Has India given up on scale?

Small-scale, local or state-level solutions do not match up to the size of India's ambitions

Whatever else may be underwhelming about Prime Minister Narendra Modi’s government, you cannot say it lacks ambition. Mr Modi’s Independence Day speech reiterated and expanded the targets he has set for India in 2022; some had earlier been outlined in more detail by Finance Minister Arun Jaitley in a Budget speech. Few could disagree with the notion that a pukka house, reliable electricity, health care, and a decent wage are necessary targets, and with the timeframe within which the prime minister expects that these should be delivered. 

To create a decent society, with a vastly expanded set of those earning enough, requires India to think and act on the largest possible scale. The millions who join the workforce daily expect it; the gap between what is promised and what is provided requires it.

I fear, however, that the concrete vision for progress shies away, in many important respects, from action at this scale. Let’s look at just three ways in which this might be true. 

First, the government has moved away from promising jobs to urging individuals to become “job creators”. This is an interesting framing of a change in approach that it no doubt believes has been forced on it by its failure to actually create jobs. (Note: I accept that governments do not, in any real way, “create jobs” themselves; but the government seems to have tacitly accepted that, under its watch, the private sector is not creating enough jobs.) 

What does shift in focus actually mean? It implies that the government is relying on a combination of interventions — financial inclusion, digitisation, and so on — to create innovation and entrepreneurship at the grassroots. Certainly, this would be a great achievement. And the effort to broaden financial inclusion is indeed action at the kind of scale that we need. 

But suppose small-scale entrepreneurship cannot create the quality or the number of jobs we need? Are we giving up on big companies as engines of job creation? Speaking at the release of the NITI Aayog’s three-year “plan” last week, officials complained that India Inc was not investing in labour-intensive industry. What concrete actions are being taken to change that? A basic rule of governance is that, if the private sector is not acting as the government would like it to, then that is not the private sector’s “fault”; it is a product of the wrong regulatory environment. 

So, question one: Are we giving up on big companies? Note that this comes at a time when smaller enterprises have been delivered an enormous knockout blow by demonetisation and then the goods and services tax (GST). A recent analysis of listed companies by the Reserve Bank of India showed that companies with paid-up capital of under Rs 50 lakh saw net profits fall by 23 per cent in 2016-17. Companies with sales of less than Rs 25 crore saw revenue fall by 44 per cent. This doesn’t look like a sector capable of reviving the supply of jobs. Nor is investment here going to be easy; commercial bank credit has slowed so much, and the government has been so slow to resolve the banking crisis that alternative forms of financing investment will be needed: Corporate bonds, for example. But, naturally, that helps only larger companies. If there’s a revival, it will come at the top end of the scale. 

Here’s question two: Are we thinking of reform at scale? At the same NITI Aayog function, officials also complained that companies are not taking advantage of areas where labour law has been reformed or rationalised. In other words, rather than recognising the failure of piecemeal reform to factor in markets, the blame is being put once again on the private sector. It should be clear that state-led and local approaches are no replacement for nationwide changes; the officials’ own concerns underline that fact. Question two: Are we giving up on big reform? 

Even the GST, a nationwide, big reform if ever there was one, has stopped short in certain crucial ways. For one, I do not understand why a single national indirect tax requires multiple different tax offices and multiple different points of payment. State tax officers “winning” here meant everybody loses. Scale is not just about size: It is about scope. It is about expanding the effectiveness of policy while minimising the scarce government managerial constraints required. We needed a simple, universal, minimal-complexity, low indirect tax, with a single tax authority overseeing it. That is not what we got. 

Illustration by Ajay Mohanty

These two errors together mean that there India’s private sector is struggling to achieve scale. But even if these two were corrected, do we have the workforce that these companies could hire? The ‘Skill India’ mission abandoned, in June, its target of skilling 500 million people by 2022. Only 11.7 million were trained in the first two years of the Modi government; it is not known how many of those received jobs. Worse, school education is struggling; the Annual State of Education Report (ASER) and other similar surveys have shown a significant drop in learning outcomes. Yet the government has not sought interventions at scale here. The most that is being suggested is reform of the RTE mandate to change it to a “right to learn”. This, unfortunately, might only repeat the errors of the past. It will put more pressure on state managerial capacity — and thus scale will be limited. 

The government has worked on a platform for online learning, called Swayam. This could and should have been the way in which education scaled up. But the government has failed to tightly link this platform to certification and evaluation, and tightly link that certification to the job market. If you want an intervention at scale, that forward integration should have been a priority, but it has not been. So, Question three: Is ‘Big education’, as it were, also being abandoned?

The government has shown its ambition. It has, when it comes to infrastructure, financial inclusion, and power, shown also its ability to focus and to act at scale. But these are no longer the binding constraints on creating an India with less under-employment and a better standard of living. If its ambitions are to be realised, India should not give up on scale so soon.
 

m.s.sharma@gmail.com

Twitter: @mihirssharma