India’s Big Government

by Vivek Kaul

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  If you are the kind who reads the inside pages of newspapers carefully, you will find that every few months, a news item which talks about engineers and MBA-degree holders applying for the posts of peons and sweepers in the government appears. Here are a few examples.

  For a requirement of 368 posts of Grade IV staff (peons) at the State Secretariat, the Uttar Pradesh government received 23.3 lakh applications. These included around 250 PhDs, 25,000 post-graduates and 1.5 lakh graduates. The applicants included engineers as well as MBAs. In Chhattisgarh, 75,000 applications were received for 30 posts for peons in the Directorate of Economics and Statistics of the state of Chhattisgarh. The applicants included post-graduates in both the arts and the sciences and engineers as well. The municipality in Amroha in Uttar Pradesh advertised for 114 posts for safai karmacharis, or sweepers. They received 19,000 applications. Many of the applicants were engineers and MBAs.

  These are just a few examples of what seems to have become a regular phenomenon across large parts of India. The headlines of such newsreports normally express surprise at engineers and MBAs wanting to become peons and sweepers.

  Nevertheless, there is a clear explanation for this. Given the skillsets that these individuals possess, the kind of money they would make while working at the lowest level of the government is much more than what they would earn otherwise.

  The average daily earnings of a casual worker in rural areas in 2011-2012 was Rs. 138. In urban areas, it was Rs. 173. A regular worker made Rs. 298 in rural areas and Rs. 445 in urban areas. Now compare this with a worker of a CPSE, who made Rs. 2,005 per day, apart from having a secure job and several other benefits.201 This basically means that a casual worker working in rural areas made around 6.9 per cent per day of what the worker of a CPSE made in 2011-2012.

  Of course, all state governments do not pay as much as the CPSEs do. Nevertheless, the differential is high enough and pushes even engineers, MBAs, PhDs, graduates and post-graduates towards low-level government jobs. As the Report of the Seventh Pay Commission, released in November 2015, points out: “To obtain a comparative picture of the salaries paid by the government with that in the private sector enterprises, the Commission engaged the Indian Institute of Management, Ahmedabad, to conduct a study. According to the study, the total [monthly] emoluments of a General Helper, who is the lowest ranked employee in the government, is Rs. 22,579, [which is] more than two times the emoluments of a General Helper in the private sector organisations surveyed, at Rs. 8,000-9,500.”

  Hence, the IIM Ahmedabad study, “on comparing job families between the government and [the] private/public sector, has brought out the fact that… at lower levels, salaries are much lower in the private sector as compared to government jobs”.

  This abundantly shows that there is an economic incentive for even the educated lot to apply for low-level government jobs. And this is just the official bit. The money earned through corruption is over and above this.

  The broader point being made is that we are producing too many engineers, graduates and MBAs. The number of seats in higher education has jumped up dramatically over the last few years, from 1.1 million (11 lakh) in 2008 to 2.4 million (24 lakh) in 2012.202

  The number of MBAs between 2008 and 2012 has also jumped up, to 4 lakh, from the earlier 1 lakh. Also, the quality of many of these engineers and MBAs is not up to the mark. As Tilotia writes: “India faces a unique situation where some institutes (IITs, IIMs, etc.) are intensely contested while a large number of the recently opened institutes struggle to fill seats…. With most of the 3 million (30 lakh) people wanting to pursue higher education now having an opportunity to do so, the big question that should… be asked… [is]: Are all these trained personnel required? Our analysis seems to suggest that India may be over-educating its people relative to the current and at least the medium-term forecast requirement of the economy.”

  Also, more importantly, the skillsets of those pursuing higher education continue to remain shaky. This is not the best news for a programme like Make in India, which was one of the first policy initiatives that Narendra Modi unveiled after taking over as Prime Minister.

  x It has now been divided into the states of Telangana and Andhra Pradesh.

  6.FROM SON OF INDIA TO MAKE IN INDIA

  Naya hai zamana, nayi hai dagar,

  Desh ko banaoonga machino ka nagar.

  – SHAKEEL BADAYUNI

  More than two decades ago, in 1992, Bruce Springsteen, the man they also call ‘The Boss’, sang a song called 57 Channels (And Nothin’ On). Ironically, 1992 was also around the time when Cable TV first started to spread across India. It was in 1992 that I first heard the Springsteen song on MTV and wondered what he really meant by it.

  I was about to turn fifteen, and had lived in an India which had had just one TV channel—the government-owned Doordarshan. The song made me wonder how more TV channels could be a bad thing. We were coming out of an India which had just one television channel, and we thought that more TV channels would be better than just one. It was an era when the choice of watching TV was limited to that single channel. Okay, there was DD Metro as well, but only in the bigger cities.

  But now, around a quarter century later, I can safely say that I am bored with too much TV. Monopoly was when Delhi Doordarshan used to broadcast Chitrahaar twice a week at 8 pm on Wednesdays and Fridays. (Large parts of the country got to watch Chitrahaar just once a week on Wednesdays. Growing up in Ranchi, where Delhi Doordarshan was broadcast, we were among the lucky ones.)

  For the uninitiated, Chitrahaar was a 30-minute programme on Doordarshan that played Hindi film songs. I used to look forward to it and had great fun even if Nanha munha raahi hoon / Desh ka sipahi hoon, from the movie Son of India and written by Shakeel Badayuni, was played for the umpteenth time. Loosely translated, the song talked about a young boy who thought he was also a soldier for his country.

  The great filmmaker Mehboob Khan’s last film release was Son of India. The movie was released in 1962, and Khan died in 1964. The movie is now more or less forgotten, except for the song mentioned above. The song was a regular feature during the propaganda-driven days, when Doordarshan was the only TV channel in town and Chitrahaar one of the few entertaining shows that one could watch during the course of the week.

  The song was shown regularly on Chitrahaar, and given that, perhaps a whole generation grew up listening to it. One of the lines in the song is “Naya hai zamana, nayi hai dagar / Desh ko banaoonga machino ka nagar”. Loosely translated, this means “in this new world, we will make India a nation of machines and factories”.

  Fifty-two years after the 1962 release of Son of India, Narendra Modi was elected as the Prime Minister of India in May 2014. Modi gave the call of Make in India in September 2014, echoing sentiments of the Nanha munna rahi hoon song. The Make in India website, when it was first launched, defined it as “a major new national programme designed to transform India into a global manufacturing hub”. (I can’t find this line on the website anymore, but I clearly remember writing about it.) Satish Y Deodhar of IIM Ahmedabad also mentions this in a February 2015 working paper, where he writes that the Make in India mantra gives an impression that “it is an invitation only to foreign firms to produce in India”.203

  The Make in India plan specifically aims at creating 100 million (or 10 crore) jobs by 2022.204 Over and above this, it seeks to increase the share of manufacturing in the Indian economy to 25 per cent of the GDP by 2025.205 If this is to be achieved, the manufacturing sector will have to grow by 12-14 per cent per year.

  The Make in India programme specifically hopes to achieve skill enhancement of the Indian workforce, which will then feed into job creation. As of now, there is a huge skill gap, both in terms of quality and quantity of the workforce. Only 6-7 per cent of the Indian workforce has received some form of vocational training, and hence, this needs to be taken up with the utmost urgency. Apart from the new individuals joining the workforce ne
eding skill training, even the existing workforce would need specific skill training (or retraining, for that matter).206

  The one good thing here is that the government has realised that it can’t go about doing this on its own and has started involving the private sector in a big way. Also, one challenge the government (and even the private sector) is likely to encounter very quickly as it tries to scale up is the shortage of individuals who can impart skill training. To get around this, to some extent, the talent and experience of the retired personnel of the army as well as the railways could be used. Between them, the army and the railways have many personnel who introduce, maintain and upgrade electrical and mechanical equipment of various kinds for their own use.207

  Over 60 per cent of India’s population is in the working age group of 15-60 years. The country has the largest young population in the world. Indeed, this is a huge challenge. The National Manufacturing Policy of 2011 estimates that this would entail the creation of 220 million (22 crore) jobs by 2025 in order to cash in on the demographic dividend. As the Policy points out: “The manufacturing sector would have to be the bulwark of this employment creation initiative. Every job created in manufacturing has a multiplier effect of creating two to three additional jobs in related activities.”

  The multiplier effect of manufacturing would lead to more jobs in the services sector. Take the case of more cars being made and sold. Job growth would also happen in the associated areas of manning petrol pumps and maintaining and repairing vehicles. It would also lead to an increase in the demand for drivers. In fact, this point is made by RC Bhargava, the Chairman of Maruti Suzuki. Bhargava points out that every third car bought in India is not driven by the owner, but by a hired driver.208

  Data from the Society of Indian Automobile Manufacturers (SIAM) points out that around 2.8 million (28 lakh) cars were sold in India in 2015-2016. If every third car is being driven by a driver, as Bhargava claims, then that means a few lakh new jobs for drivers having been created just in 2015-2016 alone, depending on how many individuals were buying a car for the first time and how many were upgrading. And a few lakh jobs a year is a substantial number. Of course, with the sad state of the roads all across the country, all these new cars also mean that it will take us more time to get anywhere, with the overall traffic speed slowing down even further.

  The broader point is that the setting up of new factories will lead to an increase in jobs in the services sector as well. Jamshyd Godrej, Chairman and Managing Director of Godrej & Boyce, the diversified engineering company, makes a similar point. Godrej recalls a time when most of his company’s employees used to work in the factory. Now, the number of employees working outside the factory is four to five times the number of employees working in the factory.209

  The moral of the story is that success in manufacturing also leads to employment growth in the services sector, where incomes are significantly higher than those in agriculture. In this scenario, it is important that the government realise that the success of Make in India should not depend on just the number of manufacturing jobs it ends up creating.

  In 1980, more than three and a half decades ago, the output per worker in industry was three times that of one into agriculture. In the case of services, it was four times. By 2011, the output of a worker in industry was four times that of one in agriculture. In services, it was seven times.210

  Hence, if the economy has to grow, jobs need to be created in other sectors, and people need to be moved away from agriculture. Also, it is important that many of these jobs be for low-skilled labour. This is a necessity if “unpleasant, even explosive, outcomes are to be avoided”.211

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  The Make in India programme aims at government action facilitating foreign direct investment into various sectors. In fact, the Foreign Direct Investment (FDI) coming into India has been very robust. In 2015-2016, it stood at $55.5 billion, the highest that it has ever been during the course of a financial year. It had stood at $36 billion during 2013-2014. Over and above this, the government has plans to build smart cities as well as develop industrial corridors.

  It had identified 25 sectors which it plans to promote. These include employment-intensive industries, like garments and textiles, leather and footwear, food processing, and gems and jewellery. It also includes strategic industries, like shipping, renewable energy, and aerospace and defence equipment.212

  Furthermore, the average small and medium enterprises in India continue to remain small. The Make in India programme wants to facilitate an environment in which these enterprises grow bigger than they currently are and create jobs in the process. The small and medium enterprises contribute around 45 per cent of the manufacturing output as well as 40 per cent of the exports. The sector also offers jobs across diverse geographies.213

  In fact, a close reading of the National Manufacturing Policy of 2011 tells us that Make in India was largely inspired by it. The question to ask here is: What went wrong during the intervening period between 1962, when Shakeel Badayuni wrote the Nanha munha raahi hoon song, and 2014, when the Make in India programme was announced?

  Why are we still talking about aiming to build factories and a vibrant manufacturing sector more than half a century later? Also, wasn’t Jawaharlal Nehru’s attempt to build public sector enterprises also a version of Make in India? It was, and it failed. In the process, the country ended up spending too much money on public sector enterprises and too little on primary education, as we have already seen.

  While size has helped the Indian democracy, it has also led to many policy errors which shouldn’t have been made. As TN Ninan points out in The Turn of the Tortoise: “Successful small countries find it easy, indeed necessary, to focus on export markets because their internal markets are too small to support scale production. But India is big enough to offer the potential of a large domestic market; inevitably, that became the focus of policy.”214

  The countries of South-East Asia also started with import substitution (or producing only for the domestic market), but quickly shifted their focus towards exports. India continued to favour import substitution for much longer, and this has had its repercussions. When companies produce for the global market, they need to compete with the best in the world. This automatically leads to a situation wherein the products which a company produces need to be globally competitive.

  On the other hand, when import substitution is the norm and companies need to produce just for the internal market, almost anything goes. What did not help was that the licence raj, which was unleashed by Indira Gandhi (another example of Big Government), essentially ensured that there was next to no competition in many product markets. Automobiles are an excellent example. For a very long time, consumers had access to only two brands—the Ambassador, manufactured by the Birlas at Uttarpara near Kolkata, and the Premier Padmini, by the Walchand group at Kurla in Mumbai.

  Import substitution as an economic strategy also came from the fact that India was coming out of more than two hundred years of British rule and so wanted to be self-sufficient. This point becomes clear from a paragraph from Jawaharlal Nehru’s book The Discovery of India: “The objective for the country as a whole was the attainment, as far as possible, of national self-sufficiency. International trade was certainly not excluded, but we were anxious to avoid being drawn into the whirlpool of economic imperialism. We wanted neither to be victims of an imperialist power nor to develop such tendencies ourselves. The first charge on the country’s produce should be to meet the domestic needs of food, raw materials, and manufactured products. Surplus production would not be dumped abroad but be used for exchange of such commodities as we might require. To base our national economy on export markets might lead to conflicts with other nations and to sudden upsets when those markets were closed to us.” 215

  With such views held by the first prime minister of India, it wasn’t surprising that India stuck to an import substitution strategy even later, when it wasn’t fashionable to do so. It i
s important to point out here that, even though Nehru was enamoured with socialism, he did not want to emulate the USSR’s bloody revolution and the civil war that followed in the 1920s. Nehru was a Fabian socialist. As Satish Y Deodhar writes in a research paper titled ‘Make in India—Rechanting the Mantra with a Difference’: “Like the Roman general Fabius, who won battles by slowly tiring his opponents, Fabian socialists believed in slow changes.” They did not believe in bloody revolutions.216

  At the same time, as mentioned earlier, it is fashionable to blame Nehru for much of what followed during the period when Indira Gandhi, Nehru’s daughter, governed India. When Indira Gandhi was Prime Minister (through much of the period between 1967 and 1984, except for a brief period between 1977 and 1979, when the Janata Party was in power), the government attitude was exceptionally anti-business. But how can Nehru be blamed for that?

  As the economist Arvind Panagariya, the current Vice-Chairman of NITI Aayog, writes in his 2008 book India—The Emerging Giant:217

  The key element in Nehru’s thinking on trade policy was that India needed to be independent of the world markets. He saw this independence as essential to maintaining political independence…. While Nehru did want domestic production to eventually replace imports, there are no statements in his writings or speeches to suggest that he wanted to achieve this by erecting import barriers.

  Due to these reasons, India kept concentrating on import substitution for an inordinately long period of time and, in the process, never developed the ability to produce quality products that were needed to compete in the international market. Thus, the country never got an export strategy going.

  In 1991—How PV Narasimha Rao Made History, Sanjaya Baru talks about the industrial policies of Jawaharlal Nehru and his daughter Indira Gandhi. As he writes:218

  These were policies which prevented Indian firms from becoming globally competitive, which kept foreign investment away in the name of promoting domestic business, which required entrepreneurs taking risks to first secure [the] permission of a joint secretary in the Ministry of Industry, with the official concerned having no clue about the risks involved or the options available; which told firms where to invest, how to invest, how much to invest, etc.