Informality and state policy.

SINCE the start of this decade, policy discourse in Pakistan has grown more cognisant of economic activity that takes place outside of the purview of state regulation. Dubbed a part of the large 'informal' sector, this can include things that are illegal - such as smuggling, proceeds from bribery, and trade in illicit substances and services - as well as legal trades that are simply unregistered or operating without formal cognisance by state authorities. Various estimates of such activity place it anywhere between 50 per cent to 75pc of the size of the formal economy (ie $150 billion to $225bn).

Contrary to media accounts of illegal wealth, which is usually associated with corruption or illicit actions, large segments of what is dubbed the informal economy are perfectly legal in occupational terms. The only difference is that these activities operate outside taxation and other regulatory endeavours. What's also important to note is that Pakistan's towns and cities, which is where definitionally speaking the informal economy operates, would not be able to function for most of its residents without such economic activity. Everything from various modes of transport, the retail of items of everyday use, to actual housing in informal settlements, and services required for personal and built-structure upkeep and maintenance are informally provided.

For the past 10 years (and probably longer), the question of what to do with the informal economy has been approached from two complementary perspectives - the closure of 'illicit' economic activity and capturing economic value for the perspective of taxation. This is precisely why we see steps like amnesty schemes being offered and why policies like imposition of withholding taxes, electricity bill deductions, and CNIC conditions on exchange of goods and services are floated. The state recognises its revenue constraints and seeks to overcome them by documenting lucrative informal sectors such as wholesale trade and construction.

Counter arguments to this approach have been well documented by recent analysis, including that by the Pakistan Institute of Development Economics that has centred the views of khoka owners and street vendors in Islamabad. Informal economy actors usually operate micro or small enterprises and provide an important source of livelihood for those who face credential or credit constraints. A person who sets up a small street-food stall, for example, will likely not have the...