India’s Economic Problems Pre-Date The COVID-19 Crisis: Manish Sabharwal
Mumbai: As India prepares to exit lockdowns in various parts of the country, jobs are continuing to disappear across industries--particularly where human contact is involved, but also in industries where human contact is not involved--because there is a severe demand shock, which is in turn fuelling a supply shock.
What are the prospects for a young job-seeker or anyone who has lost a job in this post-COVID world? Can we really get back to work? And if so, how?
We ask Manish Sabharwal, co-founder of TeamLease, a staffing firm, who also sits on the board of the Reserve Bank of India.
Edited excerpts:
Can people find jobs in this post-COVID world? When I say post-COVID, it's actually a long period, but what about the next six to eight weeks?
We are all in the same storm, but we are not all in the same boat. I think that’s really important, which is why this one-size-fits-all lockdown being removed is really important. Because based on which industry you are in, how much debt you have, how concentrated your clients are, and which geography you are in, the outcomes of COVID are very different. I mean, there is universal pain--not just national/international--but obviously, this pain is not distributed equally. And hopefully, the broader shoulders will carry it, but that’s never how it really happens.
But, out of the revolutions emerge great opportunities. So in my mind, in the short term, it is unmodellable. Till we know whether we are at the start, middle or the end of the crisis, we don’t know what it will be. And obviously, for somebody graduating this year, I’ll say you are probably graduating through the worst job market in 25 years. There is no mincing that.
But, the nature of this beast is that these three months are lost. So, if you look at GDP [gross domestic product] on an annual basis, then yes, it will decline. But we have to focus on the 12 months after the lockdown is fully lifted, because that’s only when the fog of war will be lifted. The supply chains and distribution chains don’t follow red, green, amber zones. And so, I think the job market will come back pretty quickly, for various reasons. India has past sins, you know where growth is still inherent in what we have. There is going to be some revenge consumption. FMCG has already depleted stocks. So, I think depending on which sector, which industry, which city and which company, the outcomes for COVID will be very different.
There will be opportunities. There obviously will be challenges. But, my sense is that we have to stop paying attention to these stupid 180-million-people-unemployed, or 30%-unemployment [figures], because that’s like saying on Sunday afternoon unemployment is 75%. I mean your office is closed. You cannot work in a lockdown. So, it’s a little silly to measure unemployment in a lockdown. We may get to those numbers, but as of now, I think it is just becoming a little bit silly to sort of say that 20-30% of Indians can’t work, because actually 75% of Indians cannot work. Their offices are closed.
But for most people, working means getting a salary, or continuing to get a salary.
Not in the Indian context, where 75% of the people are informally employed. And you cannot expect the Indian economy to behave differently in [an] emergency than it does in peacetime.
The time for outrage for migrants and banks and labour laws was before the pandemic. When a patient is in ICU, you don’t tell them to lose weight. If the patient shows up in an ICU every day, you have to tell them to quit smoking or lose weight, which is the last 20 years for the Indian economy. So, I would say India’s pre-existing conditions of our labour market, of our job market, of our skill system, of our financial system are coming to haunt us in this pandemic, and hopefully this will create a policy window for change.
Looking at it from a jobs point of view, when you say pre-existing conditions are coming to haunt us, what does that mean?
India is inadequately formalised, financialised, urbanised, industrialised and skilled. Formalised means, there are 63 million enterprises in India--12 million don’t have an office, 12 million work from home. Only 1 million pay social security. And only 19,500 companies in India have a paid-up capital of more than Rs 10 crore. So, our labour is handicapped without capital and our capital is handicapped without labour: 63 million enterprises have lots of labour and no capital, and 19,500 companies have lots of capital and no labour.
So, formalisation is a key objective, because this pandemic suggests that formal enterprises are more resilient and are more likely to keep your salary than informal enterprise.
In the portfolio of companies that you work with, what are the trends that you are seeing? What kind of companies are holding on, and which are the companies that look weaker and may not even survive beyond the next three months?
We may be a sampling error, because we only work with large companies. But even within our portfolio, hospitality, retail, airlines, hotels are absolutely not only just massacred in the short run, but also worry about whether the frugality that might come at the end of this pandemic would really not give them a V-shaped or U-shaped recovery. It will be bathtub-shaped. It's going to take a really long time for them to come back.
But, for example, FMCG [fast-moving consumer goods] is [looking at] a V-shaped recovery. They are already out of stock, and most of our customers are back to 75-80% capacity utilisation in FMCG. But in consumer durables, there has been no depletion of stock. So, they are not really looking at it. Auto, there has been no depletion of stock, so they don’t need to get back to 80% capacity utilisation. So, I say that domestic consumption, consumer goods, needs to get back and that’s why they are fighting the most to get their factories in order; but consumer durables, automobiles they need to get back, but they are going to be a gentle sunrise rather than a bulb that goes on. Most of them were at 25% capacity utilisation last week. Next week they will be moving to 50%, and I don’t think they will even need to move beyond 75%, till the full lockdown is lifted, because they are genuinely worried about the demand coming back in the short run.
So, the notion that labour is a binding constraint--migrant labour not coming back--or labour is a binding constraint for India’s economic recovery is not true either, because of many reasons.
Are people looking for new skills? Are there opportunities for reskilling even in this difficult time?
Digital learning has been brought forward from 2030 to 2020 in one month. We crossed 1 billion UPI payments a month in January. Our next target was a billion payments a day. I think that’s been brought forward by five years. E-commerce probably has been brought forward. It was always expected. But I think the mandatory digital literacy course that the planet has gone through, or particularly Indians of all ages, castes, religions, languages have gone through in the last 60 days actually brings forward all digital sort of business models.
I think, for a long time, all of us have intuitively felt that there is no such thing as a technology company. All companies are technology companies now, because we use technology to either revolutionise our supply-chain interface. So, I think digital literacy is now a 21st century skill, the soft skill no longer negotiable for any job you do--whether you are a security guard or a CNC machine operator, or a field sales person, or a customer service person or a logistics person.
The fastest growing segment in India’s job market at the bottom of the recruitment is sales, customer service, and logistics. China’s farm to non-farm transition happened through factories. India’s farm to non-farm transition is happening through sales. But to be [in] sales now, you are doing everything on your phone including your attendance, your quotas, your targets. If a sales guy today knows how to handle Salesforce, how to do inventory, your wage premium is probably 25%.
So, I would say that there of course are sectors and industries, which have been brought forward or accelerated because of the pandemic. But I would say it has also increased the digital wage premium for all jobs.
You have argued that many, if not most, migrants will return. And this is something I am hearing from elsewhere. The construction industry, for instance, feels that by Diwali, most or many would have come back, because that is the nature of economics. What’s your sense?
There are 70 million inter-state migrants in India--30 million of them are dependents, 40 million of them are in the labour force. Officially, about 1 million have gone back. If you aggregate and crowd-source, about 2 or 3 million have gone back. Now that’s a huge tragedy and is very photogenic and I wish it didn’t happen. But 2-3 million out of a 550-million labour force or 40 million inter-state migrants is not going to move the needle on the wage premium. And frankly, if there were such a shortage of labour, then wages would have collapsed or they would have exploded. You know, we don’t see a huge movement.
Over a long time, I have been arguing with economists that all models are incomplete but some are useful. But the only real data in an economy are votes and prices. We haven’t seen a collapse of labour, of wages in cities or in villages right now. We are sort of where we are. So, if 200 million people in India were unemployed, my annual salary wouldn’t be Rs 25,000. When I started this company, it was Rs 5,000 whatever 20 years ago. We have gone from Rs 5,000 average salary to Rs 25,000 because there is a shortage of people in the cities that I want, with the skills that I want, at the time that I want them. So, there is frictional unemployment and there is structural unemployment. I think there might be some frictional unemployment, but there also is a frictional wage premium. Today, for e-commerce delivery boys, I am paying 20% more than I would normally if you are willing to join tomorrow morning, because not everybody is out of their zones, not everybody is willing to work. But this will go away.
So, I would submit that, you know, Mark Twain said a cat who sat on a hot stove will not sit on a cold stove again. And that’s what many people believe will be for migrants, “ki wapis nahin aayenge [that they will not come back]”. I prefer the Urdu poetry of “majburi hai par muskurana padta hai [there’s helplessness, but one has to smile]”. These people were not running towards cities, they were running away from villages. They were not running towards something. They were running away from something. And their status at home came from the remittances they sent. The only way to help farmers is to have fewer farmers.
So, in the short run, the two shock absorbers of the Indian economy have been self-employment and agriculture. Self-employment is self-exploitation and agriculture is basically vellapanti [idleness] because 45% of the labour force only produces only 14% of our GDP.
So, I would submit that believing that having these people to do agriculture, be self-employed is somehow going to reduce our poverty is mistaken, because I think the pandemic has made us realise that per capita GDP matters more than GDP. There are only four countries ahead of us in GDP. There are 138 countries ahead of us in per capita GDP. So, I think all reform needs to recognise that total GDP is nice for military spending, but then that’s the only thing it’s correlated with if you look at the data. But per capita GDP matters to our citizens. If we had China’s per capita GDP of 10,000, we would not have had so many migrants on the street.
People have lost jobs, and people are entering the job market--many millions do. At a time like this, how should they be viewing the next three to six months? I know it’s a difficult time, but looking at your own experience in managing very large teams and staffing services, what would you be saying?
In a world where Google knows everything, knowing is useless, right? The key skill is learning how to learn. Soft skills matter more than hard skills. Curiosity matters more than intelligence. Many kids ask us, should I join a manufacturing company or a service company? Should I join a big company or a small company? Should I join a multinational or Indian company? I think all three are the wrong things. The only company you should join is the growth company. Because growth teaches you everything. Growth gives you opportunities, and growth companies don’t always look at credentials as much as big companies do, because if you are hungry and you are grateful and you are willing to work hard, growth companies move people up much faster than anything else. So, I think a lot of growth companies will emerge out of this pandemic.
And I think that every revolution--whether it was Quit India, whether it was the Green Revolution--destroyed the incumbents and created insurgents, if you look back to history. So, I would look to evaluate resilience as much as growth, of course. In the last 10 years, we had forgotten how important resilience was when you were going to work for a company. And I think resilience should be a criteria. But if you are a lifelong learner, if you focus on soft skills, I think the next 25 years in India will be substantially different from the last 25 years. This policy window, India doesn’t change for a better option, she changes when you have no option. I think the pandemic gives us no option. So, I am quite hopeful that the reforms, which everybody knows, which have been pending, will take up our per capita from $2,500 to at least China’s $10,000.
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