India’s twin-surplus problem

My column in MINT today:

Last week, there was a story in Business Standard that HSBC has projected that India’s gross domestic product (GDP) would reach the size of about $5.9 trillion by 2030 rather than $10 trillion that Niti Aayog had projected for 2032. This implies an annual compounded growth rate in real GDP of 6.2%. Around the same time this story appeared in print, there was also a report that the government of India had rejected the findings of the World Bank’s Human Capital Index launched just this month because, according to the government, it ignored many transformational initiatives that have been undertaken to improve India’s human capital. The HCI had placed India at 115 out of 157 with some of its neighbouring countries doing better.

The government may be right that it is doing all the right things to make India’s children productive citizens in future. But, the World Bank is probably onto something in throwing the spotlight on India’s low productive potential. India is a productivity-challenged nation because it is an attitude-challenged nation.

When we think of productivity, we think about infrastructure and we think of a factory or assembly line in which thousands of workers are assembling parts and coming up with a finished product. This thing called infrastructure has two components. There is hard infrastructure. That is mostly about connectivity—transport and internet. That will be addressed sooner or later because the shortcomings are evident. Consequently, the issues cannot be covered up for too long. Someone has to take ownership and responsibility and fix the problem. It happens eventually but after much expenditure of effort— material and psychological. That is why it may be more important to focus on India’s soft infrastructure problem. That is the second component of infrastructure. It largely reflects our workplace attitudes.

Further, no matter how it is measured, India’s services sector dominates the economy. Productivity is hard to measure in this sector but attitudes are visible. They fall short. Long-term is most often traded for the short-term and there is far too much emphasis on form over substance. This leads to a control mindset that focuses on inputs than output or outcomes. To be clear, it is not just the problem of the governments or that of the public sector. It is an India problem.

When one goes to a pharmacy just to pick up an ordinary tablet for stomach disorder, he casually hands out an antibiotic strip as well without even telling the customer that he is dispensing an antibiotic medicine. Of course, dispensing an antibiotic over the counter without a doctor’s prescription and with no regard to the patient’s history or constitution is dangerous. Most of the customers have neither time nor money nor both to see a qualified doctor. They would accept the medicine offered by the pharmacy store and consume them. Both necessity and expediency lead to such dangerous shortcuts. Consequently, lost labour-hours due to bad health or sickness must be a substantial productivity drag.

Recently, there was a story in Financial Times about how workers in the UK work more intensely than their counterparts in Germany or France but produce lower output than these countries (“Workplace exhaustion is a vicious cycle in the UK”, 16 October). One of the reasons cited is underinvestment in technology. That might be true of India too. The article then lists ‘high strain jobs’ as one of the reasons for low productivity. High strain is marked by high pressure combined with loss of control. We can develop Indian variants of it. High-strain jobs are marked by high pressure combined with no control over output or outcomes. In other words, there is responsibility and accountability for outcomes without authority to execute. Per contra, for some, there is authority without responsibility or accountability for outcomes and that is what leads to high strain on others. In other words, India has a ‘twin surplus’ problem in the workplace just as it has a twin deficit problem in the macroeconomics space. Big egos and small minds are in surplus.

Together, the two ensure that there is much emphasis on controlling and supervising inputs without commensurate regard for output or outcomes. At the macro level, one of the recent examples is the legislation on right to education which had elaborately specified various inputs—including dimensions of classrooms and playgrounds, etc., with little regard for education outcomes. This is not just a government problem but it is a pervasive national problem. Power is exercised not to empower but to enfeeble and emasculate. This breeds mistrust and mistrust lowers productivity and output. Trust is the lynchpin of economic activity. Management by empowerment, empathy and exception remains the exception. Therefore, subordinates practice escalation rather than focus on execution.

Thus, India’s productivity challenge is, in part, due to its inability to produce on scale and that, in turn, is due not just to inadequate capital investment but to underinvestment in life skills combined with improperly formed attitudes.

Indeed, the low Human Capital Index score may be reflecting more the latter than the former. Finally, that may be why HSBC’s projection of India’s economic size in 2030 is more realistic than that of Niti Aayog’s and yet still excessively optimistic.

2 thoughts on “India’s twin-surplus problem

  1. Good read.Have been living in Madras all my life. For a state that is reasonably well to do by Indian standards, I still find it very difficult to find societal markers in the city that gives me confidence that we are destined to be a better society. I am no economist. But I am inclined to think the growth in India thus far has simply been an attendant consequence of a relatively stable security situation that engenders policy action of some kind , and a concomitant depletion of our natural resources. We have created a mess to get to 2 odd trillion USD. I wonder how things will be if we ever manage to get to 10 trillion.

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  2. “Thus, India’s productivity challenge is, in part, due to its inability to produce on scale and that, in turn, is due not just to inadequate capital investment but to underinvestment in life skills combined with improperly formed attitudes.”
    Excellent sentence!

    My experience in trying to start something on my own has been so frustrating. Each turn requires so much effort be it opening an account with a bank or ordering furniture. I would think that the Govt registrations are easier than the rest 😀. I now feel that vast majority are just traders and clerks. And a simple act of being accountable and putting in effort is too much to ask. Most of it is like Bangalore traffic. Be stupid in every possible way without being responsible to oneself! And frustrate and slow down everyone.

    It will take 3 decades from here on. We remains islands of excellence amidst a swamp of mediocrity.

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