Growing Like Bamboo: WSJ editorial on India informal industry

• REVIEW & OUTLOOK ASIA
• FEBRUARY 1, 2011

Growing Like Bamboo

New Delhi's deregulation will help India's bamboo industry, and many more such informal businesses.

Is bamboo a tree or a grass? It may be a pedantic question, but the answer will shape the future of millions of poor Indians.

The Indian government decided last month to classify bamboo as a grass, in one fell swoop deregulating the bamboo-products industry, currently producing anywhere between 53 and 100 billion rupees ($1.15-2.2 billion) a year. As long as the plant was defined as a tree, it fell under a state monopoly; only the forestry department could legally direct its harvest, transport and trade. Many rural poor were eking out a living by using it illegally.

Any company trying to set up shop in India knows to expect a labyrinth of regulations. A report last week from Hong Kong-based Political and Economic Risk Consultancy ranks India last in its regulatory environment among 11 major Asian economies. But while it's hard to run a legal business in India, it's even harder in the informal sector. These small enterprises—such as brick makers and street vendors—don't pay taxes and lack permits to operate, but they employ more than 90% of India's 500-million-strong labor force.

The bamboo industry is a classic example. In some cases, the government leases bamboo forests out to firms that then convert it to paper and pulp. But there's a larger informal sector that harvests bamboo for construction, handicrafts and making incense sticks. Yet without an official license, supply is uncertain, and traders can't get a permit to transport it across state lines.

Bamboo's new status as a grass will give forest dwellers, such as the tribals in central India, new commercial opportunities. New Delhi's motive here is to cut off the supply of new recruits to Maoist insurgent groups by ensuring these tribals have economic opportunities and so don't become disaffected. A Delhi-based think tank, the Centre for Civil Society, estimates that a deregulated industry could employ up to 25 million workers.

More deregulation would transform informal industries into formal ones, benefitting small entrepreneurs, workers and society as a whole. For instance, a Delhi court last year struck down a limit on rickshaw licenses, setting a precedent for rural migrants who ply rickshaws in cities to make a living on their own. It's encouraging that some in India are learning that lifting barriers to business helps the poor more than social welfare spending.