Why Pakodanomics is Not the Answer to Creating Employment - Vivek Kaul's Diary
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Why Pakodanomics is Not the Answer to Creating Employment

Jan 24, 2018

28

India gave the world zero, and helped Mathematics, which until then was dependent on Roman numerals, leapfrog.

Last week we also gave the world, what I would like to call pakodanomics (I guess even bondanomics would work fine).

In a television interview, prime minister Narendra Modi, said: "If someone opens a 'pakoda' shop in front of your office, does that not count at employment? The person's daily earning of Rs 200 will never come into any books or accounts. The truth is massive people are being employed."

Thus, prime minister Modi, helped found a new discipline in economics, pakodanomics.

What was prime minister Modi really trying to say here? This entire jobs crisis is being overblown. What is important is employment and not jobs. This, I think, is a fair point, which most people in India do not get, given our fascination for sarkari (i.e. government) jobs. Of course, expecting the government to create employment for one million Indians entering the workforce every month and the 8.4 crore Indians who need to be moved from agriculture to make it economically feasible, is unfair. That point is well taken.

Employment can come in various forms. Even selling pakodas and making Rs 200 per day is employment. Selling pakodas on the street is incidental here. What is more important is that the prime minister of India is saying that people can sell stuff on the street, make money and employment can thus be generated.

There is a basic problem with this argument. Before I get into explaining that problem, a couple of clarifications: a) I didn't come up with the example of the selling pakodas, the prime minister did. b) The piece is not about the unit economics of pakodawallahs and how much money they make on a given day (I know, dear reader, you know a pakodawallah who is a millionaire). But it is about selling any product on the street to earn Rs 200 per day and the prime minister of our country offering this as an employment opportunity.

At Rs 200 per day, the annual income of an individual selling pakodas (Again, let me repeat here, pakodas are incidental to the entire example. It is about making money by selling stuff on the street) would be Rs 73,000 (Rs 200 x 365 days). This is assuming that he sells 365 days a year. This is an unrealistic assumption, but we will let it be.

The per capita income of an average Indian was Rs 1.03 lakh in 2016-2017. Hence, the individual selling pakodas earns 29 per cent less than the average Indian. If I were to flip this point, an average Indian makes 41 per cent more than the individual selling pakodas. So, clearly there is a problem.

Of course, someone has to earn lower than the average income. But the difference between the average income and the income of the individual selling pakodas is significant. PM Modi's pakoda seller is not earning much simply because there are too many people out there selling pakodas. At a broader level there are too many Indians selling stuff on streets. This is primarily because there aren't proper jobs going around. And if there are, people are unskilled to carry them out.

Let's get into a little more detail by looking at some data. Take a look at Table 1, which deals with the self-employed people in India.

Table 1: Self Employed / Regular wage salaried / Contract/ Casual Workers
according to Average Monthly Earnings

What does Table 1 tell us? It tells us that nearly half of India's workforce (46.6 per cent to be exact) is self-employed. Further, 67.5 per cent of India's self employed make up to Rs 90,000 a year. A little over 41 per cent make only up to Rs 60,000 a year. What does this tell us? It tells us very clearly that self-employment (selling pakodas for example) does not pay well.

Most of India's self-employed workers make lesser money per year than the average per capita income of the country, which in 2015-2016 (for which the self-employed data is), was Rs 94,130. So, there is a clearly a problem with being self-employed. (The good part is, it is better than being a casual labourer, which is by far worse. But to be self-employed you need some basic capital to start, which many Indians, who end up as casual labourers, don't).

People in India are self-employed because they do not have a choice. Currently, the government is busy trying to pass of self-employment in India as entrepreneurship, which are two very different things. People in India become self-employed because there are no jobs going around for them. Entrepreneurship, on the other hand, is by choice.

Further, as can be seen from Table 1, getting a job is more monetarily rewarding than being self-employed. Hence, selling pakodas or being self-employed, is not the solution to the problem. It is a symptom of the problem, an indication of the problem and the fact that barely anything is being done about it.

To conclude, zero was a useful invention, pakodanomics isn't. It's better to get rid of it as soon as possible and concentrate on the real problem of creating the right environment which will help the real entrepreneurs create genuine employment opportunities for India's youth.

As I keep saying, the first step towards solving a problem is recognising that it exists.

Regards,

Vivek Kaul

PS: Indian real estate investor Ashwin Ramesh says, 'I approach real estate deals like Warren Buffett buys stocks.' Listen to him outline his successful real estate investing strategy in a free webinar. Sign up to reserve your spot here.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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9 Responses to "Why Pakodanomics is Not the Answer to Creating Employment"

Cama N

Feb 5, 2018

Mr. Paul's article was interesting, and certainly comment-provoking. But the 8 responses preceding mine were excellent in rounding-out the opposing arguments most interestingly and effectively. Thanks, all.
N.

Like 

D L Narayan

Jan 25, 2018

1. The PM was not formulating a new economic theory; he was merely pointing out flaws in the way employment figures are being computed, which does not take into consideration the number of jobs/micro-businesses being generated in the unorganized sector. When a person gets a job in the organized sector, he/she creates opportunities in the unorganized sector for a host of people from dhobis and chaiwalas to motorcycle mechanics and samosa vendors. None of these factors are taken in consideration by economists perched in their ivory towers.

2. Oxfam, in its routine statements prior to the WEF meet at Davos, declared that 1% of Indians cornered 73% of the growth in India's wealth, thereby implying that the policies of the present government are anti-poor. Now, let me explain why such conclusions are erroneous. Growth in wealth is measured, inter alia, by the stock market indices. In 2017, the market grew, on an average, by 18%. Now, hardly 5% (I do not know the exact figures) own shares, either directly or indirectly through Mutual Funds. I myself gained about 30%, through my investments though I can hardly be called rich nor do I belong to the top 1% of Indians, if someone, richer than me has invested all his money in fixed deposits and earned just 6%, is it the PM's fault? What about the people who own real estate, farmlands, etc? What about owners of tiny businesses and self employed people like tailors, mechanics and plumbers who earn more when the economy does well?

3. Finally, the term " pakodanomics" is pejorative, condescending and dismissive, just like Mani Shankar Aiyer’s infamous chaiwala jibe. It implies, in a subliminal manner, that Narendra Modi is incapable of understanding the rudiments of economics, never mind that he is the democratically elected leader of 1.25 billion people and has highly capable economists as advisors to help him formulate the policies. The fact remains that India’s economy is robust and the present government has carried out a lot of reforms, carried out structural reforms and has invested heavily in infrastructure and banking. The results are already showing in the way the stock markets are performing, FDI is increasing and bodies like IMF, World Bank and Moody’s endorsement of the economic reforms.

Like (2)

Srinivasan

Jan 25, 2018

It is definitely one of the answer not the only answer. There is an article doing the rounds in WhatsApp about how samosa vendors on local trains in Mumbai are making 1 lakh odd per month. No jokes.
One idea to give more jobs to youth is to reduce retirement age to 55 or below. But, as with everything else that is reformist, this too will require a strong political will.

Like (2)

Ram

Jan 25, 2018

I think for an expert like you it makes sense to not be biased. Most of your diary articles has been consistently anti-govt. It is unfortunate that a person like you also look at things with a myopic eye. While I appreciate some of the objective analysis that you do, the moment you make it one-sided, it loses the credibility

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mukul

Jan 25, 2018

This Star Economist is on an agenda ... going on and on ... ranting about this, that and everything under the Modi Government.

On pakodas, he needs to read the blog of Mediacrooks dated Jan 24 (I tried putting the link but it is not allowed), which I am sure he will not do, because of obvious, transparent and inherent prejudice.

Like (1)

manohar kantak

Jan 24, 2018

Pakoda seller is just an example. Per capita income is average calculation. There are some with Zero income and some with crores of income also. They are all counted alike. I am not inclined to any political party, but did we have a better choice than Narendra Modi.

We must first prepare a suitable candidate who is capable to handle a nation of 130 crore population and then reject him. Demonetization was a good step but it did not have Plan B if it fails. In management we have if and if not theory. If it happens as per your plan well and good. If it doesn't happen then what to do. Banks including the Reserve Bank actually were responsible for the failure of Demonetization programme. Modi could not take harsh step against them because all unions ,opposition parties and some industrialists would have joined hands and paralyzed the whole economy.

Sir I request you to come with suggestions that are in the interest of nation so that Government thinks in that direction. India is our country if we do not think about it then who should think about it?

Like (1)

Ramkrishna

Jan 24, 2018

First the fundamentals :

(1) Pakodawallah earning only Rs 200 per day is a rarity. Assuming the price is Rs 10 per pakoda(average) and the profit percentage is 50% the average income of a pakodawallah will range in excess of Rs 500 per day. I will be happy to stand corrected if Mr Kaul produces empirical evidence otherwise.

(2) Even assuming that it 200 Rs per day, this will be a survival salary in some of the remote towns and villages and this is the minimum. Over time the same Pakodawallah will either increase the quantum of pakoda's sold or with better quality attract a premium thus contributing to better margins and hence better income.

(3) The spirit of enterprise which gets built in the pakodawallah will stand him very good in future. He has learnt the tasks of attracting customers, building relationships and marketing a product (could be the humble pakoda's) which will stand him in good stead in anything and everything he does.

(4) I see no reason and no way we will be able to generate jobs for everyone. The Indian entrepreneurship is steeped in the culture of paying the minimum of the minimum wages and it better to be a pakodawallah ( who has independence over what he does, whom he serves and what price he can charge) than to be a servant in many big and small corporations working as the glorified staff (Clerk in old days time).

(5) Pakodawallah is insured from economic ups and downs. His industry has continued to run and will continue to thrive inspite of the economical ups and downs.

(6) The statistics of income is wholly misleading as 90% of the transactions are all in cash and never reported. A gentleman once told me that in his town in Uttarpradesh, the maximum income reported was Rs 10 lakhs and that too by a organisations which has crores of rupees in turnover. Most of the traders report the minimum transaction values and hence minimum income and Viveks statistics using this basis is way off the mark. At 1 lakh rupees annual income none of these traders will be able to survive. They are making way more and using this statistics is wholly irrelevant in the article.

(8) My final point is that we have to use all the means available to keep everybody gainfully employed. That will mean investing in health, having the right education system , building industry relevant skills, Investing in newer technologies with a focus on solving the nations problems ( water, energy, clean technologies ),building entrepreneurship and finally promoting the humble pakodawallah's too. A little lesser dose of negativity from Vivek Kaul will also help this process !!!

Like (3)

Nagarajan R

Jan 24, 2018

As always, Vivek has an interesting take. Empirically speaking, one would rather not dissect a political statement for economic sense or absence thereof. Modi is too smart a person to drink his own koolaid but when the Congress touts the Oxfam report to corner him, an act of irony waterboarding itself to Gitmo, such posturing is par for the course.
One cannot but feel sorry about the state of public discourse in our country today. The last 4 years have shown how the political economy's entrenched interests have managed to best a government that, at least on intentions, cannot be harshly judged. Modi will still have to bear the blame for heading a feckless government that frittered away a 320 MP majority without taking on things like labour reform. The saddest part is that the alternative for 2019 looks even more scarier so we suffer along I suppose.

Like (2)

Sreekanth.S

Jan 24, 2018

Dear Economist, it is easy to preach and write articles on how to run the Indian Economy and criticise each and every action taken by the Government. Let me confide you that I am not the supporter of any political party and is just a simple retired common man. But tell me honestly that don't you agree that the present Govt has done lot of Good things in reducing or eliminating corruption at various levels,cleaned up the systems of unaccountability,poor performance of beaurucrats and many many other things.
The Govt deserves appreciation in many achievements in the past 3 years. It is very clear that like TOI, you are also anti establishment. But I do expect that you should have the heart and gracious enough to at least s acknowledge if not appreciate few of the good things being done by the present Government !!
Wii you show such magnanimity ??

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