It’s Not Jobs, It’s Wages: Pulling India Out of Poverty

The head of India's largest search firm highlights five specific interventions that will improve living standards for its neediest citizens.

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As chairman and cofounder of Teamlease Services, India’s largest staffing and human capital firm, Manish Sabharwal has given a lot of thought to the question of jobs in India. “Why does the average American make $50,000 a year and the average Indian 50,000 rupees?” (about US$750) he asked the audience at the recent Khemka Distinguished Speaker Forum, organized by the Chazen Institute and the India Business Initiative.

Then he posed a related question that delved into the heart of the matter: “Does India have a jobs problem or a wages problem?”

It’s a crucial distinction, said Sabharwal. If India lacks employment opportunities, the solution may be as simple as “throwing money from a helicopter” to create new jobs. If it’s a wages problem, though, the answer involves raising productivity — making India a more viable place of employment. And that’s a bear of a conundrum in a country as complicated and diverse as India.

Noting that the official unemployment rate is under 5 percent, Sabharwal embraces productivity solutions. There has been progress already, he said, pointing to “disruptions” that the federal government has instituted in the past three years that are making India a better place for businesses:

  • The goods and services tax has taken the country from 23 separate tax regimes to one
  • Demonetization has reduced corruption and formalized payment structures, creating a system that allows businesses to pay employees electronically
  • The India Stack project has created a unified software platform that, among other advances, stores biometric data on every citizen and creates an interface between banks and online wallets.

Sabharwal said the results have been concrete — and swift: “Our citizens spend 25 percent less cash than a year ago [opting instead for more-efficient electronic payments.] Mutual funds are up five times in the past six months. Oil imports are down 20 percent and digital payments up 780 times. Disruptions,” he said, “are always risky. But I think these are restoring the romance of policy to India.”

Beyond specific policy reforms, India faces a bigger challenge. To reach wage equality with developed nations, said Sabharwal, India must complete five massive labor market transitions that will raise the productivity bar.

Rural → Urban

India is a nation of villages. “We are not China where 200 million people buy a train ticket to go home from their work place on weekends,” said Sabharwal.

Since jobs most often cluster around cities, the question becomes: Do you take people to jobs or jobs to people? By building transportation and the infrastructure needed for urban habitations, India must do both.

Farm → NonFarm

“Half of our labor force works on farms, but contributes only 10 percent of India’s GDP,” observed Sabharwal. “These people aren’t employed. They are hanging out!”

Sabharwal said farm workers need to redeploy into manufacturing, which currently provides jobs for just 11 percent of India’s labor force, about the same percentage that now works in US factories. He acknowledged that India’s factories will never employ the 45 percent of the workforce that Britain reached before World War II, since automation now performs many factory jobs and other emerging markets have already secured firm footholds in manufacturing. “But 11 percent is too low.”

Here, the answer is staring India in the face, said Sabharwal. Noting the rise in consumerism in India, he said local manufacturing opportunities abound, also pointing out that most of the foreign direct investment of recent years has concentrated in areas where domestic consumption is reaching critical mass. “The ‘Make in India’ program may need to be thought of as ‘Make for India,’” he said.

Self Employment → Wage Employment

Half of India’s workforce is entrepreneurial, and it’s not because the country is awash in some self-starter gene, said Sabharwal, who started Teamlease in 2002 after successfully selling his previous startup, outsource company India Life. “Because people can’t afford to be unemployed, they find work they can do on their own.”

This transition echoes the farm-to-nonfarm evolution, since many self-employed Indians grow crops for sale. Sabharwal quoted a historian who said that small farms are viable because of self-exploitation. “You don’t have to pay yourself or your wife or your kids a salary, so you are ‘viable,’” he said. But such survival mechanisms do little to lift families out of poverty.

Informal Enterprise → Formal Enterprise

Sabharwal said this transition is at the heart of changing India into a working global economy. Of the 63 million enterprises in India, only 8.5 million pay the GST. Just 1.1 million make mandated social security payments.

And only 18,000 companies in India have a paid up capital of more than $1.5 million. “As an entrepreneur,” said Sabharwal, “I realize there are two kinds of companies: Babies and corporate dwarfs. Both are small but babies will grow.” Almost all of the one-person enterprises in India are subsistence level, at best.

School → Work

One million kids will join the Indian labor force every month for the next 10 years. But Sabharwal says most aren’t educated for 21st century work. Despite a right-to-education law and a new ministry of skills position, primary schools do not provide children with basic work skills and universities don’t even begin to address vocational needs of society.

To right this wrong, the private sector is introducing a new emphasis on vocationalization of higher education, said Sabharwal. In India, his own company has started TeamLease Skills University, which offers a two-year diploma based on the apprenticeship model. Students get academic credit and minimum wages while they are enrolled. Sabharwal admitted the vast majority of students forego the degree since they enroll specifically for the jobs. “They use the apprenticeship as a pathway to employment,” he said.

India has a way to go to achieve those five transitions, but Sabharwal is encouraged by the steps taken so far. His own company has contributed substantially, employing 1.6 million in the last decade — currently hiring someone every five minutes.

“India has always been a difficult place in which to do business,” he acknowledged. “We need a more adventurous state if we’re going to get out of this low level of productivity.” Pointing to its long history of debate, he said “You tell me which reform you want, and I will give you a report from 20 years ago that details what should be done. Now we are finally acting. India is getting better.”

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