India’s ingredients for success have at last got a recipe
Our problem is not jobs but productivity and this can be solved by tailoring policy around employment, employability and education
An exasperating part of the last decade was India being lumped with commodity-rich developing economies such as Brazil, Russia, Indonesia, etc. This grouping ignored the brilliant insight of Ricardo Hausmann of Harvard that the best predictor of future economic success is economic complexity; developing economies that soared on the commodity supercycle married a pregnant bride and got credit for what happened.
Unlike them, India is highly economically complex — our huge domestic consumption means that we practically do everything and make everything — even if we don’t always do it well or at scale. We have always been a 10 horsepower engine running on two; we don’t have to increase horsepower just raise capacity utilisation. To paraphrase historian Samuel Huntington, the gap between India’s ideals and its reality is not a lie but a disappointment.
This disappointment is not a problem like the cancer of climate change but a plumbing problem around employment, employability and education (3Es).Our problem is not jobs but productivity; our official unemployment rate of 4.2% is not a fudge. But 40% of our labour force is working poor; they make enough money to live but not enough to pull out of poverty.
And there is a 22-time productivity difference between companies at the 90th and 10th percentile in manufacturing by size. Fixing India’s productivity needs reform to make the leap made from classical physics (discrete systems) to quantum physics (everything is inter-related). The contours of this integrated plan around the 3Es are finally in place.
In employment, we have had more labour law reform in the last one year than the 20 years before because of work in Delhi and Rajasthan’s courageous precedent. The transparent state ranking on ease-of-doing business (EODB) is a radical policy innovation that has catalysed more action in states’ capitals in the last one year than the 40 years before that. EODB raises the cost of informality and reduces the cost of formality and will fix the embarrassing ratio of 63 million enterprises only translating to 14,500 companies with a paid-up capital of more than `10 crore.
The Make in India programme and relentless overseas marketing of India as an investment destination are making a difference; companies and countries confused by the high noise-to-signal ratio of India are finally recognising our potential and economic complexity. The current road and highway rollout programme will show results in three years; logistically India has been an athlete without shoes.
The smart city programme counters conventional political imagination by recognising that we won’t able to take jobs to India’s 600,000 villages (200,000 of which have less than 200 people) and recognises the challenges of taking India’s 50 cities with more than a million people close to China’s 375.
In employability, we finally have a single neck to catch in Delhi with the new Ministry of Skills. Twentythree central ministries are involved in skills but, as Socrates said, a slave who has three masters is free. State Skill Missions are not only competing on resources, outcomes and delivery but mirroring this change; many are converging skills, employment and entrepreneurship under one department.
The 2014 amendments to the Apprenticeship Act of 1961 – an example of how execution matters more than ideas because they were originally proposed as the 20th programme in former Prime Minster Indira Gandhi’s 20-point programe in 1975 — create the framework to raise India’s apprenticeship from 400,000 to 10 million in 10 years. The gap between what demand wants and what supply they get still exists but is starting to narrow with Sector Skill Councils gaining traction despite uneven performance.
In education, policy-makers finally recognise that the massification of higher education requires the vocationalisation; many states are proposing skill universities that will essentially be one-third college, one-third employment exchange and one-third Industrial Training Institute.
The toxic Right to Education Act — it confuses school building with building schools — is being amended to become the Right to Learning Act. Fixing school education is key in the new world of work because reading, writing, arithmetic and soft skills are emerging as the most important vocational skills and Class 12 is becoming the new Class 8 for lazy employer filtering.
India’s journey to higher productivity is about five labour market transitions: farm to non-farm, rural to urban, subsistence self-employment to decent wage employment, informal to formal, and school to work. We now have a reform programme that not only integrates all five transitions but innovates in execution; co-operative competitive federalism is a big idea.
Twenty-nine chief ministers matter more than one Prime Minister in creating a fertile habitat for job creation and education reform where the rubber meets the road.
Some of the most interesting debates between the 299 remarkable people who wrote our constitution between Dec 1946 and 1949 were around Federalism (state vs Centre) and Fundamental Rights (political democracy) vs. Directive principles (economic and social democracy). Their genius was recognising that the economic fixed costs of a democracy (China was growing at 13% when their economy was our size 10 years ago) were balanced by the ability of democracies to fix their problems. India is finally taking the constituent assembly debates around those two issues to the next level with our new 3E recipe. The world better watch out.