This is an archive article published on December 22, 2022
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Opinion With India crossing China’s population next year, how we can create mass prosperity
Experience and evidence now firmly suggest the odds of mass prosperity in the planet’s most populous nation rise from possible to probable by anchoring our strategy in human capital and formal jobs rather than fiscal or monetary policy.
The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed. (Illustration by C R Sasikumar)
January 3, 2023 03:34 PM IST
First published on: Dec 22, 2022 at 07:19 AM IST
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Sometime in April 2023, we estimate that India’s 1.43 billion people will exceed China’s population. This milestone is bittersweet. Sweet because we have more than doubled the horrible 31-year life expectancy the British left us with in 1947, without brutal freedom-destroying state interventions (China’s one-child policy means it will lose workers equalling France’s population in the next decade). Bitter because mass prosperity for massive populations is hard. India’s large remittances from a small population overseas reinforce that our mass prosperity strategy should be human capital and formal jobs.
A strong case for human capital-driven productivity is our software employment — 0.8 per cent of workers generate 8 per cent of GDP. This case is reinforced by remittances from our overseas population of less than 2 per cent of our resident population crossing $100 billion last year. A World Bank report suggests that the qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries (the share of Saudi Arabia, the UAE, Kuwait, Oman, and Qatar dropped from 54 per cent to 28 per cent) to high-skilled formal jobs in high-income countries (the share of the US, UK, and Singapore increased from 26 per cent to 36 per cent) is significant. Last year, the US replaced the UAE as the single biggest source country with 23 per cent of remittances. Our rich forex remittance harvest — roughly 25 per cent higher than FDI and 25 per cent less than software exports — is fruit from the tree of human capital and formal jobs.
A modern state is a welfare state, but this does not default to muscular fiscal and monetary policy. Monetary policy is, at best, a placebo, painkiller, or steroid especially since credit availability is a bigger problem in India than credit cost. And if fiscal deficits could make countries rich, no country would be poor. The freebie rejection by Gujarat’s electorate is heartening but this generationally unfair policy will resurface in the 2024 national elections. Global experience suggests where governments spend money (pensions, interest, salaries, education, healthcare, roads, etc) and how this spending is financed (taxes or debt) matters more than how much is spent (about Rs 80 lakh crore in India this year). Covid made enormous fiscal and monetary policy demands, but the bigger the binge, the bigger the hangover. Western central banks are struggling to shrink their balance sheets because they used what Harvard’s Paul Tucker calls “unelected power” to chase goals outside their mandate, administer medicine with poorly understood side effects, and speed down highways with no known return paths.
Academics encouraged these articulate technocrats by suggesting interest rates will remain low indefinitely so fiscal deficits matter less than they did. This lack of history and humility has not aged well — rich-country borrowing rates have risen by 300 per cent plus and inflation hurts the poor the most. India avoided these fiscal and monetary policy excesses. This prudence now combines with previous structural reforms (GST, IBC, MPC, UPI, DBT, NEP, etc) and a reform “tone from the top” to create a fertile habitat for productive citizens and firms.
The Union budget in February will renew the reform agenda. The Ministry of Finance is the closest we have to a Ministry of Employment. The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed. It should reduce the implementation glide path for the powerful National Education Policy 2020 from 15 years to five years. It should abolish separate licensing requirements for online degrees and freely allow all our 1,000-plus accredited universities to launch online learning. It should accelerate growing our 0.5 million apprentices to 10 million by allowing all universities to launch degree apprentice courses under tripartite contracts with employers under the Apprentices Act.
It should notify the four labour codes for all central-list industries while appointing a tripartite committee to converge them into one labour code by the next budget. It should continue EODB reforms by designating every enterprise’s PAN number as its Universal Enterprise Number. It should explode manufacturing employment by abolishing the Factories Act — this painful Act accounts for 8,000 of the 26,000 plus criminal provisions in employer compliance — and require all employers to comply under each state’s Shops and Establishment Act (like Infosys, TCS, and IBM India do). It should create a non-profit corporation (like NPCI in payments) that will operate an API-driven National Employer Compliance Grid and enable central ministries and state governments to rationalise, digitise and decriminalise their employer compliances.
It should reduce the gap between chitthi-waali salary (money numbers in employment letters) and haath-waali salary (money received in hand) by making employees’ provident fund contributions optional but raising employer PF contributions from the current 12 per cent to 13 per cent. It should notify a previous budget announcement to create employee choice in their contributions to health insurance (ESIC or insurance companies) and pensions (EPFO or NPS). Most importantly, it should link all employer subsidies and tax incentives to high-wage employment creation (a difficult-to-fudge and easy-to-measure effectiveness metric for this public spending is employer provident fund payment).
India and China’s per capita GDP was equal in 1991; theirs is now five times higher. Arguably, unlike when China started serious reform in 1978, India today faces a more unfavourable global context of growth, exports, and manufacturing. Also, China’s reforms were faster and crisper without the fixed costs of democracy. But this deficit led to their unchallenged policies of Cultural Revolution, one-child norm, and zero-Covid. India’s cantankerous democracy is a strength. An excellent new book, We the People of the States of Bharat by Sanjeev Chopra, suggests our constantly changing internal maps since 1947 reflect India’s ability to reconcile diverse aspirations because people think in decades, countries think in centuries and civilisations think in millennia. Experience and evidence now firmly suggest the odds of mass prosperity in the planet’s most populous nation rise from possible to probable by anchoring our strategy in human capital and formal jobs rather than fiscal or monetary policy.
Sabharwal and Dhawan are co-founders of Teamlease Services and Ashoka University, respectively
The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed. (Illustration by C R Sasikumar) 
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A strong case for human capital-driven productivity is our software employment — 0.8 per cent of workers generate 8 per cent of GDP. This case is reinforced by remittances from our overseas population of less than 2 per cent of our resident population crossing $100 billion last year. A World Bank report suggests that the qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries (the share of Saudi Arabia, the UAE, Kuwait, Oman, and Qatar dropped from 54 per cent to 28 per cent) to high-skilled formal jobs in high-income countries (the share of the US, UK, and Singapore increased from 26 per cent to 36 per cent) is significant. Last year, the US replaced the UAE as the single biggest source country with 23 per cent of remittances. Our rich forex remittance harvest — roughly 25 per cent higher than FDI and 25 per cent less than software exports — is fruit from the tree of human capital and formal jobs.
