities, nearly 40% of the households live in slums. Five metropolitan cities of the country, namely, Mumbai, Delhi, Chennai, Hyderabad, and Kolkata, account for more than 50% of the total slum households in the country. States such as Delhi and Maharashtra raise concerns as they already have a high slum population and are, according to a recent report by National Building Organization (NBO), expected to face relatively high growth rates in the coming years.
  • The Census of India 2011 shows that about 35% of the slum population does not have access to ‘treated’ tap water from a municipal corporation. More than 25% of the slum dwellers use water from hand pumps, tube wells or some other undefined sources that might be highly hazardous to their health.
  • Maharashtra, Odisha, Chhattisgarh and Delhi show that about 50% of slum dwellers do not have sanitation facilities within house premise. Bihar, Odisha, Jharkhand and Chhattisgarh have more than 40% of slum households practicing open-air defecation. This figure is also high for Rajasthan and Madhya Pradesh.
  • At an all-India level, 36% of slum households do not have three basic facilities, viz., electricity, tap water and sanitation, within the house premises. States such as Bihar, Assam, Chhattisgarh, and Odisha reveal a very sad state of affairs with less than 20% of the slum with these basic amenities.
  • There is a stark difference between facilities available at notified and non-notified slums. Non-notified slums have significantly poorer amenities compared to notified slums
  • The primary survey data suggest that self-employed workers in informal settlements have greater average earning than their counterparts employed as casual labour and even those in regular salaries/wage jobs. However, significant variations are observed across cities. This employment status category might be the repository of much disguised unemployment in informal settlements as seen by the fewer number of months being worked by casual labourers.
  • Informal sector is found to be the most important employment source for informal settlement population in the distributions across livelihood categories. Majority of employed members in informal settlements are in the unskilled service worker category. Among business owners, we see the range of informal sector enterprises that are being run by the residents of informal settlements, most of them as service providers where formal provision is inadequate.
  • Within informal settlements income varies significantly. Though at the lower income level, income and expenditure are almost equal in most cases, the expenditure to earnings ratio of informal settlement households decreases with increase in income. Food is expectedly the most important expenditure category, especially for the lower income households within informal settlements. On an average, expenditure on food is almost half of the total monthly income. Health, education and conveyance also have significant expenditure shares.
  • Debt is quite common among the informal settlement dwellers. However, penetration of banks and microfinance institutions is found to be low.
  • A majority of informal settlement dwellers have lower than middle school education. Income, as expected, increases with higher level of education. Tenure security and housing conditions, which are important indicators of socio-economic status, vary across cities. A sizeable proportion of the informal settlement population is composed of migrants, who are primarily from rural areas, but not necessarily from different states. The migrants were predominantly of the permanent sort who had been living in the city for many years. The motivation for the migration was mostly unemployment or low wages in the place of origin.
  • Large proportion of informal settlement dwellers are in productive age group. Therefore, with better facilities and living condition, increased productivity level of this section of population can boost the economy further.
  • The survey shows that new migrants face difficulties in settling in new cities in terms of various dimensions of daily living. The major problems they face are in terms of rent, access to PDS, access to banking facilities, land tenure facilities
  • Proportion of female earning members and the female work participation is much lower than the male members, which perhaps is an indicator of gender inequality in availing employment opportunities.
  • Through constructing SAM including informal sector dwellers as an economic agent, the study has captured direct, indirect and induced impact of activities (related to both production and consumption) of informal settlement dwellers on urban economy.
  • GDP multiplier of informal settlement dwellers is 1.4, which in simple words suggests that because of one extra unit of increase income by informal settlement households, total of 1.4 units of GDP will be experienced as total impact (including direct, indirect and induced).
  • Assuming that urban GDP is about 60% of total GDP, the total contribution of informal settlement dwellers to urban GDP of India is 7.53%.
  • Total output multiplier for economic sectors is 2.90. This suggests that an injection of one additional unit of demand from informal settlement households will result in an additional output generation of 2.90 units in the economy.
  • Total household income multiplier of informal settlement dwellers is 2.0. This suggests that an injection of one additional unit of demand from informal settlement households will result in an additional household income generation of 2.0 units in the economy.
  • In case of most of the production sectors, urban informal settlement households show a higher multiplier than rest of the urban households. Education is the only sector where multiplier is higher for rest of the urban households than informal sector households.
  • The probable reason for higher multiplier for urban informal sector is that because of aspirations to catch up with urban lifestyle, any extra income of urban informal settlement dwellers is converted to consumption and savings are scarce. On the other hand, in case of non-informal settlement dwellers in urban areas, additional income is generally converted into savings. Thus consumption propensity of urban informal settlement dwellers for any additional unit of income is higher than non-informal settlement dwellers.
  • About 40% of the non-informal settlement urban sample households think that their daily life will be affected adversely if the informal settlements and the people living there are removed

The study suggests that informal settlement dwellers play positive roles in urban economy as well as urban life apart from a few known adverse roles. Their contribution to urban GDP, and some of the “difficult to replace” nature of jobs they are engaged in, makes them an integral productive economic agent of the urban economy. Based on the Census of India 2011 data, as well as primary survey data of informal settlements of 50 cities, the study also suggests that a large proportion of the households do not even have access to the basic facilities. As the services provided to this section of population are often considered as favour to the community rather than their basic right, the approach and attitude of the authorities needs to be re-examined.

Download the entire study at :

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2 thoughts on “Economic Contribution of the Urban Poor

  1. Jorge Carrillo December 19, 2013 at 1:23 am Reply

    Reblogged this on Reading Development.

    • terraurban December 19, 2013 at 5:37 am Reply

      great! hope your readers enjoy!

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