The biggest challenge for the government in the Union Budget is not meeting its revenue target, but creating enough jobs to prevent a demographic disaster in the country, Mohandas Pai, the chairman of Manipal Global Education Services Ltd. Pai told BloombergQuint in an interview.
India is on the verge of losing out on its demographic dividend and creating a “lost generation” of 20 crore people between 2010 and 2030 as the country has failed to create enough job opportunities, Pai said. The only solution is to ensure more jobs in the services and manufacturing space, and move towards reforming the education system, he added.
Here is an edited excerpt of the interview.
Where are the next 100 million jobs going to come from?
I am very worried that with automation, with 3D printing, and more efficient supply chain and technology, we will have to be very careful about jobs. We need to grow at 9-10 percent and develop our market and manufacturing to become more cost-efficient. Margins for the manufacturing sector will have to come down to ensure lower costs, so that consumption can go up. It has to be a mass-manufactured, consumption-led economy with prices on a downtrend and not the selective manufacturing where you only take the top 20 percent of the market. Its (costs) have got to come down, like in China, and expand the base so that everybody can have food and services at reasonable prices. And jobs have to come out of that. In services automation, more skills are required, more education is required. We are in the midst of a ‘demographic disaster’ in this country. Over the last 10 years, at least 10 crore youngsters in the age group of 21-31 have had no job or poor jobs. Over the next 10 years, another 10 crore will join the list and that’s why we have got the Gujjar agitation, the Jat agitation, the Patels fighting it out, the Marathas fighting it out and the Kamas fighting it out. These are all manifestations of what is happening, the fact that in the last 10 years we didn’t produce any jobs and in the next 10 years I don’t know where jobs are going to come from.
So how do you resolve the issue?
Unless consumption increases, unless growth increases, jobs will not come. If consumption and growth increases to 9-10 percent, something that Prime Minister Modi wants to achieve, with digitisation which increases efficiency, lower supply chain cost with the rollout of the Goods and Services Tax and one common market, the velocity of business will go up. That will create many more jobs in the services sector. Hopefully, if not all of these 10 crore people, at least 4-5 crore people will then get jobs. But in my view these 20 crore people from last 10 years to 2025 will be the forgotten generation. When you sit down in 2030 and write the history of India from 2010 to 2030, we’ll see that this is the forgotten, lost generation of India. I am less optimistic than I was a few years ago, because I see technology coming in, I see change happening, I have seen the impact on the world and I see it happening in India too.
But what about the demographic dividend which we spoke about and the fact that we are not able to leverage it?
There is no demographic dividend in this country, let us be very clear. Because demographic dividend comes in when jobs are created, when the young join the workforce and when consumption kicks in. The only good thing is that the dependency ratio has come down. Dependency ratio means that the percentage of people dependent on one earning member; that has come down because families have become smaller. The youngsters coming to the marketplace are from smaller families, their parents can support them so they will not die of hunger because there are no jobs, but they won’t have jobs. I think we have to sit down and think about it and I have been thinking about it for long and I am not very certain at this point. I am skeptical.
The services sector has created a lot of jobs over the past 5 years.
Services pay you Rs 8,000-10,000 a month. I don’t think that is the kind of job people want. Because I have gone with Manish Sabharwal (chairman and co-founder of Teamlease) to many places. You get jobs in the sector for Rs 8,000, Rs 9,000, Rs 10,000 a month. People don’t want to immigrate from one city to another. All the jobs are in urban areas and cities and they pay you Rs 8,000, Rs 10,000 a month. Can you live on Rs 10,000 a month in Mumbai? There will be 1 crore jobs in Mumbai at Rs 10,000 a month but will you come from outside and live here, where will you live? So it’s not just a question of jobs, it’s a question of wages, I think Manish Sabharwal put it very brilliantly - “problem is wages in India, it’s not the jobs”. Suppose you tell somebod, ‘you come here I’ll pay you Rs 25,000 per month’ then people will immigrate. Rs 25,000 a month is a reasonable wage. If you don’t pay Rs 25,000 and pay Rs 10,000 a month, and since it’s largely informal (workforce), there is a lot of labour exploitation. People are desperate, they will get exploited. Employers will show higher salaries in their books but not pay that much, there is a lot of abuse happening in large parts of the economy. So I think this has to be resolved. Digitisation and better regulation can hopefully change some of it but the solution to all this is growth at a higher base. The logjam in Parliament is doing no good. Political parties need to understand that the biggest challenge for India is the demographic disaster we are going through, and we want jobs for young people, and they must come together to create jobs. Without jobs, we will be in deep trouble.
If you are growing at 9-10 percent, your manufacturing has to grow at that pace as well. You spoke of mass manufacturing...
Manufacturing has to grow, the supply chain needs to become more efficient. Supply chain costs 14 percent of GDP, they should bring it down to 6 percent and prices have to come down so that more people can afford to buy. That’s what China did. China did mass manufacturing, brought down prices for the whole world, consumption rose, which creates a virtual spiral. Our automobile companies have an operating margin of 15-18 percent (in India). Globally that number is 8-9 percent. Ford had an operating margin of 8-9 percent for many years. In their best year they got 8-9 percent and yet they were all screaming. All these manufacturing companies are earning enormous amounts of money. Look at cement, it is earning 18-21 percent return on equity. Look at the margins. There is a cartel in cement. I can say on record there is a cartel in many parts of India. We need costs to come down which will happen when there is more competition.
So with these new companies and services, are we equipped in terms of skilling our manpower?
We have been talking about skilling for information technology for the last 10 years. Haven’t we skilled people? The NASSCOM/McKinsey report said there will be a shortfall of 5 lakh people by 2015. There is no shortfall. The problem is we wanted ready-made people to come from colleges. There is no way ready-made people will come. All of us have set up training facilities, we now train people. There is no lack of skilled people. The gap between what industry requires and what academia produces is expanding. This gap has to be bridged.
How do we do that?
Industry has to spend on training. There is no other way to do that. There has been no reforms in the education sector over the last 30-40 years. Education is in a disastrous space in this country because it is producing people who just don’t fit the bill. So we have to train. I hope the government reforms education and does some surgical strikes in the education space. I hope Prime Minister Modi does that first. The biggest challenge to education is reform. In the last three years of this government we have not seen much reform, we have seen more control, which is bad.
Why is industry not pushing for education reform even though they know they need skilled manpower or else they have to spend on training?
The government does not respond to reform. I have met several ministers over the last 10 years. They say ‘yes’ but they don’t do anything. They want control...they talk about abuse. Why did this happen? Because you pass such strict regulations that good people get constricted but bad people don’t, for bad people they don’t pass regulations. In the medical field we got 300 medical colleges, half of them are private, about 30-40 percent of private colleges are taking cash, everybody knows where it is, everybody knows who it is. It is all in the public domain. Members of Parliament call up the regulators to get seats, it’s an open secret. But why has no action been taken, why have they not been jailed so far. They raided colleges, they found Rs 30-40 crore of cash in Bengaluru and other places. The government knows it, the regulator knows it, but they don’t act. Why? Because the system has been captured by people. You know that people are taking cash and giving cash for seats. Why should there be a management quota? We must abolish management quota and have (admissions) only on merit. When you come by merit, you pay fees. You want somebody to get educated, then the government should pay for their education. The government is perpetuating abuse by bad policies.