Monday, June 26, 2017

Article on "Imperatives for Job Creation in India", by Vivan Sharan for The Pioneer, on 30 May 2017

Recent lay-offs of workers in India's cost-arbitrage driven Information Technology (IT) sector, and the Prime Minister Office's renewed emphasis on job creation have resulted in a much-needed public debate on the future of work. Automation threatens most jobs in India, according to the World Bank, which also maintains that the more widespread the use of technology, the more the impact on jobs. This argument can be challenged in the context of India's large informal workforce. Here, technological dispersion has created jobs through efficiency gains. Notably, in the case of the logistics sector, the use of tracking and communication tools (such as GPS-enabled mobile phones) has helped in the formalisation of supply chains, in unlocking value and in creating jobs. Indeed, very few deterministic assumptions are appropriate in India where 100 million broadband consumers were added in a short period between August 2016 and this February — denoting technological dispersion without precedent.
To grapple with technological complexities, policy-makers must look at the job discourse from a holistic vantage point. For instance, it may be tempting for them to pick winners when faced with technological uncertainties. Energy policy is an example of this — several international Governments have pre-empted technological choices of industries and consumers,with policies aimed at incentivising one technology over another. Empirical evidence, including from advanced industrial economies such as Germany, shows that this approach skews market incentives and yields suboptimal employment. For India, with limited technical resources and capacity of Government, a rigid approach is even more problematic. Our policy-makers must strive to be technology-agnostic while also continuously engaging with the private sector to address difficulties that limit value creation.
Instead of responding to new economic paradigms through knee-jerk protectionism, the Government should rapidly implement the many small, yet powerful interventions that can help the private sector survive technological disruptions. Generation of value and surplus — to invest into technology, upskilling and jobs is central to surviving disruptions across industries.
Inherently, resilient industries such as those within the ‘creative economy', which spans the entire media and entertainment sector, offers a good illustrative template for this. The creative economy has propelled multi-billion dollar brands, enhanced India's soft power projection, engaged thousands of entrepreneurs, provided platforms for timely dissemination of vital information and news and contributed significantly to service sector growth. Although its impact is felt globally and it employs over 6.5 lakh workers, the relative contribution of India's creative economy to the GDP (0.9 per cent), is much less than what is seen in most emerging market counterparts; such as Indonesia (over 1.5 per cent), South Africa (over three per cent) and Brazil (nearly 3.5 per cent). Advanced economies of course are in a different league altogether. Illustratively, Bollywood's annual revenues add up to less than a tenth of the size of the Harry Potter franchise.
The anatomy of low value addition in the Indian creative economy illustrates several elements of the job creation conundrum. The television market has been disrupted by technological change globally — online video, Direct To Home and other technologies have disintermediated downstream distributors and helped spread video on demand. At the same time upstream broadcasters in India, who underwrite most content on television and account for about half the economic size of the creative economy, face onerous price regulations. Successive Governments have chosen to protect distributors under the banner of consumer protection instead of letting an industry with proven job creation ability operate on market terms. In a competitive television market with nearly 1,000 channels and no dominance by any one stakeholder or channel, there is no economic case to be made for price regulation. The Government's own attempts at justifying otherwise have never relied on any economic rationale.
Owing to an inability to monetise high value content, little surplus is available in the industry for requisite technology and infrastructure investments required for seamless distribution of video on congested Indian wireless networks. Moreover, because of the current regime, most of the creative content on TV is aimed at garnering maximum eyeballs to keep advertisers happy. This limits the versatility of Indian content and if data remains cheap, discerning consumers will eventually be left with no option but to cut their cords. At the imminent inflection point where mainstream Indian content creators and distributors are forced to compete with global peers, the creative engine will struggle to keep going. It will find itself hopelessly short of funds, infrastructure, and workers with the wherewithal to augment their output to match global standards.
Such a vicious cycle can play out in most industries that depend on technology in some form. The Government should begin thinking of the future of jobs in terms of a virtuous cycle. That is progressive policies and regulations can potentially create the much-desired cycles of investments, innovation and consumption, which can in turn generate new jobs and secure existing ones through upskilling. Creation of economic value should be the mission statement of Government and towards this, it must not pre-empt technological change.
(The writer is a partner at Koan Advisory Group, New Delhi)

TV Interview on "Job Creation", featuring Vivan Sharan, on NewsX, May 26, 2017

TV Interview on "The Future of TV", featuring Vivan Sharan on NewsX, April 30 2017

Article on "Putting a floor price on technology regulations", by Vivan Sharan, for the Deccan Herald, 28 April 2017

India is a study in contradictions. On one hand, there is a wide recognition that technology investments are a prerequisite to achieving the goals of flagship programmes such as Start-up India and Digital India, and on the other, states like Karnataka have repeatedly tried to invoke protectionist economic measures to ringfence local political interests in technology-driven markets. 

Previously, Karnataka was the epicentre of a tussle between e-commerce marketplaces and policymakers. The local administration was determined to hold such firms liable for payment of Value Added Taxes, despite many other states maintaining that tax administration is not the responsibility of online marketplaces. And more recently, the same government has been considering putting a floor price on taxi rides that are booked online through taxi aggregators like Uber and Ola. It has already put a ceiling price of Rs19.50 per km on such taxi rides. 

There are many reasons why this reflects a deep-rooted dissonance between a coherent vision of a market economy and the political impulses that drive decision making. 

First, India is unambiguously service sector dependent - the sector accounts for over two-thirds of the growth in gross value added to the economy. Much of the country's development agenda also depends on the proliferation of services, and the democratisation of its benefits in society. Within the sector, there are both essential services such as health and education, and non-essential services such as e-commerce and taxi services. 

And broadly, within both these categories, there are competitive markets wherein plenty of companies compete for a finite market share, there are missing markets wherein government enterprise is sometimes necessary, and there are monopolistic markets that may require price intervention. Therefore, even though it would be easy to regulate while pretending that there is no heterogeneity in the service sector, its growth is premised on a nuanced approach to policymaking, based on clarity of economic principles. 

Second, price interventions should be resorted to in case of a market failure. There is no prima facie evidence of market failure in this instance and there is also no attempt to collect supporting evidence to justify any failure. While market failures come in many hues, the state's Commissioner for Transport and Road Safety has been quoted stating that "unfair trade practices" are causing drivers to "lose out." 

To paraphrase, drivers are no longer getting as much money as they were when they started. This does not exemplify a market failure - it however raises questions of the responsibility of large businesses towards their stakeholders. Embedded in this notion of stakeholder responsibility is the fact that companies must use technology not just to create market efficiency, but also to enhance the welfare of all their stakeholders as part of their core business proposition.

To be clear, companies like Uber maintain that their drivers are not employees. Let us hypothesise that they were employees, in that case, would the Karnataka government intervene if they were being paid above minimum wage and still decided to work? If the answer is yes, clearly, government enterprise is the only sacrosanct business model, and the state government should begin running all sorts of non-essential services with this belief. And if the answer is no, why intervene in this way? Why not instead work with large technology businesses to offer innovative digital solutions that cater to stakeholders at the bottom of the economic pyramid? In this case, solutions could be insurance or credit products for drivers - who would in turn be able to manage the risk of owing a depreciating capital asset (the taxi) better. 

Third, no government should be concerned with calculating break-even costs for businesses unless they are running them. The state government is currently undertaking precisely this exercise for taxi aggregators. It's not clear how the government would estimate establishment or innovation costs that shape the business models of such companies. Indeed, Karnataka may have borrowed a page from the Centre in this context, which is pre-empting break-even costs for digital payments companies. 

At least the Union government recognises that removal of economic incentives (by lowering Merchant Discount Rates) from the payments ecosystem means that it must now successfully run its own payments networks and solutions. Is the state government ready to promise round the clock, point to point transport for its citizens? 

Young workforce

Fourth, the challenges associated with creating productive jobs, without any sign of a Make in India-led industrial revolution are daunting. Conversely, by 2030, when most countries will have middle-aged or elderly population, India will still be young. According to government data, a third of the country's total population is 17 years or younger, and most employment is still informal. This young and informal workforce can potentially be mobilised through technology, into more formal and productive economic activity. Female participation in the workforce can also be improved - much in the same way as it was in the US when consumer electronics liberated women from household chores. Both e-commerce platforms and taxi aggregators offer to do just this - by providing digital platforms for entrepreneurs to access global markets and by enhancing mobility to work. 

It is incumbent on all policymakers to think deeply about the future of work. While it is inevitable that technological change will lead to continuous regulatory anxiety in the future too, competitive federalism may help navigate such anxieties by throwing up examples of states which embrace change, and prepare their workforce for it. Conversely myopic regulation in states can also become a race to the bottom. Indeed, it would be very ironic that a state like Karnataka, which has reaped the dividends of globalisation, now seems to be turning its back on market principles, if there were no glimpses of this worrying trend in more advanced parts of the global economy. 

(The writer is Partner, Koan Advisory Group, New Delhi)