India does not change for better; it changes only when there is no option, according to Mr Manish Sabharwal, Chairman, Teamlease Services and a member of the Central Board of Directors of Reserve Bank of India. “If we don’t do reforms now, then when will we do it,” he says.
According to Mr Sabharwal, India needs immediate reforms in banking, compliance, labour laws, education etc because hope is not a strategy. He argues that India needs to increase its credit to GDP ratio from 50% to 100% and it needs more banks, albeit with better regulation.
Mr Sabharwal shared his prescription for rebuilding the economy with India’s business leaders in an online dialogue organized by All India Management Association (AIMA). The dialogue was anchored by Ms Rekha Sethi, Director General, AIMA and it was moderated by Mr Pranjal Sharma, an author and economic analyst.
India has an opportunity to attract global capital because of covid, Mr Sabharwal said. More than $14 trillion money in the world has negative rates of interest, which makes growth everything, and that makes India attractive to the world, he argued. “They have the lending power, but we don’t have the spending power,” he remarked.
The solution, Mr Sabharwal said, was reforms in the laws as they exist in the books because offshore investors do not know how to find ways around the stated laws and look only at how the laws are written. He pointed out that in India’s labour laws, there are 8,000 offences for which an employer can go to jail. However, he said that labour law reforms did not mean having no labour laws. According to him, what Uttar Pradesh government has done will prove counterproductive.
Mr Sabharwal said that having a national minimum wage was a bad idea because the cost of living varies in different areas. He said that the idea of a national minimum wage was no longer under consideration.
India needs a balance between labour and capital availability for enterprises, Mr Sabharwal said. He pointed out that about 22,000 Indian enterprises have most of the capital whereas 63 million Indian enterprises have little capital. He said that the US economy, which is nearly eight times bigger than India’s economy has 22 million enterprises compared to more than 63 million enterprises in India.
Most of the labour in India is absorbed by farms, which contribute only 15% of the GDP with 45% of the total workforce, and self-employment, which is actually self-exploitation, Mr Sabharwal said. “India does not have a job problem. It has a wage problem,” he remarked, adding that India had employed poverty because of low productivity of everything. He pointed out that India ranked 139th in per capita GDP even though its aggregate GDP ranked it as the world’s 5th biggest economy. “Covid has reminded us that the per capita GDP matters more than the aggregate GDP,” he said.
Speaking about economic recovery, Mr Sabharwal said that different sectors were in different stages. He claimed that the FMCG sector was back to 100% whereas there was no lights at the end of the tunnel yet for hotel, airline and construction sectors. “We are in the same storm, but in different boats,” he quipped.
According to Mr Sabharwal, covid has created great business opportunities, but not everybody is in a position to raise funds. He pointed out that bank credit, VC funding and private equity had slowed down since March. However, he added, it is a great opportunity for those who are in a position to raise funds to acquire assets.
On the issue of stimulus package, Mr Sabharwal said that it would be wrong to throw money from the helicopter, as the right thing would be to create a better environment for entrepreneurship through reforms. “This is a time to build for the next quarter century and not for the next quarter,” he said.
The session was attended by more than 700 business leaders, executives and academics.