A policy window to set India up for a good economic recovery
23 Apr 2020
(Friends, I’ll discuss how to take notes from this article a bit later.)
India’s formal jobs challenge has been a pre-existing condition since 1947 because of overdue but unavoidable reforms in labour, education, cities, finance, compliance and civil services. But the coronavirus opens what John Kingdon calls a policy window—the convergence of problem streams, reforms, and timing. Our problems are clear: not enough high-productivity enterprises and poorly skilled labour. The economic pain from the lockdown makes what was always important, urgent. Some overdue reforms are in progress, but a treatment 90% complete is still incomplete. Many reforms are structural, and they need time and resources for capacity building, organizational revamps and a reboot of human capital, but some are flick-of-the-pen law changes. Recognizing that the best time to ask intensive-care patients to quit smoking or lose weight is just after they leave the intensive care unit, I make the case for a 90-day monsoon of “flick-of-the-pen” reforms in jobs and education:
A single labour code: India’s capital is handicapped without labour, and labour is handicapped without capital for many reasons. But labour laws fuel our growth’s lower employment elasticity and blunt our ability to attract China factory refugees trying to escape its trade war, high wages and virus handling. Most painfully, our labour laws bully our young because job preservation is not a form of job creation, and bully our most vulnerable by breeding informal employment. The crisis shows that formal employers have higher resilience. We must immediately notify a rationalized, simplified and digitized single labour code.
Social security: India’s wages have three wedges, namely real versus nominal, government versus private, and gross versus net. All three matter, but the easiest to address is the 40%+ salary deduction that low-wage employees suffer. Our mandatory payroll deductions ignore savings rates and breed informality (where “haath waali” salary in hand equals the “chitthi waali” on paper). We must make the employee’s provident fund (PF) contribution voluntary and incentivize formal employment by restarting the Pradhan Mantri Rozgar Protsahan Yojana that successfully subsidized employer PF contributions for new low-wage employees.
Health insurance: India’s new order that makes health insurance mandatory is baffling; isn’t that employee’s state insurance (ESI)? Maybe it recognizes that ESI provides goofy service at a high cost. We must reduce ESI contributions for all employees and employers to ₹1 per month for 2 years. This can be easily funded by the over ₹60,000 in liquid deposits held by the ESI corporation that reflect two decades of its overcharging employers.
Online education: India’s current online university regulations create apartheid by only allowing seven of our 993 universities to launch online courses. During the virus lockdown, overseas universities have signed up over 100,000 students in India for online courses. This exposes the folly and unfairness of the University Grants Commission’s 2018 online regulations. We must immediately allow all accredited universities to launch online courses with full flexibility in design, delivery and assessment. If we don’t act quickly, our online university education will become like Wimbledon (it is played in England, but no Briton wins).
Apprenticeships: These, linked with degrees, are the future of education because of learning-by-doing and learning-while-earning. But India only has 0.01% of our labour force in apprenticeships (Germany has 2.7%) and only 30,000 employers offering such programmes (the UK has 200,000). Our licence raj over apprentices scares employers, bans universities from offering degree-linked apprenticeship programmes, and often tells employers to seek 28 separate state approvals. Tweaks to India’s Apprenticeship Act that grant national approvals and allow universities enrolment freedom would re-imagine Mahatma Gandhi’s 1937 Nai Taleem vision of experiential learning for the 21st century.
Compliance cholesterol reduction: Employers in India must bear with about 57,000 compliances (of which over 10,000 have jail provisions) and 3,100 filings (only 10% of which offer quick digital processing). An ease-of-doing business commission that rationalizes, simplifies, and digitizes all this could improve compliance, reduce corruption, and lower harassment of small businesses in 90 days. It should also pick one of the 25+ numbers issued by various government agencies as an Aadhaar-type universal enterprise number.
Tax refunds: The idea of employers or employees providing the government with working capital is questionable at all times, but is particularly painful when a lockdown forces customers out. Shareholders don’t pay salaries, customers do. And while this solvency crisis arises more from an asymmetric impact on revenues and cost, all liquidity helps. We must release all pending tax refunds up to fiscal 2019-20.
Questions raised about the lockdown’s trade-off between lives and livelihoods have been met with many lectures about economics being a moral science. Maybe it’s time to re-examine this science envy; physics accepts resource constraints, lives with laws, and expects consequences (every action has a reaction). The Indian economy’s virus challenges are amplified because it is inadequately industrialized, formalized, urbanized, financialized and skilled. We must address these issues, but a 90-day monsoon of flick-of-the-pen reforms would recognize that without employers there are no employees.