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We need to increase productivity
A tale of two Indias – Part II

In the previous post I had emphasized on how ‘Wealth Creation’ is the only long term solution to alleviating the marginalized ‘other India’ and I also talked about how it creates certain chain reactions. However, in another post I had lamented about the sheer number of people that one finds in corridors and hallways in Indian offices. While these two might seem unrelated rants – they indeed are related.

Wealth creation has always been misconstrued (especially post Indira Gandhi politics) as creation of jobs. Sometimes I feel even the new fangled corporate sector gets carried away with this. Many times when I might raise concern to some data centre managers about lack of security for the data centre and the need to put in place sophisticated mechanisms like biometric scanners – the usual immediate response is to propose an increase in number of security guards instead. Similarly I find the policy of having too many cleaners around objectionable.

I remember learning about the concept of ‘disguised unemployment’ in class IX and the typical example it gave was that a piece of land which could be tilled by one farmer, gets tilled by two simply because the other farmer (who usually would be a brother or son) cannot hope to find any other employment. Thus a small farm which otherwise can support only one household, now has to support two, creating a situation of economic depravity for both households.

Similarly, just because human labour is cheap in India does not mean that we should go on using it rampantly. What we need to realize is that this contributes to a drop in the value of human capital, and decreases our productivity as a whole. In the short term this might not impact our financial position because of the huge wage arbitrage that exists between India and the west, but in the long run this could backfire.

If our productivity levels remain low (simply because we get human capital cheap), this will lead to a decrease in our profitability when the wage arbitrage reduces. This phenomenon has slowly started manifesting itself at the higher levels of corporate ladder where companies are increasingly finding middle managers expensive to hire. It might take a good 10 years for this effect to reach the bottom of the pyramid (to sweepers, cleaners and guards), but when it does, the effect will be overwhelming because of the insanely large numbers of people who are being employed in this segment.

Let us look at it from another angle - what happens if a company (in spite of low cost of human capital) employs fewer people for the bottom level jobs. Firstly, the company will be able to pay a higher wage to its workers and thus on the macro scale, its contribution to the economy per household would remain the same. Secondly, it will be freeing resources (say by employing one person instead of two) for other economic activities.

On the flipside - lesser people and higher productivity requires better groomed systems and superior management. There is also a notional drop in the employee strength and one will not be able to flaunt that ‘we have 2 dedicated guards to protect our data centre’ to its clients. But frankly, these negatives are hardly worthy of any consideration.

The most important fallout of this exercise will be the need to generate even more jobs for the resources who are freed. We will also need to impart them with proper skills so that they can be employed in other jobs. In fact this chain should indeed start with reskilling which would automatically make the better skilled workers to migrate away from mundane housekeeping jobs to more meaningful professions.

To conclude unlike the Indira Gandhi Era of nationalization and PSUs the new corporate sector needs to separate wealth creation with job creation – value human capital; employ less people, pay them higher wages. Only this will be an effective and meaningful solution to end the digital divide.

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