Jobs change lives in ways no subsidy ever can

While India’s government has traditionally favoured subsidies to address social problems, Sabharwal points out that this may move people out of poverty, but it does not give them financial independence.

“Jobs are the only sustainable way to fight poverty. And to do that, you need to transform the economy,” he tells Eco-Business in a recent interview at the Ecosperity conference held by Temasek last month.

A regular columnist for The Indian Express, Sabharwal is not one to mince his words. He calls India a “flailing state” with “huge regulatory cholesterol” that is hostile to entrepreneurs and business. The solution, says the human resources veteran, lies in formalising India’s 63 million enterprises, encouraging sustainable urbanisation and industrialisation, and investing in human capital.

Speaking in rapid fire English, Sabharwal says this 63 million figure means “jack shit” if only 18,000 of them are credible companies with financial footing.  Also, half of India’s workforce work in farms, but it only generates 10 per cent of the country’s GDP. “These people are hanging out, they are not employed”, he says.

He has made it the company’s mission – summed up with the slogan “Putting India to work” - to provide not just jobs, but jobs with decent wages, to millions of workers in India’s 860 million working-age population. TeamLease Services, founded in 2002, offers staffing, payroll processing, recruitment, compliance and training services to a variety of clients and is listed on the Bombay Stock Exchange and National Stock Exchange. 

The company also operates India’s first vocational university national “PPP” (public private partnership) apprenticeship programme. Sabharwal views collaboration as a key tool for achieving the Sustainable Development Goals (SDGs).

In India, observes The Wharton School graduate, “the private sector has a trust deficit, the government has an execution deficit and not-for-profits have a scale deficit, but they all have things to offer each other”.

Prior to co-founding the company, Sabharwal co-founded India Life, a human resource outsourcing company in 1996 that was acquired by Hewitt associates in 2002. As a business leader, he says corporate India is just catching up to the benefits of sustainability.

But companies that are both attractive to financial investors and are also sustainable, are still an emerging species. “The hype is ahead of the reality but I think it’ll catch up,” he declares. In this interview, he explains why.

What’s the link between jobs and inclusive, sustainable growth?

Jobs change lives in a way that no subsidy ever can. In India, we have two interesting questions to answer: Why is the country poor and then what do you do about it? For the past decade, the government approached reducing poverty by legislating rights. But poverty is about productivity, and productivity is about education, employment and employability.

Jobs have a direct linkage to healthcare and education indicators and to longevity, because income is the single most important creator of choice. India became independent in 1947, but there is a difference between freedom and independence. Government subsidies may move you out of poverty, but they don’t create any sort of independence. So jobs are the only sustainable way to change poverty. And to do that, you need to transform the economy.

How do you think India is meant to do that though?

We need formalisation, urbanisation, industrialisation and human capital. Today we have 63 million enterprises, out of which 12 million don’t have an office and only 8.5 million are registered tax payers. So this number means jack shit if only 18,000 companies have a decent paid up capital. More importantly, these enterprises are not productive. If you don’t pay the wage premium, you’ll never be productive. So formalisation is very important, and that’s what is happening with the GST tax reform. 

Urbanisation is also important. We only have 45 cities with more than a million people. China has 375 cities in comparison. You can’t take jobs to a village with 200 people, you have to move people to cities, so good urbanisation is what we’re trying to encourage. 

Then there is industralisation which is the movement from farm to non-farm jobs. Fifty per cent of India’s labor force works in farms, but it only generates 10 per cent of our GDP. These people are hanging out, they are not employed. The challenge for India is that we don’t have the same global growth opportunity that China had since 1978.

Then lastly, on human capital, we need to reboot our education system, our skills system, and remove our regulatory cholesterol. You cannot be hostile to job creators anymore.

Watch our video interview with Manish Sabharwal as he shares his thoughts on which SDGs resonate with him most.

Do you think sustainable development (and the SDGs) ranks high on the Modi government’s priority list?

Yes I think it does. It’s important to recognise that civilisation is not green, poverty is green. But we have to strike a balance. I don’t think we’ll ever get to the amount of waste that the United States generates, for example. It’s not consistent with our ambition but goals like getting rid of poverty and hunger and providing shelter are important for us. We want to create an 800 million middle class but this definition of middle class is different from the American definition. 

That’s interesting, how would you define the difference?

For instance, we will never have a car population like the US, or use the same amount of packaging. India’s path is different. I don’t think you have to be Western to be modern. I think India has to think about its scale being its unfair advantage in this development battle.

One million kids will join the workforce every month for the next 10 years. That’s a lot of jobs you have to create. But the battle has shifted from jobs to wages. Everybody who wants a job has a job, but they don’t have the wages they need. So we need to focus on productivity. 

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The private sector has a trust deficit, the government has an execution deficit, and not-for-profits have a scale deficit, but they all have things to offer each other. 

Let’s talk about business leadership. Where does corporate India stand on integrating sustainability principles into business operations? 

I used to believe, when I was doing an American MBA in the early 1990s, that the best government was an invisible or small government; but I no longer believe that is true. 

India is not a failed state, we’re a flailing state. It can’t educate its people or build roads or provide water. So the limitations of the states are becoming a binding constraint. The only way forward is for the government to work with the private sector and civil society. The private sector has a trust deficit, the government has an execution deficit, and not-for-profits have a scale deficit, but they all have things to offer each other. 

India is known as the NGO capital of the world. We have 8 million NGOs here. And I think the private sector is more deeply rooted in India than it was in China in 1978. We’ve had markets for a long time, and a large government bureaucracy, but I think all three sectors used to think: “Well, let’s fix per capita income first, and then we can think about sustainability”. But I think that sequencing is now starting to be questioned in India.

The primary manifestation of the sustainability discussion in India is around good urbanisation versus bad urbanisation. A lot of people think people in villages are all happy and laugh more than we do, but the reality is many of them prefer to leave. So this urbanisation debate is starting to extend to the environment, and the capital markets. But it’s still not clear to me that shareholders will take lower returns for sustainability. I hope finance gets to that point some day.

But sustainability has been proven to make a business more competitive and improve the bottom line?

I think there are costs to sustainability in the short run. Companies that are attractive to financial investors and are also sustainable, are still an emerging species. The hype is ahead of the reality but I think it’ll catch up. I think people believe there is no contradiction between doing well and doing good in ten years’ time, but not in a two-year timeframe. I think people need to be honest that sustainability is about extending time horizons. We need shareholders to be patient. 

What do you think has enabled TeamLease to be so successful?

Well, being in the right place at the right time matters. I think entrepreneurship is the art of staying alive long enough to get lucky, and what has enabled us to do this is being frugal with capital. 

We’re in a low margin business, but we have a 35 per cent return-on-equity business, because we have been frugal with capital. So I think sustainability, in addition to extending your time horizons, comes from frugality with capital.

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I think entrepreneurship is the art of staying alive long enough to get lucky.

What are your thoughts about the latest report launched by the BSDC on the opportunities in embracing the SDGs for businesses in Asia?

I think it is ahead of its time for sure, especially for the financial markets. Many financial investors still think we live in an economy, not a society. And so I think events like Ecosperity, which brings stakeholders together to increase the dialogue, help. Some sovereign funds like Temasek are taking the lead in that, but every virus needs a host or carrier, so if they can convince pension funds and insurance companies to take the long-term view, you would have a critical mass of investors looking at sustainability.