#248 The Budget Line Is Real

Morality vs Manufacturing, Bengaluru's Water Crisis, and AI Regulations

India Policy Watch #1: How To Make In India

Policy issues relevant to India

— RSJ

It was International Women’s Day yesterday (I’m writing this on Saturday), and I got my usual share of Women’s Day messages on various social media platforms. There are two types of messages that I most look forward to on this day. One is where I get to hear how women are the embodiment of Shakti and multi-taskers par excellence and that every day of the year, we must celebrate women. The other is, of course, those messages that celebrate women’s day while undermining it simultaneously by talking about the equality of sexes, which is a code for “I think we are taking this thing too far”. It is the Indian equivalent of “all lives matter'' as a response to “black lives matter''. Despite the celebrations and the anodyne messages, the economic gulf between the median Indian male and female continues to widen as the labour force participation of women stagnates, and despite efforts at the upper echelons of the corporate world to bring income parity between genders, the wage gap continues to widen especially in the informal sector. As I was winding down for the day, I received a women’s day kind of message from Pranay (highly unusual behaviour on his part). Except there was a public policy angle to it (totally expected from him). The message had a link to a media report on Foxconn’s factory at Sriperumbudur and how it is treating its predominantly female workforce. 

The article is here; you won’t miss much if you don’t read it. It follows the predictable style of beginning with the personal story of an anonymous woman who moves from her village to work at Foxconn and using her story as a springboard pans out to the wider issues it wants to highlight - restrictive working conditions, poor food, low pay, long hours, semi-skilled work, lack of unions - you get the gist. All of it is made somewhat more poignant because these are all young women from underprivileged backgrounds who, anyway, have had odds stacked against them in their relatively young lives. This is a particular strand of reporting that always has currency in India and, prima facie, very hard to counter. I mean, take a look at this extract from the report:

Activists say the constraints placed on the women who live in the hostels is just one of the many ways in which the company is exercising control over its workers – an aspect that is getting overlooked in the euphoria accompanying India’s iPhone push.

“It is basically like jailing people,” said S Kannan, the deputy secretary of the Centre for Indian Trade Unions, Tamil Nadu. “So the workers never get a chance to meet anyone and remain isolated.”

Gaining access to the Foxconn workers was indeed a challenge because the hostels in which they live are heavily guarded – even activists said they struggled to meet the women. 

Or this:

The activist argued that the company also focuses on employing women between the ages of 18 and 25 to minimise the likelihood that any will get married or have children. “Around 25 is when women usually get married,” the activist said. “So, with this age bracket, the company doesn’t owe them paid maternity leave. And by not making them permanent, they don’t owe them any other benefits either.”

Apart from sounding like exploitation, it also sounds very familiar to me. About two decades back, there used to be exactly the same kind of pieces about the Indian call centre and BPO industry. The mental and physical toll on workers doing the night shift, long hours and low pay, the mental stress of faking an accent and getting abused by customers on the other end of the call, the low quality of work with no future prospects, the packing of workers in a cramped van that was used for commuting to the offices and the unhealthy food served in the canteens. And, of course, no unions. I am too lazy now to search and bring up those articles, but I can assure you there were plenty, complete with the backstory of a female employee who moved from a village to Bangalore.

I don’t think any of those reporters ever went back to those stories and tried finding out what happened to the lot they interviewed. Because clearly, the BPO industry has gone from strength to strength over the years. The massive expansion of the homegrown BPO setups and the subsequent rise and rise of global capability centres (GCCs) have created innumerable jobs and provided meaningful careers to millions. The export of services has been the fastest-growing segment of the GDP in the last decade, and we continue to increase the value curve for the kind of work being done out of India. Those employed in the BPO industry still work night shifts and commute to offices in vans, but there’s no one writing about them any more. Because those things don’t matter any more. And, if we want to learn anything from history, we should understand they never mattered. Even back in 2004.

One of the things we often argue about on these pages is that growth is the single biggest moral imperative for India at its stage of development. We can try to optimise for many other ideals and virtues, but if they come to us at the cost of growth, we must learn to ignore them. Because lack of growth will make even those ideals worse than where they are today. To illustrate this point, somewhat provocatively, I have made the point that we shouldn’t get rich at the cost of our environment, but we must also consider that staying poor doesn’t do any good for the environment either in the medium to long run. At our stage of development, we should only ask if our today is better than our yesterday. It is possible that our today isn’t ideal or it may be far from what the developed world might have at this moment. But that should be of limited concern to us. Because in trying to aspire for that ideal state or in trying to make that quantum leap to what a developed economy already has, we will put at risk the gradual increment that we can make every day. 

Why do I say that? Let’s consider the arguments made in the Scroll article about Foxconn and use the ‘growth lens’ to look at their arguments. 

First, have we asked why Foxconn is building or renting hostels to house their workers or picking them up and dropping them daily? In an ideal world, you would hire workers, ask them to report on time, do their daily number of hours, earn their wages and benefits and go home. Why would you want to add the additional logistical hassle and responsibility of their stay, food and commute? This article, like those written about BPO industry in the past, insinuates that it is because these companies want some kind of prison labour that is always available, doesn’t complain and can be monitored throughout. This is warped logic. Private enterprises are forced to do these “non-core” activities because the State has failed to provide public transportation that’s easy, comfortable and widely available. There’s no guarantee that workers will make it to the factory on time daily if they use the State’s infrastructure. The same argument holds for the multiple internal training academies set up by companies to train their fresh hires. This is because the median graduate produced by our education system is almost unemployable. These are significant transaction costs for these firms that they wouldn’t have to incur elsewhere. They still incur it in India because we have the advantage of demographics and a large market.  

Second, and this is where the women’s day point comes in. We have had a worsening ratio, arguably, regarding women in the workforce over the past decade. The reasons for them have been explored in multiple studies about the ‘missing women’ in the India story. These include societal prejudices about working women, which has meant increasing household prosperity has led to women dropping off the workforce because it is a ‘luxury’ that they can now afford; fear for the safety of women if they migrate to other cities and the additional ‘burden’ as seen by companies in having women workers including maternity leave and safety measures. In such a scenario, any company that’s doing its best to increase their participation because it suits their business interests should be seen as a win-win for us. Sure, we must hold them accountable for providing a clean and hygienic work environment and food and protecting the workers' rights. However, I will argue that the threshold standards for these at Foxconn for their global operations will be significantly higher than most MSME setups in India, which are the alternative options for such a workforce. I found it amusing that a trade union leader quoted in the Scroll article kept making the point that the ‘prison-like’ setup at Foxconn is deliberate to prevent the setting up of a union among workers, making it difficult for them to organise and protest. That’s nice to hear. I want to ask him if their union has ensured a good quality work environment and wages at all the places where they are not restrained, like at Foxconn. A quick visit to a local garment factory in Tirupur or a fireworks setup in Sivakasi will tell you where things stand. A Foxconn or a Hyundai factory actually helps set better working standards, just as the global BPO setups did in the past, which is better than the average facility in India. For the media or the trade unions, these foreign companies are soft targets where a convenient narrative of how they are exploiting poor Indians can be easily built up. It will only hurt us to continue doing so. 

Lastly, coming back to the point that we must only ask if our today is better than our yesterday, I have wondered if anyone has gone back to the villages or small towns where these women have come from to evaluate what would have been the alternative for them if they hadn’t come to Foxconn. The farm productivity in India is among the lowest in the world, and we have made the point that it is necessary for us to shift our workforce away from agriculture. We have lamented that for us to avoid ‘jobless’ growth, we need low-skilled manufacturing jobs in plenty so that we get the flywheel started, which will eventually lead to higher-skill - higher-value jobs over time. If a Foxconn factory helps us solve these issues right away, we should ask ourselves what more we can do to help them set up more factories. And not write tired old articles whose central thesis has been disproved in our own lifetime.

Our duty is to maximise the growth rate for the long term. It sounds quite utilitarian, but it is the most moral position for India. 

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Addendum

— Pranay Kotasthane

A couple more points. This is the second news report I’ve read criticising Foxconn (the first one, somewhat better researched, is here). Such articles have led some people to expand the scope of their criticism, arguing that India’s strides in electronics assembly are coming at the cost of its women’s well-being. RSJ has expertly explained why that’s hardly the case.

I do not see any evidence for a ‘prison-like’ setup. The hostels are optional and free, and the employees can forgo them. If the company violates any legal statutes, it must be held liable. Beyond that, this critique of the tough working conditions and monotony is as old as Marx’s theory of Alienation, which he propounded in 1844. It’s one of Marx’s better contributions to economics.

Nevertheless, alienation neither stopped individuals from improving their lives through engaging in industry work nor did it halt countries from increasing their manufacturing base. City slickers reading English media can complain endlessly about alienation all they want, but employees working in these factories are choosing an option amongst the alternatives they have at their disposal. Let’s respect that choice.

Some others have gone a step further, using these reports to decry India’s manufacturing push. They argue this is why India should opt for a services-heavy path instead. If all you have is a hammer, you tend to see every problem as a nail. As we have argued earlier, services vs manufacturing is a false binary. No serious analyst or government will pick just one of them, primarily because they cater to different time horizons.

Sure, services might be where India’s future lies, and I support a change in the government’s outlook prioritising this sector. But the promise of that future doesn’t help the millions of low-skilled, poorly-educated workers who are searching for better options today. Capturing the services segment requires an investment in better health and education, which must happen in conjunction with higher manufacturing today.

Many people seem to have taken the arguments in favour of a services-led growth trajectory from Breaking the Mould: Reimagining India's Economic Future to an extreme. The authors do not argue that India should pick services over manufacturing. All they say is that developing India’s services sector needs a lot more policy focus.

We may not like the working conditions in a large-scale manufacturing setup from the confines of our air-conditioned homes. But economics teaches you that there is always a budget line; the trade-offs between employment and moralising are real.

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India Policy Watch #2: Regulating AI By GoI

Policy issues relevant to India

— RSJ

Last week, I wrote about the challenges of governing AI for platforms like Microsoft and Google. As I summed up:

The challenge of governing AI is to find a way to manage what seems like an impossible trinity at this moment. The gen AI model has to simultaneously serve three purposes for humans - they have to be useful, that is, their output can be used with minimal additional human application of mind; they have to be truthful, that is, their output cannot be a product of their hallucinations about what the world should be like and finally, they should be benign, that is, they shouldn’t cause harm by perpetuating what’s bad about human society that’s embedded in the vast datasets they trawl for deriving their intelligence. 

This won’t be easy.

Guess who rose to pick up the challenge? Why, the government of India, of course? So, we had an advisory from MeitY on the regulation of AI platforms. As the Business Standard reports:

MeitY's advisory, issued on March 1, mandates that all platforms ensure their computer resources do not permit bias, discrimination, or threats to the integrity of the electoral process through the use of AI, generative AI, large-language models (LLMs), or similar algorithms.

The advisory targets explicitly all AI models, LLMs, software utilising generative AI, or any algorithms currently being tested, in the beta stage of development, or deemed unreliable in any form. These platforms must seek explicit permission from the government before being deployed for users on the Indian internet.

Superb. 

What large platforms cannot do in terms of testing LLMs and AI models, the Indian babu can regulate.

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PolicyWTF: Water Scars

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Pranay Kotasthane

I live in the outer outskirts of Bengaluru. The Gods of the Bengaluru Water Supply and Stoppage Sewerage Board (BWSSB) won’t bless us for another ten rounds around the Sun. We have relied on water tankers for the last seven years. Apart from a handful of days during this period, this water supply system has worked reasonably well.

So, I was only mildly interested when the news of water shortage in Bengaluru first showed up a couple of weeks ago. I reasoned that water prices would rise, and we would pay more, but the positive-sum game of trade would continue to play out.

But soon enough, the government got involved, and that had me really worried. First, the government declared that all private water tankers must register with the government. Then, the government announced price caps on all registered tankers based on distance from source to destination. Finally, the government declared that the registered tankers could be commandeered by the BWSSB at laughably low prices.

As you would anticipate, the unintended consequences are beginning to show. Less than 10 percent of tankers have registered. Many prefer to stay off the roads without the ‘surge pricing’, thereby further exacerbating the water crisis. Now, I’m gearing up for a pre-liberalisation era shortage.

To get over the hump until the situation improves, the BWSSB should massively scale water tanker capacity from outside Bengaluru instead of taking over those which are supplying water in the city limits. BWSSB currently has less than 200 tankers at its disposal, while the size of the private tanker market in the city is estimated to be over 2000. It has stubbornly limited itself to providing Kaveri water through pipes instead of supplying water to all Bengalurigas.

By providing a lower-priced alternative, the market will cool down, and private tankers will also be forced to reduce prices to stay in competition. And yes, let’s hope fervently for a good monsoon rain streak a few months from now.

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HomeWork

Reading and listening recommendations on public policy matters

1. [Tweet Thread] The investment figures for the semiconductor fab announced by the government need some more clarity because they appear to be an order of magnitude higher than comparable projects.

2. [Article] Anupam channels Hayek, urging the government and society to let the pricing system operate in the water market. Interestingly, despite the ‘water crisis’, the Overton Window on mandating water metering in all households hasn’t moved.

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