Raising India’s wealth and power – our 148th country ranking in hospital beds per capita closely tracks our 142nd country ranking in per capita GDP – needs recognising that economic development is what psychologist Robin Hogarth called a “wicked learning environment”; the rules are not fixed, patterns change, the goals are multiple, and feedback is often delayed or inaccurate. This contrasts with the “fatal conceit” embedded in the 1955 Congress party resolution that assumed development was a “kind learning environment” where rules are fixed, patterns recur, goals are finite, and feedback is immediate and accurate. Change began in 1991 when China and India had the same GDP per capita; the average Chinese is now five times more prosperous. Our reforms have been impactful but incomplete.
Raising per capita income needs higher productivity in our regions (Karnataka and UP have the same GDP though Karnataka has a fourth of the population), sectors (IT employs only 0.8% of the labour force but generates 8% of GDP while agriculture employs 42% of the labour force but only generates 15% of GDP), firms (our largest and smallest manufacturing firms have a 24 times productivity difference), and individuals (sales is the fastest growth entry-level job with salaries varying four times based on skills). These structural transformations require bold reform in formalisation, urbanisation, industrialisation, financialisation and skilling. Pending those, here are five flick-of-pen reforms with immediate impact and no fiscal requirements:
Raise take-home Salaries: Our laws mandate the world’s highest mandatory payroll confiscation; 42% for low-wage employees (this deduction is only 9% for employees with salaries higher than Rs 25,000 per month). Holding employer contribution mandatory, we should modify Clause 6 of the EPF Act and Clause 39 of the ESIS Act to make employee contribution voluntary. Salary is individual property, payroll deductions cannot exceed savings, and PF loans solve a problem that should not exist.
Attack Regulatory Cholesterol: The employer regulatory compliance universe across state and central governments is 60,000+ compliances, 6000+ filings, and 6000+ annual changes. Change has begun; Punjab recently abolished 479 compliances and central ministries are culling. But this needs acceleration with a compliance commission mandated with targets for rationalisation (40%), decriminalisation (50%), and digitisation (100%) by December 2021.
Massifying Employability: Covid has hurt education but accelerated online learning, non-exam assessments, and made skills more valuable. The National Education Policy, 2020, anticipated these changes but the proposed 15-year glide path should be reduced to three years. And immediately license every university for online learning (currently only 32 of our 1,000 universities are), enable degree Apprentices (UGC Act 2F and Apprentices Act Rule 2), and legitimising Skill Universities (UGC Act Chapter 8 and Section 22).
Accelerate Civil Service Reform: Civil service structures currently treat good and bad performers equally, promote too many to top ranks, front load training, sabotage urgency with too many ministries, and undervalue specialisation. We should set a December 2021 deadline for differentiation (can’t rank 98% outstanding), delayering (retirement if not shortlisted for promotion beyond thresholds), and decluttering (cutting central ministries to 25).
Execute Privatisation: Covid shreds public finances but there are limits to raising taxes or borrowing without breeding informality or stealing from our grandchildren. Finishing the privatisation agenda this year will control government debt by taking advantage of strong investor and FDI attraction to India arising from unrealised growth potential, China fatigue, and a global capital glut. More importantly privatisation is strategy signalling; the state will do less so it can do more.
The new book The Ever-Changing Past by James Banner suggests revising history is used by all societies to better understand who they are and where they want to go. This article’s title is inspired by the book Wealth and Power by Schell and Delury that reframed the thoughts and lives of 11 Chinese writers, activists and leaders as China’s 200-year quest for fuqiang (wealth and power) via fuxing (rejuvenation). India has no interest in becoming China; we have remarkably built the world’s largest democracy on the infertile soil of the world’s most hierarchical society. But we have not yet revised our socialist economic history as hurting those it masqueraded to help by sabotaging formal, private, non-farm job creation. To paraphrase Swami Vivekananda, the pain and helplessness of Covid is hopefully a fire that stirs up a fresh vigour in billions of veins; we are responsible for what we are, and we have the power to make ourselves whatever we wish ourselves to be. India is poor but doesn’t have to be.
(The writer is Chairman, Teamlease Services.
Views expressed are his own and not of www.economictimes.com)