The Bhagwad Gita has important advice for policy entrepreneurs: “What lies between us and our greatest goals are not obstacles, but clearer paths to lesser goals.” Jobs are a lesser goal than wages. India’s problem is not unemployment — this has bounced in the low and narrow range of 4-7 per cent for 50 years — but employed poverty. Our traditional labour market shock absorbers — farm employment and self-employment — are dying because kids born after 1991 are unaccepting of self-exploitation and recognise the wage premiums, identity, dignity, soft skills, apprenticeship effect, and financial inclusion of formal jobs. I’d like to make the case that policy should pray to one god — formal jobs. And since goals decide strategy, our focus areas become clear.
India’s 6.3 crore enterprises only convert to 12 lakh GST registrants, 10 lakh provident fund payers, and 19,500 companies with a paid up capital of Rs 10 crore or more because of our regulatory cholesterol — 58,000-plus compliances, 3000-plus filing, and 5000-plus changes every year. We need massive ease-of-doing business that rationalises (cuts down ministries, compliances, and filings), simplifies (adopts a universal enterprise number and one labour code) and digitises (adopts a paperless, presenceless and cashless process for all employer compliance by shifting from uploads to websites to an API architecture with straight-through-processing). All jobs change lives in ways that no subsidy can but formal jobs in formal enterprises have many externalities.
India’s labour laws have an insane reverse payroll wedge — employers are forced to deduct 40 per cent-plus of gross wages from chithi waali salary (gross wages) for employees with monthly wages up to Rs 25,000. Yet, haath waali salary (net wages) are only 9 per cent lower for employees with monthly wages above Rs 25,000. This wedge murders formalisation and confiscates property from the poor; all wages belong to employees in a cost-to-company world. Fixing this wedge needs competition; EPFO is the world’s most expensive government securities mutual fund (300-plus basis points for administration fees) and Employees’ State Insurance (ESI) is the world’s most expensive health insurance programme (less than 50 per cent of contributions are paid out as benefits). The reform agenda is clear — employee contribution must be made optional, employees must choose who handles their employer contributions, and social security programme fees must be capped to their costs. One driver of 20 million new social security payers has been the Pradhan Mantri Rojgar Protsahan Yojna — this partial reimbursement to employers for incremental low-wage employees has incentivised social security enrolment, is easy to verify, and hard to fudge and should be extended for a fixed period of three years.
Our skill development system faces the difficult trinity of cost, quality and quantity combining with challenging changes to the world of education. In a world where Google knows everything, knowing is not as important as lifelong learning and hard skills become a necessary but not sufficient condition for the wage premium. Apprenticeships are the future of learning, yet India only has 5 lakh apprentices instead of 1.5 crore (if we use Germany’s number of 2.7 per cent of the labour force). Changes could include merging the two central government initiatives, Regional Directorates Of Apprenticeship Training (RDAT) and Board of Apprentice Training (BOAT), operate effective online matching platforms and reinforcing the regulatory legitimacy of apprenticeships as classrooms to overcome the trust deficit with employers. Most importantly, we must enable degree-linked apprentices (skill universities await clearance for linking apprentices to degrees via distance and online delivery).
There must also be a focus on financialisation reform and sustainable competition. Fairly-priced capital catalyses formalisation, yet India’s credit to GDP ratio is 50 per cent (rich countries are at 100 per cent). Sadly, Arunachal Pradesh is at one per cent and Bihar is 17 per cent. Lowering our cost of money has begun but sustainably targeting a higher credit to GDP ratio needs more bank licences, fixing the governance at nationalised banks, blunting the asset liability mismatch at NBFCs (some irrationally funded 30 per cent of their balance sheet with commercial paper) and restoring the sanctity of the 270-day IBC bankruptcy deadline. More Indian enterprises need formal financial credit — capital investment and working capital availability drive productivity — without replicating the rash lending between 2008 and 2014 that gave us Rs 14 lakh crore worth of bad loans. Sustainably expanding credit at reasonable prices without stealing from our grandchildren needs thoughtfully-crafted competition.
India can’t be ruled from Delhi. China building infrastructure and moving 400 million people off farms wasn’t the child of Beijing but 200 mayors competing for investment. While there may be something such as India’s capital market, land and labour markets are local. A hundred mayors and 29 chief ministers matter more than one prime minister for job creation. We should consider making labour a state subject and must continue the decentralisation of funds, functions and functionaries to states while simultaneously creating accountability, capabilities and resources in city governance. We can’t take jobs to people and need to take people to jobs but the governance deficit of cities is blunting migration.
Jawaharlal Nehru wrote in Discovery of India that “India is a geographical and economic entity, a cultural entity amidst diversity, a bundle of contradictions held together by invisible threads. She is a myth and an idea, a dream and a vision, and yet very real and present and pervasive”. He is one of many reasons that Pakistan and India, born on the same night, have had very different destinies (the GDP of Pakistan is now less than Maharashtra). But I’m sure that after reviewing decades of evidence, Nehru would acknowledge that the nutty economics of the 1955 Congress Avadi resolution and slogans posing as policy like Garibi Hatao kept many Indians in employed poverty.
The 67 per cent-plus turnout in our recent election not only reflect the invisible threads that hold India together but capture an aspiration that breaks with India’s economic past. This dua needs policy to pray to the one god of formal jobs.
The writer is with Teamlease Services