258: Fixing Poverty in India | Manish Sabharwal (ex-Independent Director, RBI) | Policy

[00:00:00] There is no such thing as poor people. There are people in poor places. If everybody in India lived in Bangalore, our GDP would be more than China. So which city you live in really matters. In the last 20 years, China's stock market has done minus 13%. India's stock market has done 1300%. Yet they have moved 300 million people off farms and we still have 45% of our labor force in farms. We delivered shareholder growth and they delivered wage growth. I think in the next 20 years, India will deliver shareholder growth and wage growth.

[00:00:29] When I landed in the US in August 94, there was a front page article on the Wall Street Journal which said that India is more interesting than important. I hope that journalist is eating the newspaper on which she wrote that because what's happening in India is not once in a decade or once in a millennium. It's really once in the lifetime of a country. Manish Sabharwal, former Independent Director at the Reserve Bank of India, is a prominent figure in shaping India's economic and educational reforms, bringing invaluable expertise to the nation's policies and policies.

[00:01:09] Thank you so much for joining us, Manish Sabhar. Thank you so much for joining us, Manish. It's such a pleasure to always talk to you. Reflecting on India's journey, it's been quite the 10 years and even beyond that, we've overcome a lot of struggle. Liberalization came late and the reforms also, some of them were introduced in such a manner that people had to get a hang of it.

[00:01:32] The digitization came much later. But looking back at India's journey, what are your key takeaways, if you will? So obviously 1999 wasn't enough because decades of socialism meant our labor was handicapped without capital and our capital was handicapped without labor. And so the notion that, you know, we disrupted with the past is only partially true.

[00:01:56] We did not tackle education in 1991. We didn't tackle banking. We didn't tackle formalization. So I think it's very important to recognize that for a country like ours, which is hoping to catch up, we have not yet had the poorness for enterprise or for, you know, the full freedom that enterprise is required. I mean, it's quite obvious that political freedom did come to us in 1947, right?

[00:02:25] I mean, we were a reckless political experiment at that time. No country had given universal franchise before us. Some women in Switzerland got to vote in 1972. Three million people in India win an election. 22 million people stand for an election. So obviously the difference between India and Pakistan is that we have created the world's largest democracy on a very relatively hierarchical society. So I think that was an accomplishment. But we didn't combine that mass democracy with mass prosperity.

[00:02:55] Now, mass prosperity is an interesting question. How do you create mass prosperity? You know, I think fiscal and monetary policy has been oversold. You know, after spending a few years on the RBI board, it's not clear to me whether monetary policy is a placebo or a painkiller or a steroid. It's definitely not a medicine. Right. And if fiscal deficits could make countries rich, why would any country bother being poor? So I think one of the things that happened after 1991, we oversold fiscal and monetary policy.

[00:03:25] You know, the role of the state shifted from control to spending. You know, I agree that a modern state is a welfare state, but it was premature load bearing because a sustainable welfare state is financed by taxes, not by debt. Right. So I think the churning that began in 1991 was important. But over the last 10 years, we finally recognized in my mind a case I've been making for a long time that our problem was not jobs. It was wages.

[00:03:54] And that's a very important diagnosis because if you think our problem is jobs, you'll throw money from helicopters, which is fiscal policy. You'll mandate a three-day work week, which is stringent labor laws. And you'll take away people's shovels and give them spoons to dig with, right? Because productivity doesn't matter. You know, if people are just hungry, then you've got to throw, do emergency measures, you know.

[00:04:19] But if you think the problem is wages, it's much more complicated because you can't mandate higher wages. Wages are sort of productivity. So I think that the challenge for us with the earlier round of reforms was we were not praying to one God, which is wages. And therefore, we were not thinking about productivity in the five ways that I think we should. There are many questions that come to my mind. But let me begin with this.

[00:04:48] You see a sense of hope because India is adopting corrective measures. Somehow we are going on the right path. But then you see a return of populism, not even socialism. You see that the cap expanding on, say, infrastructure is going down in many states. So how do you navigate through these troubled waters, especially?

[00:05:11] And do you think that this trend is set and that the template for welfarism will somehow remain in the years to come? I mean, a modern state is a welfare state, right? I mean, OBS used to say lives were nasty, brutish and short. I think the definition of teamwork is really important. See, the government has an execution deficit. The private sector has a trust deficit. And nonprofits have a scale deficit.

[00:05:39] And all of us look down on each other, right? People in the private sector think the government is corrupt or incompetent. The government thinks private sector guys are all chores or, you know, they can't focus on anything other than their nose and they're selfish. And while nonprofits are so sort of sanctimonious, so holier than thou, that they actually don't get as much done as they should have. But this is a silly debate. I think that any great economy and great society, or let's say any strong economy and society, right?

[00:06:09] That's what we aim to be. You know, my favorite poet is Ramdhari Singh Dinkar. He says, Only the powerful can be kind, benevolent and generous, right? I mean, the weak can't be kind, benevolent and generous. So I think if we want to be strong, we should have a private sector that works with the government and the government that works with the social sector or nonprofit sector in ways that haven't fully happened in the past.

[00:06:36] So I think populism is really arising from this expectation from society and from the economy, which is sort of unrealistic in the short run. You know, you want to jump to being a developed nation. That's not going to happen through populism. Right. You know, if the patient is in the ICU, you don't ask him to lose weight or quit smoking. You do something.

[00:07:02] But it's unclear to me that if the patient is in the ICU for 30 years or 40 years, that, you know, triage always helps. You know, at some point we have to think about him. So I think this populism, which has been developed or say, let's say, weaponized by state governments, you know, at the same time, while in 2018, the federal government was very fiscally disciplined, while much of the world was not.

[00:07:30] But since COVID, many state governments have sort of discovered that short term populism is maybe working now. It's still early to say that we're starting to see some countertrends. Even if we're not seeing countertrends, we're just starting to see states hit their debt ceilings. You know, thankfully, the Constitution does have a hard shot. There can be some fudging by taking some debt off balance sheet, like two state luxury boards or two, stuff like that.

[00:07:58] But there is really not that much. It's not like China, where state governments and local governments have been able to borrow three or four times the federal government, right? So when you think about China, you worry about debt, not at the central level, but at the state level. So I think that populism is hopefully a passing shower. It's not climate change because populism is not exactly a way to get to where we want to go.

[00:08:26] But it is a very real political phenomenon all over the world right now. And it's going to be hard for India to resist. In terms of, let's say, let's talk about the near future, right? In barely a few days, we'll have the budget also being presented. What are your thoughts on that? I mean, I think the budget should move to being an accounting and a finance exercise.

[00:08:51] I don't think the budget should become the symbol of economic reforms because India's economic reforms needs a dial tone. It doesn't need episodic interventions. India's economic reforms are not housed in the Ministry of Finance anymore. They are housed in the Ministry of Company Affairs. They're housed in the Ministry of Labour.

[00:09:10] So if you think about in the first five or ten years of when I started my company, there were probably five or six global board meetings which used to come and ask me for... They would do their global board meeting here and they would say, explain India's people supply chain. We want to set up India. In the last four years, we've had 25 global board meetings where I have presented on people supply chains.

[00:09:32] And basically, they say that infrastructure, finance, and even skills has shifted from being a dagger in the heart to a thorn in the flesh. It's not the binding constraint anymore. See, 20 years ago, infrastructure would have been considered a binding constraint for manufacturing. It isn't. I think regulatory cholesterol is now India's binding constraint. You know, it's the 67,000 compliances. It's the 6,700 filings. It's the 26,000 ways to go to jail.

[00:10:02] That are really hurting our non-farm, formal, high-weight job creation. So I think that the budget is an important day. It's an important document. We will hopefully continue macroeconomic stability. We will hopefully continue to signal the vision. But in my mind, we are now shifted away from a few big decisions to many small ones which will make the life of employers easier.

[00:10:29] See, employed poverty is India's problem. You know, people have jobs. They just don't have the wages. So I think employed poverty is hard for a central government budget to solve. It's structural reform. And in some sense, 29 chief ministers matter more than one prime minister for employed poverty. Yeah. So in terms of ease of doing business, I think it's the general sentiment is that India has moved up several notches on that front.

[00:10:59] But the challenges do remain. You hear many industry experts often raising certain relevant comments on platforms like Twitter. So what work is there left in terms of, say, direct government intervention where they could take note of certain shortcomings on that front? I mean, ease of doing business is three things now. It is rationalize the regulatory cholesterol. It is digitize the regulatory cholesterol.

[00:11:27] And it is decriminalize the regulatory cholesterol. See, the regulatory cholesterol is not an abstract term. You know, I used to use the word in abstract ways for 10 years before somebody in the government asked me to make it more specific. And we did. So we gave them a list of 67,000 compliances, the 26,000 ways to go to jail and 6,700. 50% of them are at state levels, but 50% of them still in some ways are available at the center.

[00:11:55] Digitize is very easy because it's the lowest hanging fruit because India has world leading digital public infrastructure. Now, we just need to add compliance and reg tech to that digital public infrastructure. Why not an enterprise digi locker? We're now seeing moves on that. Why not a single enterprise number? We're now seeing some moves on that. But essentially, the concept of the digital public infrastructure, which has revolutionized payments, which revolutionized COVID vaccine certificates, which revolutionized airport entry,

[00:12:23] can very easily be applied to compliance and laws. And I think that would be the lowest hanging fruit. I think decriminalize is very important and accepted. But Jan Vishwas 1 was quite a disappointment, right? Because there were only 50 employer provisions decriminalized. And that was because of the methodology adopted. You know, the central government asked ministries to surrender what they have.

[00:12:53] Now, nobody cuts the tree they're sitting on. Bureaucrats are not going to release because what is power in government? Funds, functions, and functionaries. This is both decriminal provisions of funds, functions, and functionaries. In fact, when I listed the 26,000 ways to jail, many people got upset in the government. And they said, well, no CEO is in jail. Well, I said, one of my favorite lines in the Vishnu Saitranam roughly translates to why did God create fear? So that he would take it away.

[00:13:21] So I think if no CEO is in jail, and we have 26,000 ways to jail, essentially there's corruption going on. Because jail is the ultimate punishment you can give. So it creates transmission losses between how the law is written, interpreted, practiced, and enforced. And so I think we should have a Jan Vishwas 2, which should list, I call it reversing the gaze. We should list the five ways that an employer can go to jail. And we should eliminate everything else.

[00:13:49] So now it's time for the central government to say Jan Vishwas 2 will be done very differently from Jan Vishwas 1. We will specify the five reasons you can go to jail. You know, harm to others, fraud, a few other things. And for silly things like Chuna not being there in your factory or canteen committee not being there, late filing of stuff, you should make it civil provision. So I think Jan Vishwas 2 would be on criminalize, decriminalize. Adopting DPI to red tech would be for digitize.

[00:14:19] And rationalize would be at some point we have to cut the 67,000 compliances. Rationalize is the most complicated because in my mind, rationalize is now equal to civil service reform. It's not the 6,700 IAS officers, though they can be problematic too. It's the 25 million civil servants in India, right? They have three poisonous philosophies in their minds. One is prohibited till permitted. The other is drunk driving is an argument against cars.

[00:14:49] You know, if there are drunk drivers on the road, you don't ban cars. You fix the drunk drivers. And the third is sort of bureaucrats are too big for small things and too small for big things, right? You go to them with labor reform, they say, sir, go to parliament, why are you coming to me? If you go to them with some small corrupt inspector or some inspection problem or some other problem, they'll say, hey, go to that club 1,000 miles away. So bureaucrats are sort of this mezzanine layer which is not really helping us.

[00:15:18] And so I think rationalize will also have to start with getting, we don't need 75 ministries in Delhi. We need 25. We don't need 250 people with the rank of secretary to government of India in Delhi. We need 25. But do you need a doge in India? Oh, we needed a doge in India 50 years ago. So the best time to start was yesterday. The second best time is today. But I don't think a doge is a particularly unique idea. And every country has a political context.

[00:15:47] But we do need civil service reform because civil service reform now equals ease of doing business. There is a mentality of the prior civil service which I think holds Indian business back. And therefore it holds India back. Now, being in a profession where say you'll have to interact with thousands of people because you're essentially also employing them for different companies, you're placing them in extremely important positions.

[00:16:17] So you understand psychology very well. You understand why skills matter. Especially since there is a direct correlation between education and employment. You still see a lot of good companies, enterprises complain about the skill gap still being there. So something as basic as skill education, although the government has been talking much about it,

[00:16:46] what work do you think is left on that front? I mean, I'm not sure I agree with your statement that there's a direct correlation between education and employment. Because the world has produced more graduates in the last 40 years than the 800 years before that. So 60% of taxi drivers in Korea now have a college degree. 31% of Walmart checkout clerks in the US have a college degree. 15% of iron security guards in India have a college degree.

[00:17:13] And this grade inflation or credentialing or college promising what it can't deliver began a long time ago. And it's not unique to India. But the 1948 Radha Krishnan report or the 1968 Qatari committee report or the 1986 new education policy did not really kill the apartheid between education and employability.

[00:17:40] It's not clear to me that there's that much of a difference between education and skills. Finally, a great education has to give you skills and a job and make you a good citizen. Right. In traditionally, the apartheid of educators was that education is for making citizens. It's not for getting you a job. And I think that was a disservice to themselves. That was a disservice to India's institutions. And it was surely a disservice to the students. You know, I've met a BA in English.

[00:18:07] I remember in Gwalior, he kept shoving his certificate in my face. And I kept asking him questions. And he kept answering me in Hindi. I said, you know, you've got a BA in English. I have no problem. But why are you answering me in Hindi? I mean, English is a vocational skill. It's like Windows. It's an operating system. In fact, your wage premium may be 100%. He said, you know, tell me, I've done my BA in Hindi. There's nothing wrong with that.

[00:18:36] But at one level, because it's fine, many jobs in India now as sales, customer service, logistics become the fastest growing segment of India's job market, you'll need a lot of regional languages. But labor mobility is much higher if you speak English. And so how can a BA in English not speak English? So I think the new education policy in 2020, the national education policy, is a very important disruption with the past. It allows foreign competition.

[00:19:05] It recognizes apprenticeships. See, what have we learned in skill development? The five design principles really matter. It has to be learning by learning because many poor people can't pay for their earning. It has to be learning by doing because soft skills are not taught, they are caught. Right. It has to be learning with qualification modularity where a three-month certificate is an opening balance for a one-year diploma is an opening balance for a three-year degree. It has to be learning with flexible delivery.

[00:19:34] Online delivery has to be equal to on-job delivery, which is equal to on-site delivery, which is equal to on-campus delivery. And it has to be learning with employability signaling value, not social signaling value. You know, traditionally, a degree has been pursued because of, or, you know, I went to Wharton, my wife went to Harvard. These are good places to be at, but better places to be from. Right. Right. Fundamental value is being from IIT, not at IIT. Right.

[00:20:00] But I think we need finally a system where employability signaling value is more important than social signaling value. How do you formalize that? Especially because, you know, there's a form of gatekeeping which is preventing, say, potentially skilled people who may not be as formally educated as the others are from applying even to many jobs. I think apprenticeships really do a much better job of signaling than courses, you know, learning by doing.

[00:20:27] So I think degree apprenticeships, I'm quite, you know, NEP has enabled degree apprenticeships, you know. And what are degree apprenticeships? They're one third employment exchange, one third ITI and one third college in some sense, which is really what we need. So I think there will be ways for kids and youth to signal to employers their skills, both online, through apprenticeships, through many ways.

[00:20:53] So I think the past where we would employers use to become as a lazy filter to cut out people may no longer be as much of a monopoly as it used to be. Especially with the push to English, say, we are seeing live examples of, say, Bombay and Bangalore, where English actually has played a very important role in bridging that gap, increasing income, things like that. But, you know, on one hand, you also have this push for nationalism that, you know, we

[00:21:23] can achieve what it takes in the vernacular, especially because, you know, some in the government are also inspired by, say, countries like China, which have been able to do it with Mandarin. I think English will always be a difficult relationship for people in India. I know it's a politically loaded question, but... No, no, it's not politically loaded at all. English in India always means bilingualism. I think it's unfair to think of English as substituting your local language.

[00:21:51] You know, the two most interesting poets in Labad University were Firak Gorakhpuri and Harivansh Rai Bachchan. Both were professors of English literature, though they were interesting poets in Urdu and Hindi. And that sort of symbolizes how we should think about English, which is a vocational skill. And we should think about our vernacular as where we express our emotions. I do think that India has gained, you know, India exported more software than Saudi Arabia did oil in 2021.

[00:22:19] That is because 90% of the world's software is written in English. So I think we would have to be kidding ourselves if we thought that China has any role to play in the global software industry or France has any role to play in the global software industry or any other country which chooses its domestic language over thinking about Windows, English as Windows, which is an operating system. English is an operating system. It's a vocational skill. We should...

[00:22:48] It obviously has some emotion around it because of British rule in India. I agree with that. But, you know, that was in a time when you felt you had to be Western to be modern. You don't have to be Western to be modern, but you do have to be modern. And being modern involves learning an interchange of languages or a standard or adopting. I mean, you can say, I want my own internet standard, but we adopted TCIP because we can talk to each other, every server in the world.

[00:23:17] Well, TCIP allows you to do that. So I think we should take the emotion out of English and view it as a vocational skill or an operating system. You see a lot of CEOs making comments about productivity. And at this point, you know, it feels like it's a social media game. But on a serious note, the employees seem to be a little stressed because, you know, even advocating for, say, 70-hour workday a week or even 90 hours seems a little cruel for many.

[00:23:45] I mean, I'm not kidding in the 70, 100 or 90-hour debate because 90-hour seems like heaven for somebody else and hell for somebody. I think human motivations are so diverse that we should not insist on enforcing how many hours people work. First of all, people don't agree on the definition of work. Then we don't agree on the definition of hard work. And then we don't agree on the definition of the notion of productivity in knowledge businesses.

[00:24:14] See, there are a few different things going on. In the industrial economy, a factory worker or a plumber or a carpenter or a farmer, a good plumber was five times, four times better than a bad plumber. A good software programmer is 100 times better than a bad software programmer. A good investment manager is 200 times better than a bad investment manager. And a good CEO is 400 times better than a bad investment manager.

[00:24:42] So measuring productivity as we traditionally measured it in the industrial economy is a fool's errand in a knowledge economy or an information economy because the power law applies. We think of effort and salary and wealth to be a normal distribution, which is a bell curve. But in a bell curve, the mean is equal to the median, is equal to the mode. But in a power law, the mean is very different from the median, which is 80% of the results go to 20% of the people.

[00:25:12] So we have to make peace with this. Nobody controls this. This is just the nature of knowledge and information that 80% of the rewards go to 20% of the people. And if those 20% of the people are defining productivity differently than you, we should be careful in saying 90 hours is good or 90 hours is bad. You know, just like one person's freedom fighter is another person's terrorist.

[00:25:36] I think we should let people's 90 hours or 80 hours or 70 hours be heaven or hell for them. I would go with the Jain philosophy of Syadwad, which is the doctrine of maybe, or anek antawad, which is the multiple-sidedness of truth. Let people make their own decisions. But productivity is a really serious issue at five levels for India. And that's what I think public policy should focus on rather than getting into this clownish debate number of hours.

[00:26:06] It is productive. There is no such thing as poor people. There are people in poor places. The same electrician from Balasur moves to Lucknow in Odisha, moves to Lucknow, gets two times more salary, moves to Bangalore, gets four times more salary, moves to Dubai, gets eight times more salary, and moves to Switzerland, gets 25 times more salary. It's the same damn electrician with the same skills. I'm not talking about a skill upgrade here. So the pathology is not at the level of the individual, right?

[00:26:35] It is at the level of the place. Now, there are two physical places and there are three conceptual places. The two physical places are obvious. They are which state you live in and which city you live in. So yeah, I live in Karnatka. My parents live in UP. Both have the same GDP, but Karnatka does it with one-fourth the number of people, right? So clearly, it's four times more productive. City is obvious. I mean, I know a lot of people come to Bangalore and crib about traffic, but we call it growth.

[00:27:04] You know, I mean, 25 years ago, we didn't have this much traffic. It's probably one of the only cities in India where any kid from any skill from anywhere in India can come to Bangalore and get a job within a week. You can make it to life. You can make it. So if everybody in India lived in Bangalore, our GDP would be more than China, right? Because India's GDP is $2,500. Bangalore's GDP per capita is $12,500. So which city you live in really matters. But these are the only two physical spaces.

[00:27:33] The other three spaces are which sector you work in, which firm you work in, and which skill you have. See, IT is a rounding error in India's labor market, 0.8%, but it's 8% of GDP. There's also this debate about, say, our infrastructure actually being inadequate to, say, the rising demands. Because we do have Bombay, Bangalore, and it has its own set of problems. You have your NCR.

[00:27:59] But why aren't we focusing on, say, a Kanpur, which already has textile industries, or a Patiala, which has its sports industries already in place? Why don't we actually give a capital push and sort of give that, revive those industries where it already were? Because infrastructure is poorly related to being a job magnet. Chandigarh has wonderful infrastructure. It's an economic wasteland. And Delhi, Lutian's Delhi, is an economic wasteland.

[00:28:25] I think there is much more to creation of a job magnet than hardware. I mean, you're asking a broader question of why doesn't hardware keep up with the people? That's a constitutional issue. Our third level of government has no funds, functions, and functionaries. You know, in the constitutional assembly debates, the third level of, even today, only 3% of spending is done at the city level. In America, 50% of spending is done at the city level.

[00:28:53] And 50% of employment in China is at the third level of government. In India, only 3% of spending and 15% of employment is at the third level. So that is a constitutional issue on why our cities are not reacting to the influx. But the notion that you can take jobs to people is, in my mind, not true. You have to take people to jobs in the short run. And then over 10, 15 years, we'll see how it develops.

[00:29:19] I mean, I'm not sure anybody can answer why Bangalore became Bangalore. Is it because it was the first electrified city of India? Is it because the German Grumble planted trees here? Is it because Mirza Ismail made a venture capital investment in Walch and Aerospace, which became HAL? Is it because... I think it's because Texas Instruments came here in 1981. But when I tracked down the person who set up Texas Instruments,

[00:29:50] they said that they had three options in 1981 to set up the extraterrestrial station. One was Hyderabad, one was Chennai, and one was Bangalore. And Chennai was hot, hotter, hottest. So they had last two choices were Hyderabad or Bangalore. So I said, why did you choose Bangalore? Oh, I had a cousin there. So you have to be... I mean, and because of Texas Instruments, IBM came here. And because of that, Infosys were pro-followed.

[00:30:16] And there were all kinds of effects of Bangalore's clustering effect, which now is probably the only city in the world where you can hire a thousand Hadoop programmers in a week or something like that. So I would say that I would be careful because we've tried Baddi. You know, you give... Baddi has disappeared after the tax incentives have disappeared. So I think what makes... Why did Gurgaon... In fact, in India, infrastructure chaos, Gachi Bauli outside Hyderabad, Gurgaon outside Delhi, Bangalore,

[00:30:45] and Magarpatta outside Pune may be correlated to being a job magnet. Right? So is infrastructure chaos holding back job creation? Or is it a child of job creation? It's hard to say. So I would say, you know, in a broader level, we need to reform our public finance in public... Where we have funds, functions, and functionaries, we have to decentralize. See, there was this wonderful... You know, Indira Gandhi in 15 of her speeches said, strong states lead to a weak nation. But N.T. Rama Rao next day responded saying,

[00:31:14] the central government is a conceptual myth. Everything that matters to citizens' daily lives is done by state governments, right? And it may be true. Police, education, healthcare. But I think both of them were taking extreme views. You know, in every country, centrifugal and centripetal forces will always be in tension. But in this debate, we've forgotten now that the vested interest against giving funds, functions, and functionaries to cities is not Delhi. It is chief ministers. No chief minister in India is willing to create real mayors

[00:31:44] in cities and give them funds, functions, and functionaries. So I would say, till we figure out this constitutional devolution of powers, devolution of funds, devolution of employment, we'll have to continue to take people to jobs. And unfortunately, that means that mega cities may be our only option. See, in 1973, there were only three cities in the world with more than 10 million people. Mexico, New York, and... Mexico, New York, and Tokyo.

[00:32:13] Now we have 34 cities in the world with more than 10 million people. But it's an Asian innovation. 28 are in Asia and 12 are in India. So shoving more people into Delhi, Bombay, Bangalore may be the only short-term answer. Right. There's also this observation that because of formalization inadvertently, a lot of small businesses are getting hurt. I mean, it's a pretty outdated observation right now. But you see with the rise of your blankets and Zepto's and all of that, is the Kirana store actually getting affected? And if they are,

[00:32:44] what's the future for, say, retail who are operating independently on their own? See, I'm not sure Kirana stores were really ever a solution. You know, there was an idiot Russian economist called Chayanov who convinced Nehru that small farms are viable because you don't have to pay your wife a salary and your kids a salary and you don't have to pay rent. He called it the theory of self-exploitation. It wasn't self-employment. And Kirana stores and agriculture have been self-exploitation for decades. So while in the short run,

[00:33:13] it may seem painful that we are disrupting agriculture or disrupting informal self-employment, which were the two shock absorbers of India's labor market. You know, what has happened in the last 10 years? Why are we hearing more about jobs? It's not because we have less jobs. It's because kids' aspiration has gone up. They are no longer willing for self-exploitation. They said, you, your parents, your grandparents were willing for self-exploitation.

[00:33:38] So I think that we should not idealize the 63 million enterprises in India because we don't need 63 million enterprises. The US economy is eight times our size and it only has 23 million enterprises. And 20, 63 million enterprises only translate to 27,000 companies with a paid up capital of more than 10 crores. So what's the point of having 6.3 crore enterprises if India only has 27,000 companies with a paid up capital of more than 10 crores?

[00:34:07] So we are back to regulatory cholesterol. Why do 63 million enterprises only translate to 27K? It is because of regulatory cholesterol. So we must now, if we want to be strong, if we want to be modern, there will be some disruption of the low-level equilibrium which we were stuck in the past. I don't think anybody knows where jobs will get created in the next 10, 15, 20 years. Right. But I have studied 50 of the reports of every country

[00:34:36] in the last 100 years of US in 1980, Japan in 2020, UK in 200. There are about 50 reports trying to predict. Even in India, you can't start a meeting without people asking me to predict where jobs will be in the next 10 years. All of them have the efficacy of palm reading or astrology. But there is a degree of predictability perhaps? I don't think so. 50% of the jobs created in the US in every decade since 1960s did not exist in the decade before that.

[00:35:04] The only thing, and even in China, I don't think you could predict 300 million people would move to farm to factories in 1978 when Deng Xiaoping began his reforms. You could not predict that. So how do you prepare yourself for the future? You can prepare yourself. You can't predict. You have self-healing ecosystems. You have apprenticeships. You have labor market information systems. You have bankruptcy laws. You have vibrant private equity and venture capital systems. See, ecosystems have to be self-healing.

[00:35:33] What was the problem with the 1955 Awadir resolution? Mahana Lubis thought of the economy as a machine. He was an engineer who believed that you could write algorithms or you could write programs. Complex adaptive systems have heuristics because things evolve in response to what happens. So I would say that to make the Indian economy self-healing, we need more formalization, urbanization, industrialization, financialization, and human capital.

[00:36:03] And there is absolutely no way to predict where jobs will be. But if you have a self-healing ecosystem of skills with lots of apprenticeships, with lots of connectivity between degrees and diplomas, between multiple classrooms, using the five design principles I talked about, if you have more formalization with lower regulatory cholesterol, if you have more urbanization with not the 52 cities in India, which we have more than a million people, but the 200 cities with more than a million people.

[00:36:30] If you have more than 11% of our labor force working in manufacturing, we won't get to 30, 40, which countries peaked at. But 11% in manufacturing is the wrong number if we get to 18%. So I think making India's economy self-healing is much more important than predicting where jobs will be. Get the levers in place, make sure it's healthy, it's running. Yeah, I don't think you could target 25% of India's jobs in manufacturing. But if we do labor law reform,

[00:37:00] if we do infrastructure, and Xi Jinping gets a fourth term and he gets a life term, he's our biggest ally for factories moving from China to India. See, right now, India has a bunch of luck also headed our way. Life is a beauty contest. You don't have to be Aishwarya Raya, Milin Soman. You just have to be less ugly than your other competitors. And India hasn't become prettier, it's become less ugly. But this luck is not something to be lived on, it's something to be built on. So I think now that we have luck,

[00:37:29] if we do better urbanization, formalization, industrialization, financialization in human capital, I have no doubt we could move 200, 300 million people from farm to non-farm employment. See, 20 years ago, you could not have predicted. In the last 20 years, China's stock market has done minus 13%. India's stock market has done 1,300%. Yes, they have moved 300 million people off farms,

[00:37:56] and we still have 45% of our labor force in farms. It's quite intriguing to me, you know, and hopefully some economic historians will think about this, that why didn't an autocracy not deliver shareholder returns, and a democracy not deliver wage growth? You know, they delivered shareholder growth, we delivered shareholder growth, and they delivered wage growth. Your intuition would be the opposite, that in a democracy where politicians have to seek votes, they would focus much more on wage growth,

[00:38:25] but we have delivered shareholder growth. But one is not contradictory to the other. India, just like I think it was a mistake of the 1955 resolution that let us deliver mass democracy, but not deliver mass prosperity, I think in the next 20 years, India will deliver shareholder growth and wage growth. We may not be able to predict the future, but can we predict what problems we may perhaps have? Because right now we have a very young working population, but even that population is going to get old at some point,

[00:38:55] 10, 15, 20 years down the line. What are the kind of problems that we need to be prepared for? And also, while we're on that upward trajectory, ascent, how do we encourage the participation of, say, much more skilled Indians who are now living abroad, but perhaps want to see that chance of coming back and contributing in India? But I'm not sure. I think the problems which we have are so obvious that we don't need to worry about future problems. No, I mean,

[00:39:24] middle income trap is $8,000 away. So, what's the middle income trap? AI, ML, what is the nightmare of AI and ML in the US? That 40% of the labor force will generate 14% of GDP? Yeah. What do we think about it? We are already there. 40% of our labor force is already generating. So, I would say, let's be careful in, you know, this navel gazing about which future problems will hit us. It's like, it's like, you know,

[00:39:52] that US new health secretary is worried about, you know, chronic diseases and saying you don't take vaccines. I mean, you're unlikely to die of cancer at 50 if you die of polio at 5. Right? So, let's not focus on the higher order problems right now. I think the reform agenda is full for India. We have to create, make a more fertile habitat for high wage, private, non-farm job creation. It's not an engineering problem. Why?

[00:40:22] The big people like us, now I have, you know, whatever, four and a half lakh employees, don't care about the regulatory cholesterol because I have 150 guys in regulatory affairs. Who handle the regulatory cholesterol, but it affects the small guys. Yeah. You know, all politicians, all policymakers love MSMEs. Yet, the biggest gift you can give MSMEs is not credit. It is lower regulatory cholesterol. And everybody focuses on credit for MSMEs. Everybody gives lip sync,

[00:40:49] but the best gift you can give MSMEs is regulatory cholesterol. Today, they are tortured by the battery of inspectors, by the inconsistent applications of laws, by essentially the rule being, show me the person, I'll show you the rule. Right. What is development? Development is moving from deals to rules. Yeah. In India, if you follow a rule, you feel like you missed a deal. You should have called somebody, and I'm going to do this. That's very inefficient.

[00:41:19] We should move. So, I think in the short run, our agenda for making India a more fertile habitat for non-farm, private, formal job creation is a really big task. It's obvious what we need to do about it. We should get it done. In the long run, these broader forces of, is manufacturing becoming less labor intensive? Is AI and ML going to destroy jobs? We don't know whether AI and ML will make low skill people to the median skill,

[00:41:49] or whether it will make superstars uncatchable. There are two possible outcomes. You know, AI and ML could be a gift to low skill people, because suddenly if you haven't learned to write well, Grammar League can write very well for you. But it could also make superstars uncatchable. So, I think, you know, trying to predict the future is really not essential for good policy making, actually. This is, you know, this is a myth that technocrats have, you know, that, you know, you have to predict the future, and then you have to,

[00:42:18] I think at the level that we are so far from the production frontier, and the productivity frontier in India right now, it's 100 rupees lying on the road. I mean, why are you worried about the 1000 rupees 20 miles down the road, right? Right. I think we should just do what we is in front of us. And we have a bunch of luck. We do have a great opening balance, you know, not, no economist would predict that every American would be eating five made in India pills every day. You know,

[00:42:47] India's generic industry produces 200 billion pills a year. So, on average, an American, and imagine the trust, we haven't been able to get manufacturing right, yet we've convinced Americans to put something in their mouth made in India five times a day. So, an economist would not predict that India would have exported more software than Saudi Arabia did oil. So, I think that given the luck, which is the China luck, the changes in the world of work luck, the digitization super cycle luck,

[00:43:15] the new world of education luck, combining with the skills that we have, which is a world-class pharma and software industry, which are throwing off globally experienced managers through the GCC phenomena, which is creating wonderful alumni for Indian companies. And the main skill now for Indians is that our entrepreneurs have learned to distinguish between their shareholder role, their board member role, and their executive role. See, in the past,

[00:43:42] Indian entrepreneurs thought all those three roles were guaranteed for life and permanent. But now, many Indian entrepreneurs are saying, I'm a shareholder, and I will play my role on the board, but I'll hire a professional CEO who would be better than me. You know, I'd rather be rich than be king. Yeah. It's a good deal to make. So I think that's a form of technology which many Indian entrepreneurs are doing. So combine the luck with the skill, we have a bunch of choices. Dumbledore tells Harry Potter and Chamber of Secrets,

[00:44:09] it is our choices more than our abilities that reveal who we really are. So I think the choices we have are better urbanization, formalization, industrialization, and human capital. I keep coming back to those five because it's really not clear to me that fiscal and monetary policy can help as much as we think it can. There seems to be a bit of regret, perhaps, because especially after the pandemic,

[00:44:41] Indians were hoping to catch up, especially with China and the troubles that they were facing within the house. Southeast Asia, many examples, they picked up. I think some examples from Bangladesh, although right now it's quite need to be careful to comment about that. Even Bangladesh went ahead substantially in certain metrics. Did we actually lose that opportunity, Manishji? I mean, I don't think so. See,

[00:45:10] my view of life is consistently warm beats hot or cold. I don't think India will ever. You know, I remember on our IPO road show, there was a particularly difficult investor about eight years ago who said, exactly 10 years ago, the Chinese economy was the same size as the Indian economy is today. But they were growing at 13% and you're growing at 7%. What do you have to explain the difference? I said, look, we finally have a number. 6% is the fixed cost of democracy. Right. I was being glib,

[00:45:38] but India will never be 13%. It's not the nature. It's not a fitrat in some sense. It's a fix, but we will never be 2% either, you know, for the next 20 years. So I think if somewhere between 6% and 8% growth continues for the next 20 years, you know, compounding is a wonderful, wonderful thing. But is it bad to aim for accelerated growth instead of incremental growth? it's not bad, but the nature of India is that if we're at 6%, don't worry, we're going to 8%. And if we're at 8%, don't worry,

[00:46:08] we're going to 6%. Is my view of the world. And I think if we do this for 30 years, we will be just fine. So if you were to summarize some of the structural reforms that we'll have to look at, say, within 30 seconds, what do you think are the most immediate concerns? On formalization, reduce regulatory cholesterol. On financialization, you know, free up a little more the private equity and venture capital industry. On industrialization, we have to get rid of,

[00:46:36] we have to continue to improve the infrastructure. On human capital, we just have to implement NEP. NEP 2020 has a 15-year glide path. I think we should bring it down to five years. There's really no reason. The 15-year glide path was put into NEP because we were scared of foreign universities, because we were scared of the vested interests in the current education industry.

[00:47:00] But human capital is the only renewable energy available to any country in the world. India has momentum because of engineering college deregulation in South India in the 1980s, which then became the basis for the software industry. But there's a bunch of new industries. We can't predict what they will be, but are, you know, more people speak English in India than they do in the US. And so labor mobility.

[00:47:27] I think thinking about better formalization, urbanization, industrialization, financialization, and human capital is the vectors that should be put. In each one of them, I think this is not some woozy-foozy economist describing what needs to be done. We know exactly what to be done in ease of doing business, rationalize, digitize, decriminalize. We know exactly what to do in urbanization, which is to devolve funds, functions, and functionaries to the third level of government.

[00:47:56] We know exactly what to do in industrialization. So I would submit that in every reform that you propose in India, there is a report 20 years ago that describes the how. That describes the what. It doesn't describe the how. See, our challenge with reforms has been is technocratic reformers describing the what is not as useful as thinking about the political economy. You know, the Sam, Dan, Dan, Beda,

[00:48:25] who opposes it? Why do they oppose it? Can the winners bribe the losers? So I think the, you know, life is second best at best is not a something most technocrats are willing to accept. So I would submit that instead of trying to aim for sort of perfect reforms, we just keep reforming over time, which is why I said the budget is not as important as the dial tone of making India a more fertile habitat. The budget is important for many reasons.

[00:48:53] But if we truly want to make India a developed country, it's going to take a lot more of plumbing and prose rather than poetry and sort of fireworks. It's important in the sense that people really look up to say the budget as a means to get their answers. Right now, there's a feeling that the taxation has increased and somehow that the middle class has been burdened. And that's the sentiment going around. So how do you address, because you,

[00:49:23] it's also about the people and their participation in the larger economic process. I mean, India's tax to GDP ratio will have to go up. Now, does it go up by taxing a few people or does it go up by taxing more people? Yeah. So does it go up by creating more enterprises? See, we are back to non-farm formal highway job creation. If you do that, India's tax to GDP ratio will go up. India's public services will go up. So people will feel that. And you won't have to burden a smaller crowd.

[00:49:53] I think that, you know, fiscal policy is not a solution to India, which is, you know, continuously borrowing or taxing a few number of people. Right. And I think a parting question would be, you look at gift city in Gujarat or even the Queen city that's coming up in Bangalore. I think the governments are even trying to engage Indians living abroad and perhaps get the best of our innovative minds back home. So is that perhaps something that we... I mean,

[00:50:22] India's diaspora is a unique asset for our next 20 years, but I would say it needs to go both ways. We need to take our diaspora from 13 million to 30 million. Okay. You know, we should have a guest worker program where Indians go overseas. In fact, many countries which are aging are going to require a guest worker program. The dependency on remittances is perhaps not... It's not a dependency. Dependencies are... Remittances are a form of services exports. Right. So taking our 120 billion to 300 billion should be objective.

[00:50:52] Taking our software exports from 250 billion to 500 billion should be an objective. Taking pharma exports from 25 billion to 100 billion should be an objective. So I think that... Should be rather unemotional. Yeah. And anyway, brain drain became brain circulation. No. I mean, in some sense. Every unicorn I know in India has some diaspora board member, investor or advisor. And that's a form of technology in some sense. Right. See, India doesn't have a shortage of land labor capital. You could give every Indian household half an acre and they would fit into Haryana and

[00:51:22] Maharashtra. We don't have a shortage of labor. 40% of our labor force is available. And we don't have a shortage of capital because 50% of FDI since 1947 has come in the last seven years or six years. When we deserve the capital, we have the capital. So land labor capital is not the problem. It is how that land labor capital combines. Now, economists call it total factor productivity. Most humans call it technology or entrepreneurship. India's problem is technology, innovation and entrepreneurship.

[00:51:51] It is not factor markets. So I think regulatory cholesterol holds that entrepreneurship back. You know, first generation entrepreneurs like me, my dad was in the police, could not have set up both our companies unless private equity and venture capital had given me the money. Because in my dad's mind, only rich people can start companies because you start company with your own money. But I suddenly learned you can start companies with other people's money. And that's a very old form of technology all over the world.

[00:52:19] Yeah, so I think that for us in the next 25 years, it's a very unique, unique time. You know, when I landed in the US in August 94, there was a front page article on the Wall Street Journal which said that India is more interesting than important. I hope that journalist is eating the newspaper on which she wrote that, right? Because what's happening in India is not once in a decade or once in a millennium. It's really once in the lifetime of a country. But we have to make ourselves worthy of the opportunity. You know, the universe doesn't move on its own.

[00:52:48] You have to get up every morning and push it. And making ourselves worthy of this is within our grasp. You know, in the past, there were geopolitics conspiring against India. There was India conspiring against India. There was economics conspiring against India. But now luck, skill and choices are pointing in a direction that we really have a shot in the next 20, 25 years to leave our weakness behind to become a strong economy that can combine mass prosperity with mass democracy.

[00:53:19] My team had a particular request for me that, you know, try to get as many one-liners as possible from Manish Ji. And I think, thank you so much for giving us that. And also being a voice for the voiceless right now. No, no, that's good. It's always a pleasure talking to you. And this was a particularly good one, Manish Ji. Okay, thank you. We're all set.