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Why do informal service enterprises remain informal? A RIDIT approach

Sunanda Jha (School of Management, National Institute of Technology, Trichy, India)
Dinabandhu Bag (School of Management, National Institute of Technology, Rourkela, India)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 5 September 2018

Issue publication date: 20 May 2019




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.


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.


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.

Research limitations/implications

The research is limited only to informal service enterprises located in Delhi, the national capital of India, and the peripheral areas.

Practical implications

By identifying the most dominant factors, focussed steps can be taken to reduce the size of the informal sector.


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.



Jha, S. and Bag, D. (2019), "Why do informal service enterprises remain informal? A RIDIT approach", Journal of Small Business and Enterprise Development, Vol. 26 No. 3, pp. 381-396.



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Copyright © 2018, Emerald Publishing Limited

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