What Indian economic phenomenon is at once marginal, even illegal, and enormously independent and entrepreneurial? That would be the street vendor, the small capitalist of the poor, and reservoir of off-the-books penalties that grease the machine of every municipal authority and police station in urban India.

There are an estimated 10 million street vendors (another term is the more pejorative "hawkers") in the cities of India, functioning mostly in breach of a host of urban laws governing licensing, selling and zoning -- and challenging bourgeois ideas of what a metropolis should look like. Street vendors have long battled to be recognized as a professional guild, not a shadowy underclass. Earlier this month, after more than a decade of agitation, the National Association of Street Vendors won a significant victory when the Lok Sabha, the lower house of parliament, recognized the rights of street vendors by passing the Street Vendors Bill, 2012.

The measure acknowledges that street vending is an economic reality that works to the advantage of both sellers and consumers, providing productive employment for many and cheap goods and services for the urban poor. The law contains several significant provisions designed to bring street vendors into far less ambiguous legal and economic terrain, and attempts to break down the high wall that currently divides them from city municipal corporations and resident associations.

Three statutes from the bill illustrate its spirit. One, it requires, ambitiously, every city municipal corporation to form a "Town Vending Committee" made up of the municipal commissioner and representatives of local planning authorities, resident welfare associations and street vendors themselves. Every person intending to become a vendor would have to apply to the committee for a certificate and a location.

Only time will tell if India's municipal corporations, deeply invested in a predatory culture of bribes, threats and special interests (see Jonathan Shapiro Anjaria's essay on Mumbai), will actually make a transition to the more enabling and democratic regime envisioned by the law. But at the very least the new rules allow street vendors to participate, through their representatives, in municipal decision-making, instead of merely having orders and decisions declaimed to them from on high, not to mention the perpetual threat of eviction and confiscation of goods.

Second, the bill enjoins all city municipal corporations to undertake a survey of street vendors and to make room for them in a town plan, up to a number amounting to a maximum of 2.5 percent of the local population. These generous terms have already spawned some reporting that anticipates something akin to an alien invasion. A typical example would be the lead paragraph of an article in Mumbai's Daily News and Analysis, probably the newspaper most hostile to the bill, about "a red carpet" being rolled out for street vendors:

Imagine walking on a footpath jostling past a slew of hawkers about 1 lakh [100,000] in the city crowding sidewalks, leaving you with little or no space to move. This could soon be the reality of your life once the draft bill of hawkers’ policy is cleared.

A dissenting point of view was offered last year by the civic activist Harsh Mander, who cited a recent seven-city study of street vendors in India to suggest that the bill was one of the first pieces of legislation in India to make a place for the claims and needs of the poor in urban plans:

Vendors depend on an estimated two percent of urban land, but these sites are mostly legally barred to them. The seven-city study found that only Bhubaneshwar and Imphal made provisions for street vendors in their city development plans, but these were absent in the plans for Delhi, Patna, Bangalore, Mumbai, Ahmedabad and Kolkata. The plans earmark spaces for hospitals, parks, offices, residential colonies, and bus and rail terminals, but neglect that around all of these, vendors naturally congregate, and these vendors provide essential services to people at low costs. The urban plans provide for malls and covered shopping arcades, but the imagination of town planners and officials excludes all shops which are run by the poor, for the poor.

The third stipulation in the bill worth emphasizing is the one requiring town plans to "ensure that the provision of space or area for street vending is reasonable and consistent with existing natural markets." This means that street vendors can't just be picked up and "relocated" to some distant zone. Rather, space must be made for them in those urban nodes and junctions where they are usually found.

Some Indian federations of traders have opposed the law, arguing that street vendors are able to supply goods and services at a cheaper rate because they don't pay taxes. But street vendors do pay a kind of tax, only these levies don't go into state coffers. As Sharit Bhowmik, the Indian scholar who has overseen empirical work on the lives of street vendors, argued in an essay in 2006:

The non-official/illegal status of street vending along with low levels of unionization has given rise to an alarming rate of rent seeking. [One] study on street vendors...found that they pay between 10 to 20% of their earnings as rent...

Legalizing the profession and encouraging trade unions are the means through which rent seeking can be reduced. The local bodies should levy taxes on street vendors which would increase the revenue of these bodies. But these are also the precise reasons why the authorities may resist such moves – they stand to lose out on their extra income through bribes.

When the big picture on India's economy is taken into account, it is pragmatic, as well as just, to not expose street vendors to the levels of harassment they currently face, and to bring them into the tax system and the ranks of the urban citizenry. After all, they are the stars of India's vast "informal economy" -- those without contracts, social security or employer benefits -- inhabited by more than 80 percent of the country's 450 million workforce.

It is beyond the capacity of any government, or of Indian business, to integrate into the formal sector such a large pool of what classical economics would call "reserve labor" -- a group that is growing at a rate of 1 million people a month. Street vendors, by contrast, can claim to be a class of 10 million workers who generate employment for themselves and value for the poor around them. An essential, if underacknowledged, part of the story of Indian capitalism, street vendors have long deserved a new deal from the Indian state, and at long last they've got one.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View. Follow him on Twitter.)

To contact the author of this blog post:

Chandrahas Choudhury at Chandrahas.choudhury@gmail.com

To contact the editor responsible for this post:

Max Berley at mberley@bloomberg.net