Can the Organised and Unorganised Sectors Coexist: A Theoretical Study

In the past debates around protection are usual couched in terms of protection of the manufacturing sector from imports and are centered around the so called “infant industry” argument. This paper has tried to model a scenario where organised and unorganised sectors compete and where the organised sector is only restricted by statutory rules of setting up business. The model indicates that coexistence of the two sectors is a knife-edge problem and generally unlikely. It is seen that while low growth rates of demand would eliminate the organised sectors, high growth rates and product competition will eliminate the unorganised sector. The political need to ensure coexistence for some time would require some market segmentation via regulatory restriction like zoning.