Shankar Acharya: A billion peons now?

A PIECE OF MY MIND

Last week there was a front page news item in a national daily (Indian Express, 17 April), which caught my eye. It reported that over 11,000 applicants had applied for the posts of 3 (yes, three) peons advertised by the Haryana Electricity Regulatory Commission (HERC). The interviews under way are "likely to continue for three months and certain commission members and officers are working on this full-time." To me the report exemplified some of the key failures of our economic and social policies.

First, and most obviously, there is clearly something hugely wrong with our employment policies and outcomes. Some years ago I had questioned the hype about India's long-term potential attributed to the "demographic dividend" of a young and rapidly increasing labour force (Business Standard, November 25, 2003). As I had pointed out, this potential dividend refers to the supply of labour. The realization of the potential for higher employment and output depends crucially on following appropriate policies for stimulating the demand for labour. The massive mismatch between supply and demand indicated by the Express report clearly suggests that our policies have fallen well short of ideal. It is particularly disquieting given that the event is occurring in one of our richest states and after the Indian economy has recorded an unprecedented five years of economic growth averaging over 8.5 percent a year.

The second problem illustrated by this huge supply-demand mismatch relates to our education system. In the domain of public sector jobs in India, the minimum qualifications specified for a peon's position are among the lowest. So, what the mismatch tells me is that after 60 years of independence our education system (mostly public) is doing a pretty poor job. This is well documented by numerous government and non-government reports and studies. According to official data, over one-third of school students drop out by Standard V and the rate climbs to almost 60 percent by Standard VIII. What's more, as the extremely informative annual surveys by Pratham show, the literacy and numeracy skills attained in schools (especially government ones) are quite low. Serious problems plague not just our schools. They extend to vocational training institutes, colleges and most institutions of higher learning. The net result is that our education system produces hundreds of millions of people with low skills. The over supply of candidates for posts of peons is very sad but perhaps unsurprising.

The enormous labour market mismatch in this vignette is, of course, amplified by the distorted wage policy followed by central and state governments. Under this policy the executive cadres of the government salariat (including the IAS, IFS, IPS, etc, which media comments usually focus on) are typically underpaid relative to comparators in the private sector, while the bottom rungs (including peons) are generally paid much more (about twice as much according to some studies) than their private sector counterparts. Quite apart from the large fiscal implications (since the lower ranks account for over 95 percent of government employees), this leads to other distortions in the labour market. For example, a private primary school teacher usually earns much less than a government peon. Such distortions will be magnified when the recommendations of the Sixth Pay Commission are implemented.

Fourth, the report highlights the dysfunctional nature of many governmental bodies, thanks to the onerous burden of recruitment (and other) rules under which they labour. If several HERC members and other officers are going to spend three months full-time to interview the 11,000 plus candidates, surely their mandated responsibility of electricity regulation will suffer grievously? The primacy of rules and procedures over common sense and efficiency is quite remarkable. No serious private sector organization would follow such a tortuous and enormously costly procedure to fill three posts of peons. That's mainly because the efficiency of their operations is subject to the market discipline of the "bottom line". In government organizations accountability is defined principally in terms of rules and procedures, not in terms of efficiency, profit or service standards. Of course, as we all know, rules and procedures are often bent or side-stepped to accommodate graft and corruption, but that's all done "under the table", not on the record. To me this massive misallocation of HERC's resources of senior manpower to cull out three peons out of 11806 applicants exemplifies much that is wrong with the day to day functioning of our public sector.

Finally, returning to the first point, the huge mismatch simply reflects the enormous scarcity of decent jobs with some security (probably excessive in this instance) for those with low education and skill levels. The Indian economy has undoubtedly enjoyed good growth for a quarter of century, with remarkable acceleration in the last five years. In aggregate terms growth has even been "job-full". The National Sample Survey (61st Round) data show that employment increased by a healthy 2.9 percent per year between 1999/2000 and 2004/5. But the fact is that the overwhelming preponderance of this employment expansion has been in the informal sector, where earnings are low and job security even lower. Rapid growth of labour-intensive manufacturing, that great development machine for creating decent low-skill jobs in poor countries, has run into all sorts of obstacles in India, including anti-employment labour laws, bad infrastructure, small-scale industry reservation policies and (until a few years ago) distorted foreign trade policies. Most recently, there has been the added burden of an appreciating currency, much favoured by the finance boys (and girls).

There are some who believe that India can successfully pursue a development strategy which skips the stage where labour-intensive manufacturing plays a dominant role in the economy. They point to the recent successes of "modern" services sectors such as information technology, BPO, KPO, telecom, media, and so forth. Well, may be. I just want to know how many of the 11803 disappointed candidates of the HERC peon recruitment process can reasonably aspire to jobs in these sectors, given the limited qualifications they have. The answer to that question could have much to do with the future of India.

The author is Honorary Professor at ICRIER and former Chief Economic Adviser to the Government of India. Views expressed are personal