Coronavirus Impact on Indian Economy – Manish Sabharwal

Manish Sabharwal is Co-founder and Chairman of Teamlease Services and Independent Director of RBI. The following is an excerpt of his views on Coronavirus Impact on Indian Economy and the job market in India. The interview was conducted by YourStory and can be found here.

Economic Situation of India:

GDP growth rate is unmodellable in the current scenario. It is still unclear in which phase (start/middle/end) of Coronavirus spread are we in currently. The recovery doesn’t seem to be like V-shaped. It will be either U-shaped or bathtub shaped. We are all in the same storm, but we all are not in the same boat. Hence, it doesn’t make sense to have a common lockdown continuation/lifting on pan India basis. Additionally, only partial lockdown lifting will take GDP longer to revive. We will get a sense of GDP recovery only once the lockdown is fully lifted. However in longer run, the compounding that has begun in India around domestic consumption is just beginning. Current situation is passing shower for India, whereas its climate change for the West.

Pay Cuts and Job Cuts:

Shareholders and banks don’t pay salary, customers do. Companies are rivers and not ponds, and river has stopped in recent months. So it will be delusional to think that there won’t be any labour market effects. All we can try is to restrict the pain on the shoulders of those who can handle it.


There are flicker pen reforms (reforms that can be done by changing laws) and structural reforms. Political Economist John Kingdon says ‘Reform only happens when problem, opportunity and timing comes together’.

Flicker Pen Reforms:

We need to make life easy for entrepreneurs and firms. Some of the possible flicker pen reforms are as following –

  • Making EPF voluntary.
  • Subsidize EPF.
  • Clearing of pending tax refunds.
  • Employees’ State Insurance (ESI) holiday for 18 months or make ESI contribution to 1 re per employee as currently ESI has INR 80,000 cr of surplus.
  • Pass single labour code and get rid of all compliances. There are 57,000 compliances for employer, out of which 15,000 of them can lead to jailing due to non compliance. We shouldn’t criminalise civil offences. We need to do regulatory cholesterol reforms.
Structural Reforms:

China brand has been damaged by virus and Trump is further adding to their difficulties. India needs to take advantage of the situation. India missed the opportunity to increase manufacturing in the 1990s and 2000s. Some of the possible structural reforms are as following –

  • Educational Reforms: India needs to do a lot of educational reforms. Only 7 universities out of 966 Indian universities are allowed to officially do online learning. Whereas, overseas universities have signed up 100,000 students in last 40 days.
  • Financial Reforms: We are inadequately financialised. India has very low Credit GDP ratio.


India needs to improve the productivity of its cities, firms and individuals.

Productive Cities:

India needs governance reforms. UP has same GDP as Karnataka, even though Karnataka’s population is one third of that of UP. GDP of New York is equal to that of Russia for a reason. We need right CEOs for cities. We don’t need 59 ministries in India, Japan has only 8 ministries and USA has only 14 ministries. India has only 52 cities with more than 1 million population, whereas China has 375 cities with population more than 1 million. India has 6 lakh villages, 2 lakh of which have population of less than 200 people.

Productive Firms:

2 types of companies can be created: Baby and Dwarf. Both are small, but baby will grow and dwarf will stay the same. The difference is in the DNA. India is a nation of corporate dwarfs. India has 63 million enterprises, 12 million of them don’t have an office, 12 million work from home, only 12 million are registered for GST, only 1 million pay social security/PF. There are only 19,500 companies in India with a paid-up capital of more than INR 10 cr. Hence 63 million enterprises don’t make much difference. USA economy is 9x our size and they have only 23 million enterprises. Reducing regulatory cholesterol can help improve the situation. We need banks to finance these enterprises, more vibrant venture capital market, etc. In last 5-10 years, labour is more willing to shift from big corporates to smaller firms. If we rank manufacturing companies by size, companies at 90th percentile are 22x times more productive than those at 10th percentile. Without being productive, one can’t pay wage premium, and without wage premium one will never be productive! Many of the firms survived till now due to paying lesser taxes. With GST and demonetisation, regulatory arbitrage has further reduced.

Productive Individuals:

We need to raise skills by improving our school systems. 265 lakh students take class 10 exams every year, 105 lakh from them fail! 160 lakh students take class 12 exams every year, 80 lakh of them fail! Out of 80 lakh who pass, only 50 lakh go to college. Infrastructure of opportunity is massively underinvested, particularly in government schools. Only 45% of Indians go to government schools, 92% in Japan and 85% in USA go to public schools.


India also has big problems of employability. India only has 5 lakh apprentices. Germany has 2.7% of its labour as apprentices, with same percentage, India should be having 15 million apprentices. 60% of taxi drivers in Korea now have college degree. 31% of retail checkout clerks in USA have a college degree. 15% of highend security guards in India have a college degree. So college isn’t what it used to be. Education isn’t filling of bucket, it is lightening of fire. Individuals need to learn how to learn.


We can’t do what the US has done. Also, Central Bank can help with liquidity, it can’t help with solvency. Many of current problems are of solvency. Additionally, India just came out of 14 lakh cr bad loan crisis. It is difficult to expect banks to provide equity in current situation. Fiscal stimulus should be coming very soon. Order of priority of the stimulus would first be vulnerable citizens, followed by MSMEs, then big companies and finally the banking system. It will be difficult to get new banks loans, however expansion of existing bank loans would be possible. India needs to increase Credit to GDP ratio from 50% to 100%, and hence India needs more bank licences, more fintechs, better regulatory supervision and how to handle public sector banks.

Migrant Crisis:

India has 67 million internal migrants, out of which working migrants are ~40 million. Only 1 million migrants have gone back, and they shall also come back soon as there will be wage spike at the bottom of the pyramid. India has failed in creating 200 new cities where jobs can be created, hence we need to urbanise. Also, in short run we will not feel shortage of labour, because companies will operate at lower capacities for a while. Companies will not hit capacity constraints on labour until they reach ~75% capacity utilization levels. Also, there is not much to do in villages for the migrants. Agriculture is 45% of labour force, but it only generates 14% of the GDP. All these migrants are involuntary migrants, trying to escape rural India where there is not much to do.

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