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against today is Manish Sabharwal who's the chairman of team Li services and
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he's also on the board of the Reserve Bank of India and a Wharton alum Manish
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thank you so much for joining us today on knowledge at Wharton thank you it's
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wonderful to be back great so does India have a jobs problem or a wage problem and why does that distinction matter I I
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think the diagnosis is very important because if you think the problem is jobs you will throw money from helicopters
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and bus the FISC if you think the problem is wages then you need to think about productivity um I don't think
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India has a jobs problem I think we have a wages problem and most people who want
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a job have a job they just don't have the wages they want and our official unemployment rate of 4.9% is not a fudge
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so that's why if you think the problem is jobs you'll do that make work program
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like NRA's which converted a high growth low inflation economy into a low growth
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high inflation economy in between 2004 and 14 but if you think the problem is formalization you will recognize that a
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10-year plan is not ten one-year plans and you'll do formalization industrialization urbanization
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financialization and human capital structural reform of the indian economy was long overdue we were stuck in a low
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level equilibrium so I think the problem is wages the only solution is productivity very often the number of
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formal jobs that India has tends to be underestimated I wonder if what's a more realistic way
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of the formalization process that you just mentioned I think you know the number that goes around in people's head
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is India is only is 90% informal employing I think it's about 75 percent already I'm if you because if you take
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survey data an administrative data you get different answers but the most important thing is survey data is quite
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unreliable we just I just was part of a committee in India which looked at labor
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market data so 27 percent of Indians say they work for an employer with more than
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nine employees but only 1.5 percent of employers say they have more than so this is not a reconciliation problem
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this is an existential sort of question so if you say that we have to get our survey data better let's look at for
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Social Security let's look at health insurance let's look at government employment and let's look at period
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pension pairs that number is about hundred two hundred and twenty five million so twenty twenty-five percent of
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the labor force may be in the formal sector how how do doesn't leave a market
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need to be reformed to keep increasing the number of formal jobs in India well I think you have to come at it from the
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demand side India has 63 million enterprises twelve million of them don't have an office twelve million work from
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home only eight and a half million pay the mandatory indirect GST only 1.3 million pay the mandatory Social
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Security most tragically they're only 19 thousand companies in India with a paid-up capital of more than 1.5 million
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dollars so 62 enterprises means nothing if it translates to 19,000 so I think this this sort of sense of humor about
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the rule of law which has encouraged this massive informal sector which doesn't pay the right wages has to go
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that's why you have to look at bankruptcy laws which have been passed in the last year the GST which was
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passed a few months ago the D monetization which was done 12 months ago the real estate law which was passed
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the ease of doing business 30 jump ranked India's jump 30 ranks last week all of this is connected I mean people
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are not giving credit for having a plan but the only way you would formalize India is by making regulatory arbitrage
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difficult now continuing on the theme of your perspective from your vantage point
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of being on the RBI board I read an article you wrote some time ago about D monetization talking about how it was
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actually good for job creation can you explain that a little bit what's the informality of the Indian economy has
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been encouraged by various causes but the excess use of cash corruption was an important part of that and the
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lack of financialization so now that we have one year after demonetized we now have concluded and which we have
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sort of documentary evidence that there's fifty billion dollars extra on a daily basis in the banking system now if
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you take a six multiplier that could be three hundred billion dollars in new bank loans we have about fifty billion
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dollars of new financial assets you know gold imports are down 20% so gold in real estate which are really
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crappy sort of in savings instruments from a political and an economic perspective are down in India so to
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traditionally save that the biggest upside of gee monetization has been digitization so there were point 1
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million transactions per month on our mobile platform and now it's up to 73 million a month so it's in one year
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you've gone from 0.1 million to 73 million and we're just getting started
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with that but I think the biggest upside for D monetization has been sort of ending the sense of humor about the rule
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of law that you can get away with cash it doesn't matter how the law is written
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how its interpreted practice and enforce matters so I think if we sort of increase the costs of informality and
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reduce the costs of formality that will put India on that trajectory for higher productivity higher formal jobs higher
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wages and put poverty in the museum that it belongs I don't think fiscal and monetary policy
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there are limits to that on I mean in political imagination it's easier to think about fiscal policy or monetary
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policy but I think structural reform was so overdue in India and we've had a lot
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of disruption and this is a lot of short-term pain we will acknowledge but I think it's worth the long-term gain ya
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know since you brought up the monetization and and debate over it I remember a year ago when almost a year
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ago and the monetization happened there was a piece in The Economist that talked
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to I think that it was titled the dire consequences of India's D monetization
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initiative and they described it as a bad idea badly executed one year on what is the
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feeling that you have and others in India have of de monetization are there lessons are
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the things that could have been done differently yeah I mean economist is not a great friend of India in the last few
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years I don't think they have found anything right about what's going on in
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India and I'm and I've sort of chatted with them about it but my sense is that
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the Indian states capability of execution is quite low see traditionally the brain in the this brain was not
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connected to the backbone that has been fixed but now the backbones are not connected to the hands and legs so the
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last mile of the Indian state whether it is the taxation system or the inspectors
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or the banks have just human capital has diminished so much over the last 10 years they have so under invested in
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technology and India scale means their processes have not kept up so if you traditionally take an operations view of
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any company people process and Technology are all lacking in the Indian state so my sense is the biggest lessons
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of de monetization are we need civil service reform we cannot have these permanent generalist civil service they
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are unspecialized they're not ready for India scale while the country is already
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moving faster than them the private sector is moving faster than them there so the government has an execution
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deficit the private sector has a trust deficit and non-for-profits have a scale deficit but the government execution
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deficits showed up in both the GST transition and the D monetization which doesn't sort of attack the reasons that
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it should be done it just tells us that we need to move much faster on civil service reform than we thought we did
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but what kind of civil service reform was most urgent in your view oh just a fear of falling in a hope of rising
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there is no performance management today 98% of Indian civil servants are ranked
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outstanding I mean that's mathematically impossible for everybody to be above
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everything so I think a punishment and reward more specialization younger people getting top jobs you know right
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now you can't be secretary to them unless you're 58 years old I think making secretaries at 45 adopting the
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Colonel threshold of the army where if you're not shortlisted for promotion you
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retire at 50 just I think a forced curve for you can't rank 98% so RBI is the first
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public institution which has now adopted a force curve so it's 20 20 60 so you
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can track everybody UPS outstanding so I think civil service reform is largely around performance management
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specialization and tenure one often here is in the context of the monetization is
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the impact it has had on digital payments what's happening there and how do you see the future of our digital
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payments in India I mean we all have China in me right I think China has done in the last 10 years is remarkable and
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it would have been a huge gift to India's poor if we had figured that out but because now if the jam Trinity the
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junhong millions of accounts which were opened up aha which is India's biometric
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program and just mobile penetration now reaching almost 700 million so I think India is finally getting to critical
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mass with the plumbing for digital payments D monetization obviously was a shock to the system of cash and a huge
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rocket for for digitization so I think that the real time grass sort of settlement or the real time sort of
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debit credit which most advanced economies don't have is possible because of biometrics other and the mobile phone
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so I think India can skip the learning and I think that that'll happen over the
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next sort of six months so I mean I think Visa MasterCard and discover will not be around five years from now in
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India because we are moving payments to marginal costs these guys have built their business on the imagine cost does
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not reflect the cost of in digital transaction and I think given the our vision that poverty payments is a very
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important part of reducing poverty Financial Inclusion financial literacy and the stuff that you're doing at
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knowledge at Wharton also it's you heavily needed in India but the first stage of that is just bringing payments
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down to marginal cost so the other aspect of digital currency is that people are talking about a lot is the
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rise of crypto currencies I wonder from the RBI's perspective how does the emergence of crypto currencies affect
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central bank's ability to direct monetary policy does the RBI have a pub perspective on this I think we're still
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forming the view on it it's still early to say what is the impact of it going
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especially after the last one week if you follow it is 30% now last Friday so many of the people who were sort of
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extrapolating its growth as a store of value something that can go down 30% is not gonna work
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it can then be viewed as a commodity it can be viewed as a speculative instrument but if they were there was a
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lot of marketing going on of Bitcoin as a store of value now you can't have 30%
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down a week for a store of value so I think it's probably early for us all of
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I think all of us recognize that cryptocurrencies matter or some form of digitization of currencies will happen I
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guess we just don't know how right now so it's probably from as you know
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central banks must be conservative institutions so I think the challenge is being open to innovation competition and
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the upsides of that while still maintaining sort of stability so we are experimenting thinking about our own
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cryptocurrency which may or may not be the right thing to do but I just say it's probably early
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to have pick winners or losers right now so when you say your own currency are you thinking about something along the
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lines that's happening in Japan where some of the leading Japanese banks have
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come together to create the J coin yes we've only done that in in in cards we've created rupee which is a
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competition to Visa and it's a bit it's a purely domestic card with much lower
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costs of transactions right I mean and so yes it's the same way that Japan is
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thinking about it but I think it's early to decide whether that's the right path
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to take I think one big change in India over the last few years is we don't have
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to do it ourselves but we also recognize you don't have to be Western to be modern I think we can't figure out some
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things and technology is home turf for India so I think there's a lot of FinTech for the world which is coming
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out of India which hopefully we can use for Indians I would end with a couple of
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questions about Tim Lee's so I think when we spoke a few years ago you had talked to
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challenge in India was not so much unemployment as employability how has team Li is especially to our educational
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activities progressed along these lines and even to take the story further you went public about a year ago how have
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things at team Li has been since then well I mean team leads is we fired somebody every five minutes for last
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five years but we were only hired five percent of the kids who came to us for a job so that sort of is not only bad
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business it breaks my heart and that's why we started India's for skill University and two years ago is when it
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fully went live and now we have 42,000 students because it prays to one guard which is employers only five seonhwa
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kids on campus the balance are an apprenticeship online and only 5% do a degree but a hard person have the
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ability to take their three months certificate as an opening balance for a two-year associate degree and I think
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degrees matter the option to go all the way to there I mean Wharton is a good place to be at it's a better place to be
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from fundamental values being from Wharton so I think it's patronizing to say because vocational training is
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usually for other people's children it's not for our children right so we have to
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give people the option so I think India has made a lot of progress in education and skills by allowing things like team
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skills University which were not allowed a few years ago to create the space for
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innovation and stuff like that chimneys as a company it's a public company everybody had scared me you know
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you'll become quarter-to-quarter you will start thinking short term but so far it's been an interesting experience
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with some upsides attraction it's much easier to attract talent as a listed company it's much easier to do a many as
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a listed company and most interestingly it's much easier to hold my internal
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people accountable because the market tells us what our goals are and what we're being measured by as opposed to
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for the last 15 years just me crowing about we need to route 25% growth while now the market tells us they want 25%
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growth so I think being public has been an interesting experience I I mean people will care about being public but
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I've known and being big but you know I've never met a small company that
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doesn't want to be big and I made a private company that some day doesn't
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want to be public if you want to really scale and team lee's has a real shot at being
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three things we can be India's largest private sector employer India's largest
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private university and maybe even the world's largest offering company my number of employees write a deck only
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has 700 thousand employees on a daily basis if I have five percent of India's
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market how do we larger than that just because we have 1.3 billion people in India I think I think India already has
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more people than China one last question what way do you think the biggest growth
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opportunities for team leads will come form in the next two years and one of the biggest risks you see in following
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that we are a child of domestic consumption the fastest growing segment of India's jobs are sales customer
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service and logistics China's formed non-farm transition happened to factories India's farmed non farm is
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happening to sales not even to services it's just domestic consumption is reaching critical mass and India doesn't
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have the same manufacturing opportunity that China had in 1978 they caught a 30-year supercycle of global growth
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global openness to trade and global deconstruction of manufacturing supply chains that doesn't mean we should give
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up on manufacturing but I think services sales customer service is our biggest sort of focus the biggest risk for us
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are just execution I mean my brining constraint is not market or product it is just not being able to keep up with
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growth right my favorite quote is an American politician called Mario Cuomo he says we politicians campaign in
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poetry which you govern in prose entrepreneurs write our business plans in poetry and you execute them in prose
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our biggest finding Australia's prose it is IT systems with scale up to handle
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300,000 calls and emails a month which we get it is processes which allow huge amounts of money to come in and leave
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every month and just the technology to keep up with that is going to be our challenge manage thank you so much for
00:17:20
speaking with knowledge at Wharton Thank You Marco great to see you again for more insight from knowledge at
00:17:28
Wharton please visit knowledge Wharton UPenn CDU [Music]