governance, political economy, institutional development and economic regulation

Posts tagged ‘Informal Sector’

Needed paychecks not pink slips

Jobs 2

Photo credit: Zee news

Ask any of the 68 government departments in New Delhi, what they are doing about private sector jobs, and each will point at the other for an answer. The truth is that governments have not been held accountable for job creation since the 1980s, when neo-liberalism took root. No one advocates going down the horribly inefficient public sector job creation route again. So, it is up to the private sector and self-employment to absorb our surging army of millennials — almost 10 million strong annually — which is equal to the entire Australian workforce.


Humans versus machines- who’s winning?

But does the private sector have incentives to produce jobs? Looking purely at the bottom line, machines are superior to humans. They also come with financial incentives for capital investment — cheap bank finance and accelerated depreciation for tax purposes — which boost the bottom line. Technology is fast eroding the capacity gap between the unique attributes of human labour and machines. Siri (Apple), Cortana (Microsoft), Google Now and the mellifluously named Maluuba are all cheaper than hiring a real-life assistant and are on call 24×7. Bots will progressively replace humans, more so in logically-executed routine jobs. Not only are human services more expensive, but they come with enormous social and economic costs for housing, transport, education, health and security.

Can government help preserve human employment?


So, how can the government help create new jobs and preserve existing ones? Kickstarting infrastructure projects; promoting “Make in India” and resolving the bad loans burden of banks — are all great government initiatives for new employment. But their impact is medium term. In the near-term, the government needs to preserve existing jobs. Here are four options.

Market Indian skills in 34 “Aged”, rich, countries 

indian farmers

First, extend the H1-B strategy, used to great advantage in the US, for temporarily exporting Indian workers overseas. Rich countries, with ageing populations who need the workers, but fear the cultural dilution associated with permanent immigration would be the targets. Assign targets to our ambassadors posted in these locations to negotiate with their host countries to allow temporary immigration, lightly monitored by the government and directly supported, under the Skills India initiative, to acquire local language and cultural skills. The associated fiscal costs are outweighed by the social and economic benefits from repatriated earnings alone. A stretch target could be to export a million workers over the next three years.

Discourage the “paper chase” by avoiding “gold plated” human resources.


Second, build respect for skilled work by venerating those who have these skills. Our caste and hierarchy-ridden Brahmanical social norms devalue skills and overvalue “intellect” — both in the public and private sectors.  This unfortunate social milieu engenders “qualification creep”. Both Indian companies and the government routinely advertise for engineers even when an experienced mechanic is needed. Consider the irrational gap between the wage for a nurse versus a doctor. Good nursing vastly reduces the workload for doctors — specially in the emergency room for the care of trauma patients. But this noble, highly skilled profession is not a first choice today. Instead, there is a stigma attached to it, as being fit only for those who cannot afford the high cost and long incubation period for becoming a doctor. Why is a Bachelor of Arts degree needed to become a bank clerk — a high responsibility but a routine, people skills-oriented job? Only a select few, intending to teach at the college level or do research, should need a master’s degree. Tests and interviews for jobs should focus on personality and psychological attributes, rather than educational qualifications, which are rarely aligned with job skills anyway. Only when we consciously make the paper chase redundant will we value real-life skills accretion, where the maximum potential for human jobs exists.

Reward socially responsible business leadership which looks beyond the “bottom line”

murthy gates

Third, introduce disincentives for layoffs. Yes, flexibility in workforce management is a must for employers. But companies can be incentivised to be socially responsible employers. Those who go beyond watching their “bottom line” to retaining and growing their employees should be rewarded through tax breaks, access to cheaper finance and publicly recognised as nation builders. Why not devise an index to assess social leadership qualities of company honchos before they get awards and honours, get invited to Rashtrapati Bhavan; preferential access to our ambassadors overseas or get nominated on to government committees? We need to publicly distinguish between narrow-minded private employers who only watch bottom lines, and truly transformative business leaders, if the private sector is to lead in job creation.

Give incentives for digital/banked wage payments by individual employers

Around 300 million workers are employed in the agrarian and household sector as daily wagers or long-term help by individuals — farmers, rich and middle class urban households. Legislating minimum wages and benefits for this segment is lazy policymaking and can end up having a regressive impact due to weak oversight capacity. The Niti Aayog has taken the lead to plug the data gap on informal employment where most of the incremental jobs will be created. The government can step in with near-time transactional measures for light-handed regulation of such employment. As an initial step, the government should promote the payment of wages into bank accounts to generate big data on such employment. An incentive of Rs 5 credited back to the employer’s account for every Rs 1,000 paid into an employee account could help. If costs are shared between the bank and the government, a budget outlay of Rs 5,000 crores can pay for this incentive and bank annual wage payments of an estimated Rs 18 trillion, much of which is in cash today. Individual employers, with a track record of employing more than five workers and banking wages of more than Rs 10 lakhs per year, should be publicly recognised as “social growth enablers”.

Collaborative governance is key

bicycle with flag

Last, the optics must be right. The government needs to step away from the colonial pedestal of being the “mai baap” (supreme preserver). The “lal battis” (red beacons) have gone. It is time now to puncture some sarkari egos further and spread the accolades for social and economic achievements.

Adapted from the author’s article in The Asian Age July 16, 2017

Why spend more on babus? 7th Pay Commission


Babus are looking forward to another bonanza, courtesy the 7th Pay Commission, which the previous government constituted just before demitting office. The armed forces, always better organized, are first off-the-mark with an earmarked Pay Cell already created, headed by a two star General, to lobby for better terms and conditions. Other Unions and Associations will also gather themselves together, once PM Modi signals the go-ahead.

Here are five reasons why he should not do so.

First, the history of Pay Commissions (the first was in 1946 with the rest following almost every ten years) validates that they achieve very little beyond finding the lowest commonly agreeable formula, for farming out pay increases to babus and the armed forces.   Never has the pay increase been linked to higher productivity or even to aggregate measures of productivity, like economic growth. Growth, admittedly an overly-broad measure, is now on the downslide and expected to remain that way for at-least another two years. Aam admis find it difficult to swallow, that babus should get paid more, whilst they themselves are struggling to make ends meet.

Second, babus have been getting 100% inflation neutralization twice a year, since 1996. The dreaded inflation (often itself the outcome of loose fiscal control and inefficient expenditure policies) consequently, flows-off babu backs, like water-off a duck, but swooshes down onto aam admis and makes their life miserable. The biggest sufferers are the 700 million poor.

The urgency for another increase in the “real” pay of babus is difficult to justify, in a strained fiscal environment, where subsidies have to be gradually moderated and administered prices of petroleum products, electricity, fertilizers increased-all of which stoke inflation.

Government also has to increase the tax-GDP ratio in 2014-15 to provide the funds needed for stepping up long forgotten defence equipment; higher outlays for education, health, sanitation, water and infrastructure; all this within a fiscal envelope which does not further aggravate inflation. Increasing existing babu compensation, in real terms, will only stoke the flames of inflation.

Third, if the government feels that the existing pay structure does not promote efficient functioning, it has only to look at the reports of the past two commissions. Both Commissions recommended excellent measures for linking pay enhancement to productivity, which remain unimplemented. The Administrative Reforms Commission did similar stellar work in 2008. Throwing more money at the problem of inefficiency is a highly ineffective way of trying to deal with it, which is bound to fail. Better to brush the dust of previous research and get down to implementation.

Fourth, less than 4% of India’s working age population of 500 million (ILO) is employed by government. The total formal sector employment (including in government) is less than 10%. Unlike government, in the rest of this “labour aristocracy” there is no assured inflation indexing and individuals have to justify every year, why employers should even neutralize inflation let alone give them an additional increase in “real” pay.

The residual 90% of other workers live in a jungle, where they survive by their wits, with no help from law or regulation. The Minimum Wage Act is a non-functional piece of legislative gloss, which is regularly contravened in the unorganized sector. None of us, including babus and politicians, who employ household help or buy products made in the informal sector, where “sweat labour” is the norm, walk-the-talk, by being willing to pay the prescribed minimum wage rates.  Even the lowest level of compensation in government is way above the minimum wages.

Fifth, the process of babu pay determination has acquired a routine automaticity, which needs to be disrupted. Opponents of abandoning the business-as-usual stance, argue that the outcome of stagnating babu pay in real terms will be higher levels of corruption. This is difficult to buy. Despite the consistent increase in babu pay since 1952, corruption has also grown not decreased. Babus, even at the leadership level, including the previous PM, “passively accepted” corruption, even if they have not actively associated themselves with the loot. They have not endeared themselves to aam admis by such behavior.

PM Modi has already started the process of interacting directly with babu-level chains of command and demanding from them, measurable, targeted performance, aligned with the government’s priorities. Pay rewards should follow only in 2018 (one year prior to elections in 2019) if performance improves.

Between now and then, the government should start publishing Annual Service Delivery Report Cards for every urban ward and every rural village, listing the manner in services have improved. Pay rewards beyond 100% inflation indexing (which already exists) should come only if the citizen reports show improvements from 2015 to 2017.

Let’s apply the same “value for money” standards to public finance, which resonate so well with our personal lives, vividly captured in the “kitna daite hai” (how many miles does it go in a liter of fuel?) metric, popularized by MARUTI.      

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