What makes farm loan waivers attractive election rhetoric? Why did the new Madhya Pradesh government mention restrictions on inbound out-of-state migration? And will the 10 per cent economically backward reservation be enough when less than 1 per cent of new jobs are government jobs? I make the case that all three interventions are symptoms of one disease — India’s millions of murdered formal MSME employers.
And that farm loan waivers, migration restrictions and government jobs represent a diet coke approach to labour markets — the taste without the calories —- that is unhealthy and will not work. The only way to create millions of jobs with decent wages is a policy re-imagination of the rights, needs, and treatment of formal MSME entrepreneurs.
Emergency room triage is different from normal medicine. But has there ever been a time for Independent India when labour markets were not in an emergency? And was it really God’s will that it should take 72 years for 1.2 billion Indians to cross the GDP of 66 million Britishers? Historians warn against “Presentism” — a belief that today’s problems are uniquely complex and more difficult than ever before. Psychologists warn against “Catastrophising” — a belief that problems mostly end up with the worst possible outcome.
And scientists warn against “Anecdotalism” — a belief that your specific experience or story explains what is happening in the world. Taking their advice, our labour market prescriptions are clear: Take the long view (a 10-year plan is not 10-one-year plans for formalisation, urbanisation, industrialisation, financialisation and human capital), recognise progress made (6 million new formal enterprises and 30 million new social security payers in the last three years), and get bolder with structural interventions that matter most to MSME entrepreneurs.
The average employer in India is not a formal MSME or somebody large like Marico, Lupin or the Tatas, but an informal MSME because while regulatory cholesterol is a thorn in the flesh for big employers (my employer has 100 people in regulatory affairs), it is a dagger in the heart of formal MSMEs (fewer than 2 per cent of our 63 million MSME’s are formal). Of course, an informal MSME is better than no MSME but that is yesterday’s war. India’s problem is no longer jobs but wages.
Creating millions of well-paying jobs needs ending the murder — and abortion — of millions of MSME babies (small but formal employers that will grow and pay the wage premium because of enterprise productivity) versus the current breeding of MSME dwarfs (small enterprises that stay small and can’t or don’t pay the wage premium because of the low productivity that comes from regulatory arbitrage business models and low access to desirable talent and formal credit). Many MSME entrepreneurs consider the formalisation of suit boot waala — becoming like JRD Tata, Azim Premji or Kiran Mazumdar Shaw — an aspiration. This symbolism of a suit isn’t very different from what it meant to B R Ambedkar. Using it as an insult or pejorative seems consistent with the Avadi Resolution of 1955 but seems out of touch with today’s ambitious, cantankerous, and young entrepreneurs described in Snigdha Poonam’s wonderful book Dreamers.
Exploding the formalisation of MSMEs need lower regulatory cholesterol, labour law rationalisation, e-governance, and education effectiveness — all in turn need civil service reform. Alan Greenspan suggests that America is prosperous because, historically, policy reserved the same respect for businesspeople that the British reserved for gentlemen, the French for intellectuals, and the Germans for scholars. Despite the distrust traditionally heaped by civil servants on our private sector, most Indians recognise that our rights as consumers are higher than our rights as citizens — 45 per cent of school children and 67 per cent of college students now opt to skip something free from government by paying for the private provision of what is a public good. Entrepreneurs are not the customers of bureaucrats but their employers. Yet, the binding constraint for India’s formal MSME job creators is a horrible universe of regulatory cholesterol — 60,000+ compliance items, 3,300+ annual filings, and 6,000 changes every year — that subjects them to corruption, grovelling and mental torture from a high-handed, poorly structured and weakly-managed civil service.
Two recent surveys — albeit small and somewhat unscientific — capture important labour market misconceptions by individuals. Respondents felt unemployment is 44 per cent (reality is 5 per cent), most suicides are committed by farmers (reality is 4 per cent), and globally, the Indian economy ranks 50 in size (reality is six). But perceptions shape politics and are understandably driving the many current promises of economic magic that sacrifice the long view. But voters have seen that movie before: Fiscal indiscipline combined with bank credit going from Rs 18 lakh crore in 2008 to Rs 54 lakh crore in 2014 converted India from a high growth, low inflation economy to a low growth, high inflation economy and created our Rs 14-lakh-crore bad-loan problem.
The only solution to helping farmers is having less of them and making the remaining productive — US farms with more than $1 million in sales are only 6 per cent of farms but produce 66 per cent of output. History suggests that economic conservatism beats economic magic. Not conservative as in risk averse, but conservative as defined by philosopher Michael Oakeshott in a 1965 essay: “…to prefer the tried to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the impossible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, and the convenient to the perfect.”
Economic magic matters but doesn’t make a difference. Voters are not dyslexic, and voting involves the complex choice of comparing a government’s performance to predecessors, promises, or aspirations. Thankfully, most young voters understand that getting the next quarter and next
quarter century right for India involves recognising that we are poor not because our government doesn’t spend enough but because we don’t have enough formal MSME employers.
The writer is with Teamlease Services
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