Noise vs Signal

The release of the Labour Bureau numbers for 2015/16 was accompanied by the usual outrage - unemployment rate was up from 4.9 per cent two years ago to 5 per cent, 77 per cent households did not have salaried or regular wage earning members, women's unemployment rate was 50 per cent more than men, and much else.

These numbers are a statistical distraction. With 90 per cent of India employed informally and 40 per cent of our labour force making enough money to live, but not enough to come out of poverty, India's problem has not been jobs but wages. Our unemployment rate is not fabricated and almost everybody who wants a job has one, but they do not get paid as much they need or want to.

Twelve years ago when we started Teamlease, youngsters used to tell us "Naukri dilla do (help us get a job)". Three years ago, they said "Acchi naukri dilla do (help us get a good job)". Now, it has come to "Dus hazaar rupay ki naukri dilla do (help us get a job of Rs 10,000)".

Therefore, it is time for policymakers to ignore the noise around unemployment numbers and focus on three interventions - urbanisation, regulatory cholesterol and human capital - to improve productivity and wages.

Urbanisation

The most important question to ask in this context is whether we are taking the jobs to the people or the people to the jobs. In political imagination it may well be about taking the jobs to the people. However, in reality, development translates into massive labour migration. This is so because we have only 50 cities with more than one million people. In comparison, China has 375 cities with a population of one million or more. We have 600,000 villages of which 200,000 have less than 200 residents.

We need to accelerate urbanisation of the good kind - urban areas that catalyse the virtous cycle of productivity-led higher wages are areas that have effective governance, mixed-use areas to minimise commute time, public transport, waste management to avoid disease, and much else. Smart Cities are as much about software as they are about hardware, and a key intervention must be directly elected mayors. Today's city leadership is either unelected or impotent. But in 1924, Vallabhai Patel, Jawaharlal Nehru, Rajendra Prasad and Chittarajan Das were mayors of Ahmedabad, Allahabad, Patna and Calcutta, respectively, and did interesting work setting up street lights, schools and sanitation infrastructure (where the political rubber meets the road).

Regulatory Cholesterol

Complex, conflicting and inconsistent legislation and rules make life for entrepreneurs very difficult across verticals, including labour, taxes, environment, land and much else. GST will be a huge gift to entrepreneurs and it must be followed up with a similar "drying the swamp" for labour laws. It's unfair, unwise and unnecessary to equate labour law reforms with tackling the infamous Chapter VB of the Industrial Disputes Act (hire-and-fire). There is a lot of plumbing reform around making compliance transparent, seamless and hassle-free. In fact, three meta-plumbing reforms - unique enterprise number (UEN), employee salary choice and a PPC compliance portal (paperless, presenceless and cashless) - are the right place to start.

UEN is important because every company has more than 25 different government numbers, such as PF, ESI, TAN, PAN, LWF, etc., that can easily be replaced by PAN. Emplo-yees' salary choice is important because India has the highest payroll confiscation in the world (45 per cent of salary is confiscated at source for low-wage employees in a cost-to-company world) leading to the constant question at job fairs - haath waali salary ya chitthi waali salary (net take home pay or cost-to-company)? More importantly, these deductions are massively regressive.

The 45 per cent for employees with wages of Rs 15,000 per month falls to 9 per cent for employees with wages of Rs 55,000 per month. Recognising that their monopolies had made the Provident Fund Organisation and ESI unresponsive - EPFO is India's most expensive government securities mutual fund and ESI is India's biggest health insurance programme by claims ratio - we must implement the last Budget speech promise of employee choice for the provider of their provident fund and health insurance benefits.

The PPC compliance portal is important because our guestimate is that labour laws currently cost employers approximately 5,000 million sheets of paper per year (about 600,000 trees), many lakhs of man hours and mandate hugely inefficient banking transactions, and much petty corruption. The Shram Suvidha portal must adopt the India stack and give dates for all 44 labour laws to go paperless, presenceless and cashless in the five interactions between employers and the government (registration, licensing, permissions, returns and registers, inspections and payments), and employees and the government (benefits).

Human Capital

Nobody knows what comes first - jobs or skills? But it is clear that no country has progressed without the huge and long-gestation investment in human capital. We would like to make the case for radical reform in three areas - schools, skills and higher education.

Instead of massification of higher education, we need vocationalisation of higher education. We need large vocational universities that focus on employability to complement current small universities that focus on knowledge and research. We need a massive policy shift in school education from enrollment to learning outcomes. The Right to Education Act currently confuses school buildings with building schools and must be amended to become the Right to Learning Act.

The new Ministry of Skills has made a good start but must actively focus on raising the number of apprentices in India from 400,000 to 15 million. This massive increase in learning-by-doing and learning-while-earning should be accompanied by a massive deregulation of distance education. Instead, online learning should be allowed for these apprentices to be eligible for academic credit and to connect them concurrently or sequentially to a distance or online qualification corridor of three-month certificates, one-year diplomas and three-year degrees. India's impossible trinity of cost, quality and scale in education needs more experimentation; a number of statistically independent, genetically diverse attempts that are only possible with massive deregulation.

This wage crisis arises because most of our enterprises are dwarfs (small companies that will stay small) rather than babies (small companies that will grow big). India's embarrassing enterprise stack - of our 63 million enterprises, 12 million do not have an office, 12 million work from home, 8.5 million have tax registrations, 1 million are companies, and 17,500 of these companies have a paid-up capital of more than Rs 10 crore.

This massive informalisation of our enterprises is an important source of our poverty because enterprises can only pay the wage premium if they are productive. Formal enterprises are more productive than informal ones and bigger enterprises are more productive than smaller ones because formalisation and scale lead to access to credit, talent, knowledge and customers. Most of our employers are small and informal for many reasons, the three most important being urbanisation, regulatory cholesterol and human capital. Focusing on these three areas will make India a fertile habitat for formal, high-wage job creation. Let's shift political, social and intellectual outrage from unemployment to formal employment if we really care. ~

The writers are Chairman and co-founder, TeamLease Services, and Executive Vice President, TeamLease Services, respectively