Manish Sabharwal: ‘India is inadequately industrialised, skilled… coronavirus leaves no choice but to change’
The Indian Express
18 June 2020
Written by: P Vaidyanathan Iyer
, Harish Damodaran
In this E-Xplained event on
Zoom, Manish Sabharwal, chairman & co-founder of the staffing and
human capital firm Teamlease Services, and Director, RBI Central Board,
discusses lockdown, unlockdown and jobs.
In this E-Xplained event on Zoom, Manish Sabharwal, chairman &
co-founder of the staffing and human capital firm Teamlease Services,
and Director, RBI Central Board, discusses lockdown, unlockdown and
jobs. Edited excerpts: I think people should be fearful of the unknown right now, because we
are absolutely unmodellable. We don’t know if we are at the start,
middle or the end of the virus… So I think the reality is, when
confronted, there is uncertainty and there is risk. Risk is where all of
us operate, which is, we can model different probabilities. Corona is
uncertainty, we don’t know when the virus will come… But I think what is
also clear is that we can never eliminate risk, we will have to manage
risk and mitigate it. The one-size-fits-all lockdown was okay for 15
days, it was okay for 30 days, but it is time for it to end because we
are all in the same storm but we are not in the same boat. You know,
depending on your company, how much debt you have, depending on where
your clients are concentrated… I think there are so many variables and
every company has to cope with it itself…
I disagree completely with all these Ayatollahs of statistics saying
India’s unemployment rate is 27 per cent. That’s like saying that the
unemployment rate on Sunday afternoon is 75 per cent — you can’t go to
your office on Sunday afternoon; your office is closed on Sunday
afternoon. So, in a lockdown… I would submit that any calculation of
unemployment at this time has the efficacy of palm-reading or astrology
and is absolutely of no use for us in policymaking.
Since Independence, India’s capital has been handicapped without labour
and our labour has been handicapped without capital. We started changing
that in 1991. But we have a lot of pre-existing conditions… For the
last 20 years, I think we had premature celebration of our development.
We still have 45 per cent of our labour force working on farms and they
only generate 14 per cent of GDP, so the farm-to-non-farm transition. I
think one of India’s biggest challenges is we have 250 million people,
which is a little less than half our labour force, working on farms.
Coronavirus
reminds us that per capita GDP matters more to citizens than total GDP.
We have been celebrating GDP for a long time, which is very important.
We crossed UK in 2018, we crossed France in 2019, in the next few years
we’ll cross Japan and Germany, so the only two countries ahead of us
will be the US and China.
But in per capita GDP there are 138 countries ahead of us, and per
capita GDP should make our young people angry and our young women angry —
that look, you have to fix India. India is inadequately formalised,
inadequately industrialised, inadequately financialised, inadequately
urbanised and inadequately skilled. These are not problems that have
been created by the coronavirus but hopefully the coronavirus will
create the conditions and the political economy for changing these. It’s
a tragedy that corona has happened at a human level, but hopefully this
is for India the no-choice: coronavirus leaves no choice for India but
to change.
We have to now shift our focus on the 12 months after the lockdown is
fully lifted: what kind of growth rate will we have? Will there be
revenge consumption? I don’t think that the binding constraint for
employers right now is labour. We can discuss the migrant issue
separately, the binding constraint for companies to get back consumers,
and the ending of the lockdown… It is my belief that in the 12 months
after the lockdown is fully lifted —because supply chains and
distribution chains don’t follow the red-green zones, they will never be
fully back to normal till we have a lift-up of the lockdown — but in 12
months we will be back to our trajectory of 4-6 per cent growth. So I
will submit we need to shift our focus from FY21 to see what will happen
in the 12 months from the lockdown. And I think in that case for
various reasons we will be back to our growth trajectory, but I hope we
would have got rid of many of the structural constraints which have held
India back.
Those are two different questions. One is MSME and one is finance. MSMEs
are a baby and a dwarf; a baby and dwarf are both small. The baby is
going to grow, the dwarf is going to stay there. I can say that because
my first company was a 50-crore company and my second company is a
5000-crore company, so my second company was a baby and the first one
was a dwarf and to me it is obvious what is the difference. I would
submit, India is a nation of corporate dwarfs. We have 63 million
enterprises, but we have only 19,500 companies with a paid-up capital of
more than 10 crore. So 63 million enterprises have lots of labour and
no capital; 19,500 companies have lots of capital and no labour. But my
submission to you is, we don’t need 63 million enterprises… So many of
these enterprises… are not self-employment, they are self-exploitation.
So, I would submit that the noise that you hear in the MSMEs or in the
labour market is because the two shock absorbers of India’s labour
market, which were farm employment and self-employment, are no longer
working. I think 63 million enterprises were anyway going to come down
because of GST, were anyway going to come down for various structural
factors.
But your second point of why we have not been able to get finance to
these people, is an important one. But I wouldn’t blame banks only for
that. You know MSME lending in India is not a 3 per cent, 2 per cent NPA
business, it’s a 15-20 per cent NPA business sometimes and so I don’t
think that RBI should force banks to lend… India’s credit to GDP ratio
is 50 per cent; how do we get from 50 per cent to 100 per cent?… I would
submit there are five ways to do that. One is we need more competition
in banks. We had 97 banks in 1947, today we have 95 banks… so you need
many more banks. Second is you need to fix the governance in public
sector banks — the shareholder is so powerful that the board and
management are weak. We need to fix the governance in private banks —the
CEO is so powerful that the board and shareholders are weak. Next you
need to raise your game and regulation and supervision at RBI. And the
fifth one is you need to stop treating non-banks as stepchildren. UPI or
our digital payments took off when non-banks became the rocket for UPI.
We reached a billion payments a month in January, we’ll get to a
billion payments a day. In fact Covid may have accelerated that.
So I would submit that many MSMEs are not viable. Not everybody can be
an entrepreneur, not all entrepreneurship is viable. So this Covid will
accelerate something that has been going on for years. But obviously we
need a more competitive, larger banking system.
I think the role of the government is not setting things on fire, it is
creating the conditions for spontaneous combustion, I don’t think we
should go back to picking winners or losers or industrial policy that
Japan went through. There was a very special time that Japan went
through, it was a smaller country, it had a huge opening balance. You
know our opening balance in India in 1947 was life expectancy of 31. So
we have to be careful with industrial policy. I think if we formalise,
urbanise, industrialise, do ease of doing business reform, do education
reform, do bank reform, do urbanisation, we will be on our way; we don’t
need any industrial policy here.
I think the bad news is that your students graduate to the worst job
market in 20 years. The good news is that they are cheaper than old
people and many companies are recognising that they will be replacing
middle management with younger people. So I would submit that in high
tide, the cylinder had become a pyramid and many companies are now
looking to go back to being an Eiffel Tower — a broad base and a very
thin layer of top management. So I would submit that while your kids
graduate to a very difficult job market, this is a job market where
skills will matter more than the signalling value of education, where
energy will matter much more than experience.
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