I gave a talk recently in Delhi on how automation will change the nature of the Indian workforce over the coming years. It is no doubt an exciting change for some, but for many others it may be a challenging transition. This article is a summary of my talk.
First things first. India’s GDP is growing fastest than that of any other major economy in the world. The other BRICS countries, with the exception of China, are real laggards on a global stage.
So today’s economic growth is strong, but the most important headwind facing the long-term sustainability of these growth rates is the economy’s human capital. India needs to create jobs. Lots of them. Many more than is the case today.
The nature of our jobs is changing
The nature of those jobs will also change. Once upon a time, settling on a safe government job was the economic dream. Somewhere along the road, this changed to working for an IT giant to building the dreams of Western clients. Today, it might be working in a startups.
When this year’s finalists graduate, they will have to find themselves a job. When tomorrow’s generation grows up, they will need to invent themselves a job. Robots are coming, and they are coming to take our jobs.
The International Labour Organization says the number of job- seeking individuals in India will reach 17.6 million people in 2017.[1]
We can’t read too many into the labour statistics at a formal level because Labour Bureau data in India comes with a lag of almost six months and covers only eight sectors. Nevertheless, new jobs created in the IT/BPO and textiles sectors, two traditional bright spots, are falling. The rate of job creation was a quarter in 2016 of what it was four year previously. Manufacturing jobs grew by just 12,000 in six months in 2016, a rise of just 0.1%. This sector, the backbone of the non-farm economy, employs nearly 50% of workers in the selected eight sectors.
Startups will not create the jobs the IT/BPO no longer generates
A truism is that India has the second largest number of startups in the world. That’s true, to a point. But then, adjusted by the number of people, India ranks poorly in the creation of these young, exciting tech startups.
But according to a substantial body of research, jobs created by startups are not as good as jobs created in more established businesses, in two ways.
One is that they pay less: A study in the UK has shown that on the average, a startup reaches only $180,000 in revenues after its sixth year, barely enough to pay salaries.[2] A recent study in Denmark has found that indeed, startups create quite a few jobs, but that a disproportionate number of them are low-skilled service jobs.[3]
Consider the recent World Economic Forum report specifying which countries have the most startup entrepreneurs. Uganda is number 1, in which a remarkable 28.1% of the population are entrepreneurs; Thailand is 2, Brazil 3, and Cameroon number 4.[4]
In the WEF report, the amount of entrepreneurship in a country is negatively correlated with its national competitiveness.
Second, startups are vulnerable. 90 percent of startups either fail in the first two years. Maybe they realise they can’t figure out a profitable business model. Both the situations increase the unemployment ratio. In the UK, after the financial crash, a lot of people went from being employed to self-employed. A friend of mine told me recently that it was a real fashion to call yourself a “startup” or an “entrepreneur” because what you really mean is you were unemployed, or playing around with an idea you know probably won’t lead anywhere, but that didn’t sound as cool.[5]
Then there is the problem of “survivor bias”. When someone fails, they don’t talk about it much. The outliers that succeed do. That dramatically distort our views.
Third, startups do create jobs, but it is really expensive to create them. Research by the Danish Business Authority shows that among beneficiaries of its programs, public investment per startup job created through business support programs costs three times more than for existing firms.[6]
Startup companies in India are expected to raise $700 million and create 5,000 jobs in next 12 months, as per India Startup Outlook Report 2016 by InnoVen Capital. That means $120,000 per job.
Market research Kantar IMRB did some work for the Confederation of British Industry which found that around eight to ten people get direct employment as a result of each US$1m invested into India via the FDI route. That means $140,000 per job.
To create a million jobs a year from FDI on this basis, would require FDI of $140bn, or 4x the FDI India currently gets annually.
Can you invent your future job?
About 35% of current jobs in the UK are at high risk of computerisation over the following 20 years, according to a study by researchers at Oxford University and Deloitte.
The left-leaning Institute for Public Policy Research (IPPR) said in a new report that those most at risk from automation were concentrated in low-skill sectors of the economy and were least able to adapt to change. Retail, hospitality, transport and manufacturing were most vulnerable.
How can the education sector in India respond?
I’m chairing the Education Innovation Conference in Pune, India, on 27th July, which will tackle this very question. If the robots are coming, how can the education sector respond? How can the sector today help create a workforce that can do tomorrow’s job? To what extend can education technology help? Are public sector universities adequately equipped to be as agile as they now need to be? Where the opportunities for foreign collaboration?
I wrote about this in a report that launched in February 2017, launched by the Indian Finance Minister Arun Jaitley in London: http://ficci.in/spdocument/20863/FICCI%20UK%20Startup%20Ecosystem%20Report%20-%20Final.pdf.
[1] http://www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/@publ/documents/publication/wcms_337069.pdf
[2] http://www.scaleupreport.org/scaleup-report.pdf
[3] http://www.sciencedirect.com/science/article/pii/S0014292115001865?np=y
[4] https://agenda.weforum.org/2015/06/the-9-countries-with-the-most-entrepreneurs/
[5] http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/#44d68d8355e1
[6] https://regionalt.erhvervsstyrelsen.dk/sites/default/files/regional_jobskabelse_i_danmark_1980_2007.pdf