Knowledge @ Wharton - Interview with Manish Sabharwal - RBI Board member

Key excerpts from Knowledge@Wharton’s interview with Manish Sabharwal. Manish is board member of RBI and Chairman of TeamLease, also an alumni of Wharton,

Does India have a jobs problem or wage problem?

The structural reform of the Indian economy was long overdue. We were stuck in a low-level equilibrium. So, I think the problem is wages. The only solution is productivity.

India has 63 million enterprises. Twelve million of them don’t have an office. Twelve million work from home. Only 8.5 million pay the mandated indirect GST (Goods and Services Tax). Only 1.3 million pay the mandated social security. Most tragically, there are only 19,000 companies in India with a paid-up capital of more than $1.5 million. Sixty-three million enterprises means nothing if it translates to 19,000. I think this sort of sense of humor about the rule of law, which has encouraged this massive informal sector that doesn’t pay the right wages, has to go.

That’s why you have to look at bankruptcy laws, which have been passed in the last year; the GST, which was passed a few months ago; the demonetization, which was done 12 months ago; the real estate law, which was passed; the ease of doing business ranking, which jumped 30 ranks recently. All of this is connected.

On demonetization & key lessons

If we increase the costs of informality and reduce the costs of formality, that will put India on that trajectory for higher productivity, higher formal jobs, higher wages, and put poverty in the museum that it belongs.

My sense is the biggest lessons of demonetization are we need civil service reform. We cannot have these permanent, generalist civil service. They are unspecialized. They’re not ready for India’s scale while the country is already moving faster than them.

Today, 98% of Indian civil servants are ranked outstanding. That’s mathematically impossible for everybody to be above average. I think we need punishment and reward, more specialization, younger people getting top jobs.

On digital payments

now there is the JAM trinity — the Jan-Dhan millions of accounts that were opened up; Aadhaar, which is India’s biometric program; and mobile penetration is now reaching almost 700 million. India is finally getting to critical mass with the plumbing for digital payments

We’ve RuPay, which is a competition to Visa, but it’s a purely domestic card with much lower cost of transactions. Yes, it’s the same way that Japan is thinking about it. But I think it’s early to decide whether that’s the right path to take.

Also questions about bankruptcy laws (for some reason not in the interview transcript, but available in the youtube video), TeamLease & others