Has In­dia given up on scale? POL­ICY RULES

Small-scale, lo­cal or state-level so­lu­tions do not match up to the size of In­dia’s am­bi­tions

Business Standard - - OPINION - MIHIR S SHARMA

What­ever else may be un­der­whelm­ing about Prime Min­is­ter Naren­dra Modi’s gov­ern­ment, you can­not say it lacks am­bi­tion. Mr Modi’s In­de­pen­dence Day speech re­it­er­ated and ex­panded the tar­gets he has set for In­dia in 2022; some had ear­lier been out­lined in more de­tail by Fi­nance Min­is­ter Arun Jait­ley in a Bud­get speech. Few could dis­agree with the no­tion that a pukka house, re­li­able elec­tric­ity, health care, and a de­cent wage are nec­es­sary tar­gets, and with the time­frame within which the prime min­is­ter ex­pects that these should be de­liv­ered.

To cre­ate a de­cent so­ci­ety, with a vastly ex­panded set of those earn­ing enough, re­quires In­dia to think and act on the largest pos­si­ble scale. The mil­lions who join the work­force daily ex­pect it; the gap be­tween what is promised and what is pro­vided re­quires it.

I fear, how­ever, that the con­crete vi­sion for progress shies away, in many im­por­tant re­spects, from ac­tion at this scale. Let’s look at just three ways in which this might be true.

First, the gov­ern­ment has moved away from promis­ing jobs to urg­ing in­di­vid­u­als to be­come “job cre­ators”. This is an in­ter­est­ing fram­ing of a change in ap­proach that it no doubt be­lieves has been forced on it by its fail­ure to ac­tu­ally cre­ate jobs. (Note: I ac­cept that gov­ern­ments do not, in any real way, “cre­ate jobs” them­selves; but the gov­ern­ment seems to have tac­itly ac­cepted that, un­der its watch, the pri­vate sec­tor is not cre­at­ing enough jobs.)

What does shift in fo­cus ac­tu­ally mean? It im­plies that the gov­ern­ment is re­ly­ing on a com­bi­na­tion of in­ter­ven­tions — fi­nan­cial in­clu­sion, digi­ti­sa­tion, and so on — to cre­ate in­no­va­tion and en­trepreneur­ship at the grass­roots. Cer­tainly, this would be a great achieve­ment. And the ef­fort to broaden fi­nan­cial in­clu­sion is in­deed ac­tion at the kind of scale that we need.

But sup­pose small-scale en­trepreneur­ship can­not cre­ate the qual­ity or the num­ber of jobs we need? Are we giv­ing up on big com­pa­nies as en­gines of job cre­ation? Speak­ing at the re­lease of the NITI Aayog’s three-year “plan” last week, of­fi­cials com­plained that In­dia Inc was not in­vest­ing in labour-in­ten­sive in­dus­try. What con­crete ac­tions are be­ing taken to change that? A ba­sic rule of gov­er­nance is that, if the pri­vate sec­tor is not act­ing as the gov­ern­ment would like it to, then that is not the pri­vate sec­tor’s “fault”; it is a prod­uct of the wrong reg­u­la­tory en­vi­ron­ment.

So, ques­tion one: Are we giv­ing up on big com­pa­nies? Note that this comes at a time when smaller en­ter­prises have been de­liv­ered an enor­mous knock­out blow by de­mon­eti­sa­tion and then the goods and ser­vices tax (GST). A re­cent anal­y­sis of listed com­pa­nies by the Re­serve Bank of In­dia showed that com­pa­nies with paid-up cap­i­tal of un­der ~50 lakh saw net prof­its fall by 23 per cent in 2016-17. Com­pa­nies with sales of less than ~25 crore saw rev­enue fall by 44 per cent. This doesn’t look like a sec­tor ca­pa­ble of re­viv­ing the sup­ply of jobs. Nor is in­vest­ment here go­ing to be easy; com­mer­cial bank credit has slowed so much, and the gov­ern­ment has been so slow to re­solve the bank­ing cri­sis that al­ter­na­tive forms of fi­nanc­ing in­vest­ment will be needed: Cor­po­rate bonds, for ex­am­ple. But, nat­u­rally, that helps only larger com­pa­nies. If there’s a re­vival, it will come at the top end of the scale.

Here’s ques­tion two: Are we think­ing of re­form at scale? At the same NITI Aayog func­tion, of­fi­cials also com­plained that com­pa­nies are not tak­ing ad­van­tage of ar­eas where labour law has been re­formed or ra­tio­nalised. In other words, rather than recog­nis­ing the fail­ure of piece­meal re­form to fac­tor in mar­kets, the blame is be­ing put once again on the pri­vate sec­tor. It should be clear that state-led and lo­cal ap­proaches are no re­place­ment for na­tion­wide changes; the of­fi­cials’ own con­cerns un­der­line that fact. Ques­tion two: Are we giv­ing up on big re­form?

Even the GST, a na­tion­wide, big re­form if ever there was one, has stopped short in cer­tain cru­cial ways. For one, I do not un­der­stand why a sin­gle na­tional in­di­rect tax re­quires mul­ti­ple dif­fer­ent tax of­fices and mul­ti­ple dif­fer­ent points of pay­ment. State tax of­fi­cers “win­ning” here meant ev­ery­body loses. Scale is not just about size: It is about scope. It is about ex­pand­ing the ef­fec­tive­ness of pol­icy while min­imis­ing the scarce gov­ern­ment man­age­rial con­straints re­quired. We needed a sim­ple, uni­ver­sal, min­i­mal-com­plex­ity, low in­di­rect tax, with a sin­gle tax author­ity over­see­ing it. That is not what we got.

These two er­rors to­gether mean that there In­dia’s pri­vate sec­tor is strug­gling to achieve scale. But even if these two were cor­rected, do we have the work­force that these com­pa­nies could hire? The ‘Skill In­dia’ mis­sion aban­doned, in June, its tar­get of skilling 500 mil­lion peo­ple by 2022. Only 11.7 mil­lion were trained in the first two years of the Modi gov­ern­ment; it is not known how many of those re­ceived jobs. Worse, school ed­u­ca­tion is strug­gling; the An­nual State of Ed­u­ca­tion Re­port (ASER) and other sim­i­lar sur­veys have shown a sig­nif­i­cant drop in learn­ing out­comes. Yet the gov­ern­ment has not sought in­ter­ven­tions at scale here. The most that is be­ing sug­gested is re­form of the RTE man­date to change it to a “right to learn”. This, un­for­tu­nately, might only re­peat the er­rors of the past. It will put more pres­sure on state man­age­rial ca­pac­ity — and thus scale will be lim­ited.

The gov­ern­ment has worked on a plat­form for on­line learn­ing, called Swayam. This could and should have been the way in which ed­u­ca­tion scaled up. But the gov­ern­ment has failed to tightly link this plat­form to cer­ti­fi­ca­tion and eval­u­a­tion, and tightly link that cer­ti­fi­ca­tion to the job mar­ket. If you want an in­ter­ven­tion at scale, that for­ward in­te­gra­tion should have been a pri­or­ity, but it has not been. So, Ques­tion three: Is ‘Big ed­u­ca­tion’, as it were, also be­ing aban­doned?

The gov­ern­ment has shown its am­bi­tion. It has, when it comes to in­fra­struc­ture, fi­nan­cial in­clu­sion, and power, shown also its abil­ity to fo­cus and to act at scale. But these are no longer the bind­ing con­straints on cre­at­ing an In­dia with less un­der-em­ploy­ment and a bet­ter stan­dard of liv­ing. If its am­bi­tions are to be re­alised, In­dia should not give up on scale so soon.

IL­LUS­TRA­TION BY AJAY MOHANTY

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