A cautionary tale for our decision-makers

Formal sector jobs in India are scarce and are highly regarded. The most generous assumption (Economic Survey FY2018) is that there are only 127 million formal jobs in 10 million enterprises, either registered under GST, the Employees State Insurance Scheme or Employees Provident Fund Organisation. Add another 18 million jobs in the government and the total formal sector employment is 145 million, or 61 per cent of the 238 million total non-farm jobs.

The remaining 93 million people work in 62 million private enterprises which are neither registered under GST nor under the employee insurance or pension schemes.

Overlay this construct with the income-tax data for the same year and the situation becomes even worse. Only 47 million individuals (out of 145 million); 1.1 million partnership firms and 0.8 million companies (out of 10 million) filed income-tax returns. The rest, while being a part of the formal sector, remained outside the income-tax net.

Taxable income kicks in at the miserly Rs 2.5 lakhs per year. Consequently, this set of 47 million income-tax payers (20 per cent of the non-farm workforce) comprise those who are either rich enough to get an income without working; the well-off self-employed or employees in the formal sector. Of this privileged set, about 40 per cent (18 million) are those who work in the government and the public sector.

The top one per cent of the population — around 13 million people — comprising business elites, political dynasties, land-owning “kulaks”, caste elites with muscle, storied filmstars and entertainers, the children of top business executives, doctors, lawyers, chartered accountants and the senior bureaucracy, are born into the “izzat” of “good families”. They trace their family history over a few generations. They are networked with those who count in public life, live in exclusive areas and seven decades after the British left, still exude the elitist hauteur of the Raj.

Of course, things have changed. Technology and economic liberalisation have initiated the growth of new entrepreneurs from amongst the middle class who in turn have created new job opportunities in the cities. But for the average person in the eponymous middle class -- a classification which spans everyone who is neither in the top 10 per cent nor in the desperately poor, bottom 40 per cent earning less than `15,000 per family per month — you have to earn your “izzat”. Prime Minister Narendra Modi is a good example of such “fire in the belly”, as indeed was the industrialist who came in from nowhere — Dhirubhai Ambani.

Becoming rich is a sure way of getting there. Crime is an option for daredevils. Business is for the brave. But the average middle class child aims to excel at studies in school and then college, hoping to get into one of the top 10,000 companies or the senior echelons of the government. It is this set of around five million middle class children, who look for “good” jobs every year, for whom heartbreak is just one slip away.

Can the government do something to reduce the pressure on such kids? Increasing the number of "good" jobs is the best option. But it is well beyond the capacity of the government to provide these jobs. At best, it can restructure its workforce to substitute low skilled workers with skilled professionals as the former retire.

Professionals constitute at best 12 per cent of total government employees, so even doubling the strength of professionals only adds around two million "good" jobs over 20 years at the expense of not replacing around 0.1 million low-skilled jobs lost due to attrition every year.  This is very minimal relative to the demand for jobs.

The government can reduce the stress of the “make or break” system of recruitment it currently follows, whereby you can only join a cadre at a young age. Recruitment should be position based for specific terms contractually defined, and not for entering a cadre or a service. This mechanism allows a “second chance” to “late bloomers” and “late adapters”. It is a superior option to increasing the maximum age of entry with multiple attempts to “crack” the entrance examinations.

If the states and local bodies follow a similar strategy, around 0.3 million professional positions could be recruited annually on an open competitive basis against transparent and strict eligibility criteria. Small beans, but useful options for a career switch.

The large private sector is similarly unlikely to add significantly to jobs. The focus there is on robotics and automation, not just in manufacturing but even in the service industry like food delivery and e-retail.

The real opportunity for growing jobs lies in the 62 million small and medium enterprises, which currently employ around 93 million people. This is neither easy, nor can the pace be forced. The task is highly specialised. It needs local organisations with the financial resources and experience to mentor entrepreneurs till they operate at scale.

To create millions of “good” professional jobs, we need at least a 20-year programme of financial support at commercial rates of interest; hands-on management support and oversight by experienced professionals. The availability of easy money through subsidised loans, like the Mudra scheme, is inefficient. Money should never be cheap if it is to be used well.

Nor must failure be held against an entrepreneur. Instead, prompt corrective action can ensure that loans are not misused for consumption and fit the size and time profile of each proposed investment. We are blessed, says Nitin Desai, a former chief economic adviser to the Union government, that the Indian economy is government-proof. An annual real growth of seven per cent can by itself end poverty by 2040, if it's combined with targeted income support measures. Improved education, health and infrastructure services will similarly enhance well-being.

But unless we can create an additional 100 million “good” jobs by then, the youthful energy pouring out from our demographic dividend can be dissipated in wasteful anger and hate. It is a cautionary tale, told by an idiot, for clear thinking decision-makers.