In this E-Xplained event on Zoom, Manish Sabharwal, chairman & co-founder of the staffing and human capital firm Teamlease Services, and Director, RBI Central Board, discusses lockdown, unlockdown and jobs. Edited excerpts:
On how industries, factories, manufacturing and services could reopen
I think people should be fearful of the unknown right now, because we are absolutely unmodellable. We don’t know if we are at the start, middle or the end of the virus… So I think the reality is, when confronted, there is uncertainty and there is risk. Risk is where all of us operate, which is, we can model different probabilities. Corona is uncertainty, we don’t know when the virus will come… But I think what is also clear is that we can never eliminate risk, we will have to manage risk and mitigate it. The one-size-fits-all lockdown was okay for 15 days, it was okay for 30 days, but it is time for it to end because we are all in the same storm but we are not in the same boat. You know, depending on your company, how much debt you have, depending on where your clients are concentrated… I think there are so many variables and every company has to cope with it itself…
I disagree completely with all these Ayatollahs of statistics saying India’s unemployment rate is 27 per cent. That’s like saying that the unemployment rate on Sunday afternoon is 75 per cent — you can’t go to your office on Sunday afternoon; your office is closed on Sunday afternoon. So, in a lockdown… I would submit that any calculation of unemployment at this time has the efficacy of palm-reading or astrology and is absolutely of no use for us in policymaking.
On whether India is returning to the days of angry young women, men looking for jobs
Since Independence, India’s capital has been handicapped without labour and our labour has been handicapped without capital. We started changing that in 1991. But we have a lot of pre-existing conditions… For the last 20 years, I think we had premature celebration of our development. We still have 45 per cent of our labour force working on farms and they only generate 14 per cent of GDP, so the farm-to-non-farm transition. I think one of India’s biggest challenges is we have 250 million people, which is a little less than half our labour force, working on farms.
Coronavirus reminds us that per capita GDP matters more to citizens than total GDP. We have been celebrating GDP for a long time, which is very important. We crossed UK in 2018, we crossed France in 2019, in the next few years we’ll cross Japan and Germany, so the only two countries ahead of us will be the US and China. But in per capita GDP there are 138 countries ahead of us, and per capita GDP should make our young people angry and our young women angry — that look, you have to fix India. India is inadequately formalised, inadequately industrialised, inadequately financialised, inadequately urbanised and inadequately skilled. These are not problems that have been created by the coronavirus but hopefully the coronavirus will create the conditions and the political economy for changing these. It’s a tragedy that corona has happened at a human level, but hopefully this is for India the no-choice: coronavirus leaves no choice for India but to change.
On manufacturers saying they are short of labour, and at the same time not hiring on the ground that there is no demand
We have to now shift our focus on the 12 months after the lockdown is fully lifted: what kind of growth rate will we have? Will there be revenge consumption? I don’t think that the binding constraint for employers right now is labour. We can discuss the migrant issue separately, the binding constraint for companies to get back consumers, and the ending of the lockdown… It is my belief that in the 12 months after the lockdown is fully lifted —because supply chains and distribution chains don’t follow the red-green zones, they will never be fully back to normal till we have a lift-up of the lockdown — but in 12 months we will be back to our trajectory of 4-6 per cent growth. So I will submit we need to shift our focus from FY21 to see what will happen in the 12 months from the lockdown. And I think in that case for various reasons we will be back to our growth trajectory, but I hope we would have got rid of many of the structural constraints which have held India back.
On banks turning risk-averse, and on what can structurally change for poorly financed MSMEs in terms of policy
Those are two different questions. One is MSME and one is finance. MSMEs are a baby and a dwarf; a baby and dwarf are both small. The baby is going to grow, the dwarf is going to stay there. I can say that because my first company was a 50-crore company and my second company is a 5000-crore company, so my second company was a baby and the first one was a dwarf and to me it is obvious what is the difference. I would submit, India is a nation of corporate dwarfs. We have 63 million enterprises, but we have only 19,500 companies with a paid-up capital of more than 10 crore. So 63 million enterprises have lots of labour and no capital; 19,500 companies have lots of capital and no labour. But my submission to you is, we don’t need 63 million enterprises… So many of these enterprises… are not self-employment, they are self-exploitation. So, I would submit that the noise that you hear in the MSMEs or in the labour market is because the two shock absorbers of India’s labour market, which were farm employment and self-employment, are no longer working. I think 63 million enterprises were anyway going to come down because of GST, were anyway going to come down for various structural factors.
But your second point of why we have not been able to get finance to these people, is an important one. But I wouldn’t blame banks only for that. You know MSME lending in India is not a 3 per cent, 2 per cent NPA business, it’s a 15-20 per cent NPA business sometimes and so I don’t think that RBI should force banks to lend… India’s credit to GDP ratio is 50 per cent; how do we get from 50 per cent to 100 per cent?… I would submit there are five ways to do that. One is we need more competition in banks. We had 97 banks in 1947, today we have 95 banks… so you need many more banks. Second is you need to fix the governance in public sector banks — the shareholder is so powerful that the board and management are weak. We need to fix the governance in private banks —the CEO is so powerful that the board and shareholders are weak. Next you need to raise your game and regulation and supervision at RBI. And the fifth one is you need to stop treating non-banks as stepchildren. UPI or our digital payments took off when non-banks became the rocket for UPI. We reached a billion payments a month in January, we’ll get to a billion payments a day. In fact Covid may have accelerated that.
So I would submit that many MSMEs are not viable. Not everybody can be an entrepreneur, not all entrepreneurship is viable. So this Covid will accelerate something that has been going on for years. But obviously we need a more competitive, larger banking system.
On the possibility of an interface between ministries and the industry, as in Japan
I think the role of the government is not setting things on fire, it is creating the conditions for spontaneous combustion, I don’t think we should go back to picking winners or losers or industrial policy that Japan went through. There was a very special time that Japan went through, it was a smaller country, it had a huge opening balance. You know our opening balance in India in 1947 was life expectancy of 31. So we have to be careful with industrial policy. I think if we formalise, urbanise, industrialise, do ease of doing business reform, do education reform, do bank reform, do urbanisation, we will be on our way; we don’t need any industrial policy here.
On the future of fresh management graduates
I think the bad news is that your students graduate to the worst job market in 20 years. The good news is that they are cheaper than old people and many companies are recognising that they will be replacing middle management with younger people. So I would submit that in high tide, the cylinder had become a pyramid and many companies are now looking to go back to being an Eiffel Tower — a broad base and a very thin layer of top management. So I would submit that while your kids graduate to a very difficult job market, this is a job market where skills will matter more than the signalling value of education, where energy will matter much more than experience.
Transcribed by Mehr Gill
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