Why do informal service enterprises remain informal? A RIDIT approach

Abstract

Purpose The purpose of this paper is to identify reasons as to why firms operate informally, and to explore the rationalisation of not moving towards formalisation. Design/methodology/approach Building on empirical data collected through interviews with the entrepreneurs of the informal service enterprises of Delhi and peripheral areas, this paper presents the results of the survey conducted in 2017. By using the analytical tool developed by I. Bross, the authors have identified the most significant contributing factors to informality. Findings In the research, the authors establish that competition and lack of awareness are the most dominant reasons due to which informal firms are hesitant in moving towards formalisation. For successful transition towards formalisation, a "new pact" between the workers, enterprises and governments needs to be developed, based on capacity building, productivity gains, enabling business environment, empowerment and entitlements to social and economic rights. Originality/value The informal service enterprises are not a widely explored community by researchers and policy makers. This sector can employ more people with less investment, and hence requires intensive study. The use of RIDIT approach to rank the identified factors due to which the firms do not move towards formalisation is the novelty of this work.