India’s 3 Es of Education, Employability and Employment – is a crucial part of raising our productivity and eradicating poverty. The diagnosis of jobs vs wages is important because if “wages” is thought of, as a problem, i.e. productivity different path of formalisation, urbanization, industrialisation, financialisation and human capital can be taken.

How can India’s productivity be improved?

Raising India’s productivity needs

• Raising formal employment to 50 per cent of the labour force (from 25 per cent today)
• Raising the number of cities with more than a million people to 200 (from 50 today)
• Reducing farm employment to less than 10 per cent of the labour force (from 50 per cent today)
• Reducing gold and real estate to less than 50 per cent of savings (from 90 per cent today)
• Getting the difficult balance of cost, quality and quantity from our schools, skills and college system.

Formalisation:

• On the surface, India’s entrepreneurship ecosystem seems healthy –
• 50 per cent of our labour force is self-employed, and we have one enterprise for every four non-farm workers.
• But most of the enterprises are dwarves (Only 11 per cent of manufacturing companies in India employ more than 200 people, compared with 52 per cent in china).
• Vary considerably in productivity (there is a 22-times productivity difference between a firm at the 90th a 10th per centile by size in manufacturing).
• And 40 per cent of our labour force comprises the working poor (people who make enough money to live but not enough money to pull out of poverty).
• India is not producing enough enterprises with the productivity to pay higher wages.
• Of India’s 6.3 crore enterprises 1.2 crore do not have an office, 1.2 crore work from home only, 70 lakh had a tax registration pre-GST, only 14 lakh make the mandatory employer social security payments, and only 10 lakh are incorporated as companies.
• Most tragically, only 17,500 companies in India have a paid up capital of more than Rs 10 crore.
• India’s regulatory cholesterol had traditionally stunted enterprise growth and formality but GST is an important game changer, the number of enterprises with an indirect tax registration has increased by 50 per cent since GST went live. This number is expected to reach 15 million soon Improving the ease of doing business would create a Cambrian explosion of new venture creation and massively increase productivity among existing enterprises.
• This requires rebooting the thought world of the Medium and Small Enterprises (MSME) Ministry, improving access for non-collateral credit, getting rid of the labour and tax inspector Raj, simplifying the goods and services tax (GST), growing the venture capital industry, but most importantly, adopting the India stack for all employer-employee and employer-government interface by moving all laws to Paperless, Presence less and Cashless.

Urbanisation:

• Instead of focusing on taking jobs to people, emphasis must be on taking people to the jobs because fertile habitats for job creation are hard to create. The unintended consequence of this low urbanization is the massive divergence of real and nominal wages in big cities.

Industrialisation:

• India has too many people on farms (50 per cent of our labour force), too many people self-employed (50 per cent of our labour force), and too little people in manufacturing (11 per cent of our labour force). All three are closely related; the migration from farms is retarded by the lack of non-farm jobs, and the poor cannot afford to be unemployed so they are self-employed. Not everybody can be an entrepreneur.
• Both agriculture and self-employment in India suffer from what Russian economist Chayanov called self-exploitation (small farms, are viable because you don’t have to pay yourself, your spouse or your kids a salary) But Indians are tired of self-exploitation and that is why massively increasing formal wage employment and manufacturing employment are important.

Financialisation:

• Indians have traditionally mostly saved in physical assets like land and real estate and mostly raised capital for enterprises from nationalised banks. This has led to massive mispricing of real estate and the lack of a bond market and a small private bank sector.
• A radical disruption in favour of financialisation has been demonetisation because it has created 18 lac crore New Lending Capacity, 15 crore New Monthly Digital Transactions, 3 lac crore New Financial Savings, lowers Interest Rates.

Human Capital:

• India needs a radical restructuring of education and employability regime but there are contradictory objectives: quality, quantity and inclusiveness.
• Radical changes to the world and the world of work mean that education and employability need radical change.
• Reading, writing and arithmetic are key foundations for new job.
• Employability also needs us to add the four Rs of relationships or soft skills, Metrics need shifting from inputs to outcomes because only money is not working.

Our past policy narratives around education, employment and employability were about running away from something rather than towards something, and often blaming external variables of opening balances rather than taking responsibility. As Karl Marx said “Philosophers have tried to describe the world in thousands of ways. The point, however, is to change it”. India’s low productivity and poverty has many reasons but we finally have a strategy in formalisation, urbanisation, industrialisation, financialisation and human capital.