Manish Sabharwal: ‘Problem is wages, not jobs; answer lies in formalisation, financialisation’

Over two sessions in New Delhi and Mumbai this month, TeamLease chairman Manish Sabharwal explained to The Indian Express editors Harish Damodaran and Shaji Vikraman the issues in the jobs scenario in India, for today and for tomorrow.

By: Express News Service | Updated: March 22, 2018 8:30:20 am
India jobs, jobs in india, Provident fund, Manish Sabharwal, MNREGA, average wage in India, India GDP, unemployment in india, labour laws, indian economy, Minimum wage, indian express TeamLease chairman Manish Sabharwal.

Over two sessions in New Delhi and Mumbai this month, TeamLease chairman Manish Sabharwal explained to The Indian Express editors Harish Damodaran and Shaji Vikraman the issues in the jobs scenario in India, for today and for tomorrow.

Understanding ‘jobless growth’ in India

If you take into account the official household survey data of the government, 29% of Indians work for an enterprise with more than nine employees. [But] if you take the official enterprise survey data, only 1.5% of enterprises say they have more than nine employees. So this is not a reconciliation problem, it is an existential issue. So many of us are troubled by the 20-year-old Arjun Sengupta Report (on ‘Conditions of Work and Promotion of Livelihoods in the Unorganised Sector’, prepared by the National Commission for Enterprises in the Unorganised Sector), which says that only 30 million people in India are formally employed. There are 47 million provident fund payers in India, 30 million de-duplicated ESI payers, and about 30 million government employees. And there are another 20 million recurring NPS payers in India. That’s 125 million. So that is 25% of the labour force.

Capturing the right picture through data

Survey data and administrative data always give different figures across the world. Survey data in India has been weak, largely because of the incorrect frame that has been used. Although I believe we need to improve our survey data [collection system], we also need to give some recognition to administrative data. Provident fund is somebody putting in cash every month. That is formal employment. ESI is cash going in. So I would say we are at about 25% formal employment already. And I think that’s an important sort of change that has not happened today, but in the last three years. Nearly 30 million people have been added to the formal sector. Now are they new jobs, or are they new formal jobs, that’s a different debate. To my mind, the fundamental question people need to answer is, “does India have a jobs problem, or a wages problem?”

Why India’s problem is wages, not jobs

You need to decide whether India’s official unemployment rate of 4.9% is a fudge. I don’t believe it’s a fudge. I believe everybody who wants a job has a job. They don’t have the wages they want or need. The diagnosis of the problem is important because if India has a jobs problem, you’ll have to throw money from helicopters, and mandate a three-day work week.

To my mind, it’s a productivity problem. I went to the United States in August 1994. By September, I was asking myself, these Americans aren’t smarter than us, then how are they richer than us? Productivity is embedded in the air. It is in the institutional structure and in the human capital. So, I would submit that if you think India has a jobs problem, you’ll have to do MNREGA. If you think India has a wages problem, you’ll have to do formalisation, urbanisation, industrialisation, financialisation, and human capital. But you cannot raise wages in an economy without raising productivity. Some time next month, India will cross the GDP of England. I find it horrible that 66 million Britons produce more GDP than 1.2 billion Indians. We should not celebrate that. We should use this milestone to ask ourselves why it has taken 72 years for 1.2 billion Indians.

Real extent of unemployment in India

I don’t think you can have an extra, or more nuanced, definition of unemployment. What you are saying is “Let us not look at the minimum wage, let us look at the living wage.” Minimum wage is an arithmetical concept, and living wage is a philosophical one. I would agree India is raising its aspirations much faster than our ability to deliver the formal wages-sector employment. And you can solve that by formalising and urbanising India, and not by making false promises. One of the fundamental questions is, “Do we take jobs to people, or people to jobs?” In political imagination, you are always taking jobs to people. But in reality, you are taking people to jobs.

Way forward in capturing better data

GSTN has to become the frame for our administrative data. We have to start releasing monthly and quarterly series, which are based on GSTN registrations. This is what has been proposed, and the government has accepted it. But there are other considerations as well. India has 63 million enterprises, of which 12 million do not have an office. Nearly 12 million of them work from home. Only 7 million paid any indirect taxes before GST. Only 1.2 million of the 63 million enterprises pay provident fund and ESI. About 18,500 companies in India have a paid-up capital of more than Rs 10 crore. 63 million enterprises mean nothing if it only translates to 18,500 companies.

Small and big, formal and informal

The sense of humour about the rule of law that Indians have, is the reason we are poor. The transmission losses between how the law is written, interpreted, practised and enforced, was one of the biggest mistakes we did not start fixing in 1991. Any Indian who follows the rule thinks that she or he missed a deal. This is what leads to a low productivity economy.

As an entrepreneur, there are only two types of companies that you can create: a baby and a dwarf. The baby and the dwarf are both small, but the baby is going to grow, and the dwarf is not. The difference between a baby and a dwarf is not in the food consumed. It is in the DNA or productivity. Most [enterprises] in corporate India are dwarfs. They are small companies, which [prefer to] stay small. This is because of regulatory cholesterol, and the lack of infrastructure and financialisation.

There is a 24-times difference in productivity between the top manufacturing companies and the ones at the bottom. Therefore, the companies at the bottom cannot pay the wage premium; as a result, you can never be productive.

During the New Delhi session

I have no problem with small companies. Small is good, but informal is illegal. If we formalise India, then productivity will increase and wages will grow up. The US economy is eight times our size, and it has only 22 million enterprises. So the notion that India has to have millions and millions of enterprises to solve the jobs problem is probably not true.

The problem with India’s productivity

This is [witnessed] in many areas. Agriculture is an oasis of low productivity. Nearly 50% of our labour force is engaged in agriculture. It generates only 13% of our GDP. There was a recent protest [by farmers] in Mumbai, but the only way to help farmers is to have fewer farmers. India’s land cannot support 240 million farmers. As a result, they will be poor. I believe we can support 80 million farmers. But the information technology sector is only 0.7% of India’s labour force, and it generates 8% of the GDP.

India is not productive at various levels: a) We are not urbanised enough. b) We need to formalise India. We don’t need to have 63 million enterprises but 16 million provident fund payers. We already have 10.5 million GST registration. Before GST, there were only 7 million enterprises registered for indirect tax. Now there are 10.5 million. There has been a 50% increase in the last eight months.

The most important part which we need to concentrate on is financialisation of the Indian economy. The last one in which we haven’t done as much as I hoped we would, is human capital. 265 lakh kids take the secondary board examinations every year, 105 lakh fail. 160 lakh students take the senior secondary board examination every year, 80 lakh fail. Of the 80 lakh who pass the examination, 50 lakh attend college and 30 lakh disappear. Our skills system is out of touch with the employment side. It is rational to recognise that the wage premium for a degree has come down substantially in India and all over the world. A large part of our productivity is linked to the supply side problem. Our 12 years of school education may be actually more important than the three years of college education.

Are labour laws an inhibiting factor?

Absolutely. Labour laws are complicated all over the world. The Italian Prime minister recently lost his job because of labour laws. The political economy of labour reforms is complicated all over the world. You cannot talk about formal job creation without talking about labour reforms. It is difficult and complicated, but not impossible.

People mistakenly equate labour reforms with hire-and-fire. There is a lot more to labour reform than Chapter 5B of the Industrial Disputes Act. There is a lot of regulatory cholesterol — we have 17 definitions of workers, 22 definitions of wages, and 72 laws to comply with. The plumbing of labour law reforms is a place we can start and then we can debate the philosophical aspect of whether job preservation is a form of job creation. Job preservation is important because we are not doing job creation.

Importance of non-technical skill sets

Employment has changed from a lifetime contract to a taxi-cab relationship. That has changed because the world is changing at a much faster pace. When the first Fortune 500 list came out in 1955, the average life expectancy of a company was 65 years, today it is 14 years. If the company survives for only 14 years, how can it give you a pension? The notion that companies are permanent is not true anymore. This is mirrored by the fact that education is much more important than knowing. Poet William Butler Yeats said that education is not the filling of a bucket but the lighting of a fire. We have people who are technically competent, but do not have the soft skills? To the fundamentals of the three R’s — reading, writing and arithmetic — I would add another R, relationships. The four R’s are much more important for your wage premium than technical skills in a world where machine learning and artificial intelligence are important parts of the future.

Anticipated changes in IT, other sectors

You can’t predict the future. Try and make society self-healing, and work on yourself in various ways. Machine learning does not need technical learning, it needs common sense, good judgment and understanding of history. Life is not the solving of a sum, but the painting of a picture, and so is entrepreneurship. Increasingly, careers will also be like that. You won’t solve a sum and live on the solution, but paint a picture again and again.

It is hard to say which sectors will rise in the next couple of years, but functionally it would be sales, customer service and logistics, education and healthcare. India is economically complex. We make everything, and do everything. We don’t always do it well and at scale. That is our opening balance. Our economic complexity is a great opening for balance for domestic consumption. We had a great political story, now we have great economic stories.

Edited excerpts from two conversations. Photos by Praveen Khanna and Nirmal Harindran.

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