Part 1: Manish Sabharwal of Teamlease on creating great ancestors, India’s development journey and ‘regulatory cholesterol’

Hi, this is Rohin. You're listening to the free version of the First Principles podcast. It is only one part of the full episode that we release for our premium subscribers. If you'd like to listen to future episodes the very first day they're released, as one complete conversation, then please consider upgrading to our premium version. You can do that either by subscribing to the Ken's premium plan, which unlocks all our premium podcasts via our subscriber apps.

Or you can just subscribe to the Ken's premium channel on Apple Podcasts for a really affordable monthly subscription price. That will unlock all our premium podcasts. Our premium podcasts include first principles, of course, but also two by two, the nut graph and make India competitive again. Check the show notes for links to all of these. Now back to the episode and thank you for listening.

Hello and welcome back to First Principles. Manish Sabharwal isn't an easy man to nail down. And by that, I don't just mean it was hard to nail down a time on his calendar to meet me for the podcast, which it was. Like with most founders and guests on First Principles, the gap between when I first invite them and when they finally appear is usually measured in months, sometimes years.

I had first emailed Manish for first principles back in January 2023. But I'm saying Manish is hard to nail down also because he defies, resists categorization. Sure, he founded Teamly's, one of India's largest recruitment and human resource providers. It employs over 400,000 people, is listed on the stock exchanges and is a great barometer of broader employment trends in India. But Manish is no longer involved with the day-to-day operations of the company.

He is the executive vice chairman and he's also the single largest individual shareholder. Instead, he leads a portfolio life, dividing his time serving on the boards of think tanks, regulatory bodies. universities, non-profits, and even private companies like PhonePay. He advises companies and governments on a host of topics like labor markets, regulation, employment, education, economic policy, and reforms.

He's a columnist and he reads books. Oh yeah, he says he's read a book a week for the last, wait for this, 42 years. Thus, when I sat down with Manish last Thursday, I went and prepared, or as prepared as I could be with my research and questions. 10 minutes into the conversation, I decided to drop the conversation narrative I had in mind and instead let the conversation go where it needed to. Yes, we do cover entrepreneurship, ambition,

finding product market fit by letting your customers guide your evolution, but we also go much further into topics that we normally don't. For example, India's macroeconomic and geopolitical chances today. Regulatory cholesterol, Manish's favorite topic. Higher education and the jobs crisis. All peppered with pithy aphorisms, vivid analogies and memorable quotes every few minutes.

It's something that I've remembered Manish doing ever since I first met him as a journalist in the early 2010s. So, let's start. I'm Rohin Dharmakumar, this is First Principles, and here's my conversation with Manish Sabarov.

Alright, I'm going to ask you a question, which I'm sure you've thought about consciously or subconsciously. And given all your various, every time I've spoken to you, there are all these, every conversation with you seems to be... simultaneously threads of Indian philosophy, economics, business, and some insights. So I'll ask you this. What stage of your life are you in right now?

I think I'm shifting from running on my legs to running on my mind, right? Elliot Kipchoge, he's the only human being to have run a marathon in less than two hours. He always says you run the first half of the marathon on your legs and the second half on your mind. That applies to companies. It applies to countries. You know, what is the middle income trap when you don't switch from land labor capital?

to innovation, entrepreneurship, technology, right? So countries which get stuck in the middle-income trap don't shift to throwing land, labor, and capital at the problem to seeing how they do they combine. It applies to companies. You know, I classify companies into babies and dwarfs. Both are small, but the baby is going to grow and the dwarf is going to stay there. What is the difference between a baby and a dwarf? Not thinking that...

Food is not the difference between a baby and a dwarf. More food. It is really in thinking about scale. It is thinking about systems. And the same thing applies to careers, I think. All of us in the first half of our careers spend time on technical problems. They have a right answer. But now we're supposed to work on wicked problems, right?

In a technical problem, the goal stays the same, the players stay the same, and the rules stay the same. In wicked problems, you're supposed to change the goal, you're supposed to change the rules, you're supposed to find new players to compete with. or change your species. So I think that, at least in my stage of life now, I recognize that we're absolutely a golden generation. I graduated.

in the year that India started liberalizing. I did my first venture straight out of business school, and now I'm reaching the point where I have the... You know, one of life's tragedies is you don't have, when you have energy, you don't have credibility. And when you have credibility, you don't have energy. And, you know, so me and Ashok, my co-founder, we've been very lucky that we, in our first venture, we were.

in our 30s. But now in our 50s, we still have a given longevity, at least. We have the ability to think about the next 10, 20, 30 years in front of us. And India is finally cooperating, right? You know, there is this whole question of if we had graduated in the 60s. If I can interrupt you, and I'll come back to this. I mean, you've framed... you know your answer in terms of you know you in terms of your career my question was more in terms of

you know, the traditional notion or the Indian philosophical notion of life stages, right? There is a particular, you're a parent, you're an entrepreneur, you're a husband, you're... on the boards of various companies, you're also in some senses, I mean, for want of a better or more accurate word, post-retirement, right? And I use that word...

very loosely. Of course, you're not retired in the sense that you retired from work, but team leads, the organization that you set up, you've moved on from operationally being involved with that, right? So, from an internal sort of... What is your purpose point of view right now? At what stage of your life are you right now? What are you trying to achieve at this stage?

I think I'm trying to, it'll sound almost pompous, but, you know, Team D's really taught me that. The two most important decisions a child in India makes are choosing your parents wisely and your PIN code wisely, right? The two and a half lakh kids who come to Team D's every month, they hire 20,000 of them. It was very similar to the question that struck me when I landed in the US for my MBA in August 1994. You went to Wharton. I went to Wharton. And in August 1994, I...

First time I landed in the US in September, I started asking myself this question. These Americans are smarter than us. Why are they richer than us? I mean, why does Joe Sixpack who drinks? bear and watch his college football all day make fifty thousand dollars a year and why does ram barose make fifty thousand rupees a year right so it wasn't about hard work and

And essentially, I've synthesized in my mind that there is no such thing as poor people. There are people in poor places, right? You know, if the same electrician moves from Balazor to Lucknow. What you said earlier, the accident of birth. Also, the notion about skills, you know, because the same electrician moves from Balasor to Lucknow and gets two times salary, moves to Bangalore, four times salary, moves to Dubai, eight times salary, moves to Switzerland, 25 times without skill development.

So while we all have this notion of skill development as a problem, but the same damn electrician gets 25 times more salary in Switzerland, or the waiter gets 25. It's not because the productivity of the electrician or waiter, it's the productivity of the customers. Finally, productivity is poverty. So I think that in my mind, India has been a remarkable experiment in democracy, and that has worked out really well.

For somebody like me, born and brought up in Kashmir, India and Pakistan, born on the same night, have had very different destinies. Their economy is smaller than Maharashtra. It's a rounding error in that way. We have created the world's largest democracy on the infertile soil of the world's most hierarchical society. Why have we not created the world's largest economy?

It's not a trivial question. It's not colonialism. There's an expiry date. It's not because I was just about to offer saying that because we were kind of bled or sucked dry. 75 years ago, there's an expiry date on that explanation. No, I mean, we had choices on democracy. We had choices on economy. The decision to give Universal Franchise at birth was ekla chalo re.

Right. I mean, some women in Switzerland got to vote in 1972 and no country before us had given. So we made that bold experiment. Then why did we do the 1955 Avadi resolution or the 1956 second five year plan? really handicapped our labor without capital and our capital without labor. What is India's problem? We have 63 million enterprises.

which only translate to 29,500 companies with a paid-up capital of more than 10 crores. Now, these 63 million enterprises have lots of labor and no capital. And 29,000 have lots of capital and no labor. This was not God's will. This was a policy choice. This was a technocratic choice made by independent Indian policymakers in the 50s to put the public sector at the height to handicap.

Just because I graduated when I said that I graduated, you know, this accident of time or in some sense reclaiming agency from circumstances in history. is available to our generation, right? If we were born in the 60s or 70s India in a private sector middle-class household... What would you do? You would either take the UPFC or you would work for a multinational. Both were very small numbers as a relative to the workforce. So I look at some managers in BHEL who in the 60s, 70s.

I look at some multinational ones. They worked much harder than we did. And they were really sort of driven by making India less poor. But the system of...

or the economic regime that India adopted in the 50s, 60s, 70s. It didn't matter how hard it worked. There's a subsequent version of that also, which I've heard from a few friends, which is essentially, I think... The generation, I'm 76 born, right? So the generation that gotten early or into, not early, but maybe slightly late into the infosices where prostheses of the world, they were at...

the generation that was at the cusp before the tech e-commerce wave took off. So in some senses, they were not early enough to the infosices of the world to be able to reap the benefits of the IPO. And they were just not early enough. to be able to have left and join the flipkarts and Amazons of the world. So there is a certain amount of resentment that we are in these...

fairly well-paying jobs, mind you, but not in those significantly wealth-creating jobs that are in tech or internet or startups, etc. Yeah, I mean, see, timing is important. But, you know... So it's a fascinating question on what matters more in life, luck or skill, right? But unfortunately, I'm dropping that framework because I know a lot of lucky people who are unskilled and I know a lot of skilled people who are unlucky.

So the answer to that question is neither. The answer to the question is there's a third variable called choices. You know, Dumbledore tells Harry Potter and Chamber of Secrets, it is our choices more than our abilities. And I think many of those people at Infosys had a chance to be mentors or to be angel investors, but they chose life to be a fixed income security because...

When you grow up in an economic regime which is highly uncertain, your discount rate is very high. So you value 10 rupees today. 10 rupees today is worth more than 100 rupees uncertain tomorrow or day after, right? My sense is my generation has, you know, when I say what do I want my kids to learn, I want them to learn three concepts. I want them to learn compounding. I want them to learn probability. Then I want to learn...

The sins of omission are more expensive than the sins of commission. Let's start with that last one. What you don't do is cost you more than what you do wrong. Because what you do wrong, you'll get some feedback. But what you don't do is a counterfactual. But that's the hardest thing to get feedback on or for anyone else to be able to observe. Yeah, but the most dangerous lies are the lies we tell ourselves, right? So how do you figure...

See, compounding is probably the most important one, right? And this is something that I bring up again and again to kids that will you, you know, think hard about. One paisa doubling a day for 31 days or 10 lakhs right now. And most people will take 10 lakhs, right? Because one paisa today, two paisa. But one paisa doubling a day for 31 days is 1 crore 6 lakhs, right? The catch is that till the 24th day, you're better off taking 10 lakhs, right? So dessert is at the end of the meal.

in almost every institution, in almost every career that I respect, right? It takes a really long time. Overnight success takes about 20, 30 years, changing. processes, changing countries takes a long time. So compounding is really just my view that Ludo is a better game than snakes and ladders, right? It's more, you know, where you're going consistently warm beats hot or cold.

The probability one is because the world of social media, in today's world, storytelling is this overweighted way of thinking. It's a wonderful way to communicate. It's a really bad way to think. Because anecdotes don't create institutions. Anecdotes are not replicable, scalable, generalizable, right? Why do I hate randomized controlled trials? I know what Nobel Prize was given. But it has converted economics into mathematics. It did.

political science into statistics. And it's converted anthropology into racism, basically. Because you can tell an anecdote about this pimple on the dimple on the left cheek of the ant in Bhalasaur and say that that's an insight, right? So I think... probability, thinking in systems, thinking in processes, you know, what is the real probability, you know, lately all the social media. I mean, you're more probable to die on the way to the airport than die in a plane crash.

In the last two weeks, it's been hard to get people to reconcile to that. Vivid analogies, overpower, probabilities. But it's really dangerous to think in stories. You must use stories to communicate. If you think in stories, then you start thinking in anecdotes. And anecdotes are not scalable. All anecdotes are true.

That doesn't mean they're scalable, replicable, and generalizable. Nobody's saying a story is wrong. It's false. It's just not representative of the world. It may not be representative of anything. So I think the probability...

The compounding forces you to deffer gratification. But the third one, which in my mind is really the one, that what you don't do matters more than what you do as a country. Yes, we did many things wrong in the 1956 Abadi Resolution. But the most dangerous one was the stuff that we prohibited. I have been asked by a bureaucrat.

I've kept a list 102 times in my life. Who allowed you to do this? Now, it's a profound question. We both have kids in an IB curriculum where there's a subject called theory of knowledge.

From a TOK perspective, it's a profound question, means prohibited till permitted means you know the whole world, right? It is permitted till prohibited is the way the world works. By the way, I mean, that's exactly how... bureaucracy thinks or at least the older Indian licensed Raj and some would argue even the current Indian some version of the licensed Raj thinks that you are prohibited unless permitted and it's the opposite of how kids think.

Kids as they're growing up tend to experiment with everything to figure out, can you do it? And if not, there is some kind of adverse feedback and they figure out maybe you can't do it, right? Well, all innovation is permissionless. So why only kids? I think all entrepreneurs think that way, right? That if you ask the horse cart guy whether a car should be allowed or if you, I mean, they will obviously say, no, nobody cuts the tree they're sitting on, right?

All innovation has to be permissionless. Right. So which is why I am in the thought world right now that for India. So skills, infrastructure, finance has shifted from being a dagger in the heart to a thorn in the flesh. The only dagger in the heart for India is regulatory cholesterol, which is this thought world.

of saying things are prohibited till permitted, which then leads to 67,000 compliances, 26,000 ways to go to jail and 6,000 filings for an employer. Now, without employers, there are no employees. The notion that, you know, you're going to have everybody in India be an entrepreneur or self-employed or, I mean, 50% of India is already self-employed, but they're not self-employed. They're self-exploiting.

Not everybody can be an entrepreneur. Not all entrepreneurship is viable. So to my mind, this regulatory cholesterol is the last binding constraint on India's sort of... reaching its economic destiny. We probably have reached our democratic destiny. And the answer, the long winded answer to your question is that is what frustrates me. or excites me for the rest of it because now, you know, we've hired somebody every five minutes for 25 years at Team Lee. So we've proven that it can be done.

But we should have hired somebody every one minute if the employment system, the three E's of education, employment, and employability did not have the regulatory cholesterol that they did. And so...

I think we have oversold fiscal and monetary policy. You know, if I've spent a few years on the RBI board, I haven't decided whether monetary policy is a placebo or a painkiller or a steroid. It's definitely not a medicine. And if fiscal deficits could make countries rich, then why would we bother being poor? But more importantly, government spending has gone up 108 times since 1990. Per capita GDP has gone up eight times.

So government spending was 87,000 crores in 1990. It's 110 lakh crores this year. So, I mean, we're not going to deliver. What is India's project? Adding mass prosperity to mass democracy? That's not going to happen by government spending. That's going to be happening by a Cambrian explosion of enterprises and being matched with educated and skilled people. I mean, just to kind of recap.

The original question was your life's purpose. Yeah, mass prosperity to mass democracy. And regulatory cholesterol is what's standing in there. Holding back mass prosperity. It is just, it makes no sense for... Indians, it made no sense for, it wasn't God's will to take for 72 years India's GDP to cross England. Now we are fourth in the world in total GDP, but we are still 128th in the world in per capita GDP. And there exists enormous disparity within India itself. It is a man-made...

problem. It is not history anymore. There's a limit expiry date on blaming the British. In fact, we have so much, the English language, the software industry, pharma, I mean, every American... I mean, Americans eat 400 billion pills every year. 200 billion of them are made in India. I mean, two years ago, India exported more software than Saudi Arabia did oil.

So those two industries prove, I mean, the World Bank and the IMF never told poor countries that you should build a pharmaceutical or a software industry. They told you to build footwear and socks and, you know, T-shirts and stuff like that. India didn't do that. We should have, but we don't need to make that choice. But the software and pharma industry... Is it too late for that?

Not at all. I think that, you know, made in India... Manufacturing, textiles, all of these. Yeah, I mean, we'll never get to... See, the peak of any country's labor force was Britain in World War II, which was 45% in... in manufacturing China peaked at 31 America America peaked at 31 China peaked at 30 we'll never get to 45 33 31 30 we but 10% of our labor force in manufacturing is absolutely the wrong number.

So we can get to 17-18% despite the automation of factories, despite everything that's going on where the employment intensity of manufacturing is going down. But, you know... 17% of our labor force is still another 75 million people. And in the short run, make in India might become made for India because domestic markets are getting to critical mass.

Everybody's view of the world is Southeast Asia, Taiwan, Korea in the 80s and 90s, and then China in the 2000s. But I think in the last few years, and given what's happening in the US and all, India's trade... exports and imports, we're 50% trade to GDP economy. No, I think it's the right balance of domestic consumption and exports, right? I mean, 90% Vietnam, 300% Singapore, 180% Thailand.

China was 85% at one point in time exports. So you need to be a balanced economy. Domestic consumption and exports. Are we balanced by accident? Well, it doesn't matter whether you're lucky or skilled if you're successful. It's very hard to unpack that. So I think in this today's world where there genuinely are challenges with...

the globalization of ideas, capital, trade, many things are being challenged. Is this a passing shower or is it climate change is actually not the relevant question in my mind. It is what is a balanced economy? And I think... it's the trade to GDP ratio of India. It was 7% in 1970. That was wrong. It was 19% in 1980. Even in 1990, it was only 20%. So those were low numbers. But now that we've come up with a sufficiently globalized economy.

both on the import side and on the export side. Should we be exporting more? Sure, if we can't have domestic demand. But America is not a very globalized economy. It's only 25% trade to GDP. Domestic consumption is a really important part of the American economy. in some sense because of this domestic consumption being stifled. Now, they have their own reasons to stifle domestic consumption, to, you know, force savings and then reallocate savings in ways that they want the Communist Party.

China. I don't want to live in China, but I'm obviously very jealous of them moving 500 million people to farm non-farm employment and what they've done on per capita GDP. I mean, we both were the same in 1991. They are now five times more than us. So I think that the train has not left the station. In fact, I hope Xi Jinping doesn't get a fourth term. I hope he gets a life term because he is our biggest ally. You know, Deng Xiaoping was a waste.

wise man who used to say, you know, I don't care if a cat is black or white, if it catches mice, I don't. I cross the river by feeding the stones. It feels like Xi Jinping has made a list of everything Deng Xiaoping did. right and is crossing it off. So from our perspective, the China factory refugees are again only being held back by regulatory cholesterol. And unfortunately for us, I think, as we talked about earlier, regulatory cholesterol is now equal to civil service reform.

Because if there was a fatwa issued tomorrow morning and all these compliances and criminal provisions went away. I hope we are not getting to a doge for India. Well, I mean, I'm not sure the Doge is, I mean, drunk driving is not an argument against cars. I mean, just because Musk did Doge badly doesn't mean that we're not. But I don't think India needs a Doge. I think we need a deregulation commission is what. The PM has announced. Doge was a little different about government spending.

I think India's focus at this stage should be a deregulation commission more than a reduction of government expenditure. We'll come back to that. I want to go back to Team Lee's and we started this conversation when you were at Stanford and then you came back.

Take us through... Timely's was not the first organization that you founded. It was the second. Well, I mean, I went to Wharton in 94 to 96. My bad. I said... Yeah, I know. That's fine. And I... Wharton was... just changed the size of my thoughts. It just made me realize that, look, my parents were civil servants. They wanted me to get a job. But it was wonderful when I went to Wharton and realized that you can start a company with other people's money.

I was brought up to believe you needed money to start a company. And so there was a guy who came to Wharton to give a lecture. I convinced him to give me $2 million. separated me from half my company, which was probably a mistake at that point in time, but I was comparing it to zero. And I started a company called India Life, which originally was meant to be life insurance and pensions, and then we ended up doing HR outsourcing.

And then I sold that to Hewitt, A.ON Hewitt in 2002. And then they sentenced me. Why did you pick that space to start in? It was just the... third iteration of the life insurance plan because life insurance deregulation didn't happen then I shifted to pension management no I mean my question was how did you come up

I mean, what was the spark that led you to that space? I had decided I wanted to start a company. And at that point, life insurance deregulation had not happened. And it seemed like a good idea. But then that didn't happen. Were you looking at top-down macro perspective? I was clear that I was looking at areas and I could find investors and I used the Wharton alumni network to look at life insurance. But then that moved to pension management. But then I went to the CFO.

Siemens, to sell my pension management product. And he said, my problem is not pension management, it's pension administration. You love me, you love my dog. You want the sexy part, you take the crap away. And so when we started pension administration, which was Provident Fund Administration, Gratuity Fund, superannuation, suddenly every company started saying, well, we want somebody to take away this problem from us. And then when you're taking away...

pension fund administration? Why don't you do payroll processing? Why don't you do ESOP administration? Why don't you do medical plan administration? And suddenly I realized that benefits administration and outsourcing was a big sort of deal. I'm going to pause you here and just ask you, because I can imagine...

Many founders being in this place where they have a hypothesis or a startup idea and they go to the market and they're talking to customers and customers are saying that I don't want this, but can you do this? Now there are two ways founders can react to that. One is to look at it and say, I'm not finding validation. I need to continue to iterate my project. So you can take the no as a feedback to keep tweaking your original idea. Another set of founders.

And I'm not saying either one is right, right? Because the first set of founders will also go back to the point that you mentioned about staying the course and compounding. Another set of founders might be more pragmatic and say, I was looking for this, but perhaps that's not here yet. Instead, this is here. It may be a different business. It may be operationally more intensive. It may be lower margin or whatever that is, but it's here.

And then as you talk to more people, you realize that that market, the one which you were not searching for, is there. And you have to kind of make a decision on, do you stay the course with... you know the original ambitious idea that you had or do you change and follow the other one that the market is pointing towards But I don't know a single founder who has started the company, ended up with the company that they started.

or the idea that they started. I mean, entrepreneurship is hypothesis testing like science. You can't prove it right. You have to prove it wrong. See, these days I get a call probably once. every 10-15 days from the CEO of large corporations in India saying, I'm getting bored out of my mind, man. And I want to start my own company, but I don't have the perfect idea.

And I always tell them that's just a misunderstanding of the entrepreneurial process, right? Nobody has the perfect idea. You just, the act of starting. The act of measurement changes the measurement. It's Heisenberg's uncertainty principle, right? So my sense is that people... actually sabotage themselves by saying that I'm looking when I have the because we are screwed by this notion of Archimedes jumping out of a bathtub saying Eureka ideation is not like that I would wager that

they are too settled well off to be able to take a completely like if you're younger you can make peace with the fact that I have a hypothesis I don't mind if it doesn't work out but when you're in a position of

power and wealth and significance then you know you're probably thinking that I don't want to get it wrong what will people think if I get it wrong so maybe they're over indexing yeah the odds are lower but Sam Walton started at 50 you know I mean yeah I've heard that like entrepreneurship

Typically, 40s is the most successful year. Yeah, social capital is higher. Your networks are higher. Your wisdom is higher. What's your advice to them? There's a trade-off, right? I mean, my advice to them is that if you want to do it, the best time was 10 years ago.

best time is today but there will not be a perfect idea so if you're uncomfortable with the ambiguity there are many many many other ways to participate in entrepreneurial journeys now right I think the I think the biggest thing that has happened in Indian entrepreneurship is we have recognized that we are three roles of shareholder, board member, and executive are three different roles. That has suddenly liberated entrepreneurs. What does that mean?

I mean, my role, I'm still the largest shareholder at Teamly's, but I don't run the company on a day-to-day basis. But I'm a board member. Now, as a shareholder, all I care is the market cap. As a board member, I have to balance the next quarter and quarter century, right? And as an individual, as an executive, you have to deliver the quarterly results, but also keep your eye on the long run, right?

I mean, Jonas Sachs, he was the inventor of the polio vaccine. He said, the only question to ask yourself is, are you being a good ancestor? That's a really interesting question in today's world where everybody's attention span has become so short. Everybody's thinking so. So absolutely short term. And nobody really cares about being a good ancestor in some sense on a fiscal policy level, right? I feel I have to ask you multiple questions. Before we get to what does being a good ancestor means,

I must ask you, what was the significance of the point that you made about we are all realizing that we occupy three different roles? Because you said that in the context of CEOs reaching out to you and saying, I want to become an entrepreneur. What happened to FMCG in India? Varunberry went from Pepsi to Britannia. Duggal went from Unilever to Dabar. Sogata went from Coke to Marico. And Bharat went from...

Cadbury's to Pidlite. The companies just repriced themselves so substantially. Market cap of, you know, Britannia went from 6,000 crores to 1,20,000 crores. So my sense is that that leap that Indian entrepreneurs have made, that I may own my shares, but I don't have to run the company. or I can get an independent board, suddenly offers these partnerships to these CEOs. We can call them corpocrats if we want to be on a bad day. But some of these people who have...

developed huge judgments about operations, about technical problems, suddenly have opportunities in India which didn't exist. In fact, I would submit being the multinationals are the new PSUs. Right now they are... Almost in every aspect, they are getting killed by Indian companies. Foreign banks are getting killed by Indian banks. Staffing companies are killed by Indian companies. FMCG companies, Indians are growing faster. Cars, the fastest car in India.

The largest selling car was an Indian company. So this is very unlike other emerging markets, which became like Wimbledon, right? It's played in England, but no Britisher wins. Most other emerging markets, the largest bank is a foreign bank. The largest car company is a foreign car company. The largest FMCG company is B&G or Levers. And that's going to change now in India. Except internet and tech. There's a Facebook.

Google duopoly that sort of controls everything else and that's the one that we've yes So in that case, we ceded the space. But, you know, we have to see whether China's firewall was the right way to do it. At least right now, it seems that China's... Tech and internet companies were a child of their decision to not let Facebook and Google in. And we made the other decision of openness. So yes, in retrospect, the digital monopolies or the winner-take-all.

is a decision that seems hard to reverse for India and China seems to get ahead. But in some sense, in many other aspects of the economy, India is much more sophisticated than most other emerging economies. Got it. distinction of the three roles so your point essentially as i understand is you're saying executives have now understood that you can play these you can choose which roles you want to play

even if you're in your 40s or 50s and like, you know, make a second. Was that the point? Yeah, and multinationals are no longer have an unfair advantage. You know, see, my mom, she... She used to always say, he works for a multinational. I used to tell her you're a racist, man. I mean, your son is an Indian entrepreneur. My mom had that for the infosys of the world. When I graduated from my MBA, her question was, why didn't you get into... one of the...

Like my mom, your mom was using multinationals or Infosys as a proxy for meritocracy, as a proxy where you got paid a little better because the companies were productive and invested in technology and invested in brand. Now, Indian companies are meritocratic, many of them, and they're investing in technology and brand rather than the old sort of Lala companies who would treat employees as an expense rather than as an asset, right?

And from there, the pending point that we had was being good ancestors. What does it mean to be a good ancestor? I mean, it's up to individuals to answer, right? And I grew up in Kashmir. They distinguish between Amanat and Jagir, both mean property. Jagir is yours, right? The Maharaja of Kuch Bihar, you spend 50% of treasury on Cartier and Rolls Royce.

the poorest place in India. Well, amanat means you have to hand it over to the next generation, right? And I think some of the short-termism now, there's no fiscal conservative left in the world. Debt is no longer an issue in American public policy, while the born vigilantes seem to have been murdered. So politicians don't seem to care. increasingly even people are saying that there may not be the reward for doing long-term thinking or, you know, there was this...

peculiar bank, I remember, which was in trouble. And we saw the emails when we were supervising where he's selling a 500 crore derivative. to a company and the risk manager replies to him, why are you doing this? In five years, the company will lose money. In eight years, we will lose money. He will not be CEO. No, he replies, IBG, YBG. So this guy says, what do you mean, IBG, IBG? He says, I'll be gone, you'll be gone. Now, to my mind, anyway, I have a problem with...

the way banks think about the future because we don't allow any other institutions 20 to 1, 30 to 1 leverage, right? And we have to think about banks differently. But that IBG, YBG is...

It's infected politics. It's infected many other aspects of our life. Is it just a feature of... the late stage capitalism that we seem to be in right now where it's a race to the bottom and there is absolutely no incentive for playing the long game? I mean, it's a part of narcissism. Maybe the...

mispricing of capital in the last 20 years where there were negative interest rates and there were those problems. Some of that is going away. I'm still not clear. When I wrote an article called Being a Good Ancestor, I titled it kid from IIT Delhi, he didn't write his name, he sent me an anonymous email, said, I'm at IIT Delhi, I just want you to think about what Groucho Marx said, you know, why should I care about future generations, what have they done for me?

You know, the guys writing from IIT Delhi, you know, we all sit under trees that we didn't plant. Those trees were planted by somebody who couldn't sit under them. So my sense is, I think, yes, the narcissism of the world is amplified by social media. The narcissism, which is amplified by many.

incentives in today's world. But I still believe that the entrepreneurs who leave lasting legacies take 20, 30, 40 years to build their companies. I mean, serial entrepreneurs in my mind, I mean, I was forced to sell my earlier company because the stupid drag along tag along clause which I didn't read when I was at Wharton but I think I'm not it's not clear to me that you can do five

when lightning doesn't strike in the same place. So you can do five companies in your life or stuff like that. So I think that when this noise to signal ratio clears out a little bit, it will become clear that the people... who made their companies their life's work, you know, who said that, look, this...

Every company, every industry takes a long time. You know, Germans have a wonderful word called finger root spell. You develop intuition in your fingers after doing the same thing for 20 years. German compound words or something. Yeah. Schadenfreude and finger root spell.

Yeah, but Fingerud's Bell is, you know, you have to do the same thing for 20 years and you develop intuition, judgments, networks. And I think that that is... highly underrated in today's world where, you know, you may get, you know, a first round funding or a piece of paper.

I think that world is changing. It was an aberration. And I really blame central banks. You know, I think unelected power. That's why I'm not Danish price capital. All right. What happened after you sold your first organization, India Life? How did you end up with team lease?

what led you I mean just my customers of India Life Ashok and me were they called us it was in It was Intel. It was, you know, a few of them. And they said, well, you've sold India Life now and we now have a problem in staffing. So it wasn't an original idea. It was just our customers of our earlier company saying, we want this service now. Why don't you do it?

It sounded like a really big idea. I mean, the addressable market, you know, India's people's supply chain is broken in all three ways, in matching. in repair and in prepare. But matching is the lowest hanging fruit, right? I mean, Peter Diamond got his Nobel Prize for surge costs in labor markets.

And it was a well-established industry globally, and it felt like a hyper-local industry. It wasn't clear. So we don't take credit for the idea of Teamly's at its original level. It was just customers asking us to do it.

And what did you start with? What were the first... year or two like what team leads oh it was much better because we had decided we won't take any venture capital money because we were pissed off with our earlier investors you arrived at that decision fairly early well because they so made us sell India Life to Hewitt many

years before we would have wanted to see india life only was a five six years company and we were we would have made that our life's work if we hadn't been dragged into selling the company to hewitt so with india so with team lease we just decided that that we would not take institutional money for the first six or seven years. So 100% of the money we got from India Life sale, me and Ashok put into team days.

And that gave us the ability to build the company. And, you know, we were fighting regulatory battles, you know, Contract Labor Act and labor laws are notorious. What kind of, I mean, just for context, what kind of... employees were you hiring and like you know placing in sales customer service logistics has always been our you know those are the three fastest growing segments of india's labor market

Whether the sales, the industries have changed. You know, the three industries which created team leads were telecom, retail, and financial services. Now many of them are much less. So their manufacturing is coming back right now. So I think we're the... We don't decide where the jobs get created. We are not the chef. We are the waiter in the restaurant. We don't view ourselves as an index of India. We are an index on corporate India and wherever.

Wherever the jobs go, wherever the jobs are, we go there. So we are not the chef. So Team Lease is really, over the last, now it's almost 25 years, we have gone to where the markets have taken us. And how many employees are there? Now it's almost 4 lakhs. It's over 4 lakh? Yeah. Wow. So that's a lot of people. Who comes at that scale, close to your scale? Quest.

TCS, a few others now. Our objective is to be India's largest employer and the world's largest staffing company, which is about 8 lakh employees. So we have another 4 lakh to go. But in my lifetime, I mean, given India's transformation, I mean, I think 1991 reforms were incomplete. They did not tackle banking, they did not tackle education, and they did not tackle formalization or regulatory cholesterol.

that now, I mean, we're in the right place and the right time will show up. Right. You're in, though in a subset of the employment space, you're still in the employment space and I think One of the, I think, overarching questions everyone is wondering about right now in the post-AI world, and I'm using air quotes, is what is the future of work and what is the future of employment?

One reason or hypothesis for the incredible valuations being commanded by all AI companies is that it's a punt on the replacement of labor. and on the payment of wages because much cheaper software will do much of the work and especially in entry-level, mid-level or even senior-level spaces, right? So do you have a... overarching or explanatory theory on what AI does especially to a country like India which is still like you rightly said there's so much of our

work population which we have to place into formal jobs so unlike other countries western countries where they're looking at displacement of existing labor we're essentially looking at possibly that A set of citizens never being able to see those jobs in the first place. See, I think it's way too early on the AI sort of ML, whatever way we want to think about it.

Will it deliver creativity or will it do productivity, right? That's an important question we have. There are three questions which I think if somebody could answer for me, then we could model its implications for the labor market. The first one is, will it write Shawshank Redemption? Or will it write Fast and Furious 15 or Singham 7? It will do that. But if it doesn't do creativity and it only does productivity, then there's some implications.

The second is, does it bring less skilled people to the median or does it make highly skilled people uncatchable? Does the power law move from 1910 to 1991, where superstars, the superstars sort of winner take all, which was there in sports, it's there in music, does it become applicable to all jobs, right?

the rewards to go disproportionately to the top. It seems to be both right now is my sense. Yeah, so I think economists are 50-50 because I see much better writing coming out of people who didn't go to English schools and that's fascinating. But they're not writing it. But who cares? I mean, I don't care if Grammarly helps them. It's not just grammar. And I think this is a nice digression because...

What I've seen and like, you know, from even the limited set of, we are, I mean, the Ken is a creative organization. We are literally in the space and we do tend to hire writers and other people who are expected to be creative. And over time, over the years, we've constantly designed our application systems to encourage people to express themselves and write.

who they are, why they want to join us, what they want to do, etc. I think in the last 12 months, there has just been a dramatic, I would say, collapse of the pyramid, where it's virtually impossible to understand. who's saying something because they mean it or that's what they want versus who's saying something because the AI is essentially enabling them to say something which they aren't saying themselves. And that's a real problem because while...

You know, the surface level reading shows that, yes, this is great. But my issue really is that, but this person didn't really write it. And I don't mean grammatically. I mean that these ideas and thoughts didn't come from that person's head. They were... supplied to them and they perhaps massaged it a little bit right so how do you take a bet on someone if you aren't clear that they're in for the long run or their passion is truly in something but because a machine

made them appear so i mean first of all employment has shifted from being a lifelong contract to a taxi cab relationship that happened a long time ago so i don't think long run again back to the whole short-termism But in your extreme creative profession, you might be worried about that. But in sales, customer service and logistics, it's an equalizing technology. I mean, people with the wrong opening balance or a difficult opening balance, I chose my parents wisely. I mean, I...

both born in the right pin code. I grew up in a civil services household, which is a wonderful gift because you realize early in life you don't live in an economy, you live in a society, you're forced to deal with ideas in ways that... Many other people aren't. But I know many people who work much harder than me and didn't have that opening gift, right? My ability to write, my ability to speak.

So that's the equalizing part. It's a massive equalizing. And at the bottom of the pyramid, it could be massively equalizing. So I am still conflicted on this whole notion that it will replace everybody. I mean, dirty, dangerous. repetitive jobs. I mean, is always better done by machines. And then we will move to higher things. At least that's what it because the higher productivity becomes higher profits, becomes higher wages, becomes higher consumption is how it has happened so far.

Indian context what are these higher It's like the US sales, customer service and logistics, right? The US economy has a per capita income of $80,000, not on software jobs. It has it on the restaurant jobs. Yes, it's not. $120,000 of Switzerland. So it's pulled down by the $40,000, $50,000 wages. But that's a lot. $10,000 is a lot of money.

In some sense, I can reverse your question and say that what is the nightmare of the US? 42% of their labor force will generate 15% of GDP. We are already there. So we have to just move. from farm to non-farm, which at the bottom, sales, customer service, logistics, nursing, education, when you work with your hands and legs, these jobs are not getting automated. Their wages are stagnating.

This is totally different. I've said it for a long time that India's problem is not jobs, it's wages. Our unemployment rate is between 4% and 7%. It's not a fudge. Anybody who wants a job can get it. And why are wages the problem? Because wages get compressed and they just... The impact of... of self-exploitation, the impact of low productivity firms, the impact of low productivity sectors, the impact of low productivity. What are the five...

What defines poverty? Which country you live in? Which state you live in? Which city you live in? Which sector you work for? Which firm you work for? And which skill you have? If you map that out, suddenly just the skill is only one of them, right? If you work for, there's a 28 times difference in productivity between our biggest and smallest manufacturing firms. So clearly there's a difference in wages.

IT is 0.8% of the labor force, but it produces 8% of GDP. Agriculture is 42% of the labor force produces 14% of GDP. So if you work in software, you'll get paid better by definition. If you live in Bangalore versus living in Balasot and Odisha, if you live in Karnataka and UP have the same GDP, but Karnataka has one-fourth the number of people. So my sense is this productivity angle or question for India.

is we're so far from the productivity frontier that the U.S. is worried about. Let's focus on the $10,000 to $20,000 per capita income. And I'm not sure for that right now, that is under threat. In the US, the $50,000, $60,000, maybe even $100,000 is what is under threat to say you'll come down to 50. You won't lose your job, by the way. There'll be enough jobs. In fact, there are infinite amount of jobs in America at $22 an hour.

right now there is no there is one person in every hotel there are no nurses there are no retail checkout clerks it's just a i just was in the u.s and so they are i mean and i know i hopefully economics will trump politics as of now but right now politics is trumping economics and the cost is there's no agriculture labor there's no

nurses, there's no people in hotels. There's no room service. I mean, 35% of US hotels have stopped room service because they just don't have the people to do it. So my sense is that that part of the economy where you work with your hands and legs, is a decent living. It's not a rich living. And that's why you have these infinite jobs in the US at $22 an hour. What will that be in India?

Will it become 5 lakhs where there will be infinite available jobs? I think so. Right now it's 2 lakhs, right? We still have 200 million people in farm labor.

We have to move them out into non-farm jobs. But I think services are much more employment-intensive. But they're not getting created at the rate that is expected, right? Or at least... Yeah, because of the regulatory cholesterol. It's not because of AI. Yeah, because the answer is so clear. I mean, what holds it back? And I'm asking you to exclude the most obvious reason, which is essentially the regulatory system or bureaucracy.

Yeah, nobody cuts the tree they're sitting on. That's true. Yeah, exactly. So I think that is the primary reason. So all the answers lie in yes, minister. In some sense, it lies in the political economy of India's democracy, where being a roving bandit traditionally was better than being a stationary thief, right? There's a political philosophy behind it.

that where, you know, the ruling mandate says, I'm never going to get reelected, so give me everything you got. So in some sense, how does our political system get elected? How does the political system hold the bureaucracy to account?

And what are the bureaucracy's ways to do corruption, right? The 26,000, when we put out that report jailed for doing business, we got lots of the ministers or, I mean, senior people in the government got angry with us saying, why are you doing this? There's not a single CEO in jail. So how does it matter whether 26,000 or not? But there's a lot of corruption, right? I told him, well, one of my favorite lines in the Vishnu Sahistranam roughly translates to, why did God create fear?

So he could take it away. So you create this criminal provision and then you take it away. So that's what corruption happens. So I think that for us, this AI problem is... Even in the US, I am in the camp that, yes, dirty, dangerous, repetitive tasks can be done better by machines in the past. So that was on the... industrial side. Now, is AI different from automation? Maybe it is. But it's unclear to me that if it's such higher productivity, then that will get recycled. Everybody's consumption.

is somebody's income everybody's income is somebody's consumption so these are complex adaptive systems you know these are not machines and economies are complex adaptive systems so i am still going to withhold my judgment on this sort of that everybody will be we'll we'll have to move to universal basic income, this is a public finance problem, the inequality implications are... You mentioned universal basic income. Do you feel that it's a...

It's either an inevitability or it's something that... Well, it's not a financial proposition right now. We don't know how to finance it given... our profligacy with the debt that we have already left our children or our grandchildren. We didn't have great ancestors. In a fiscal way, I think the three biggest market failures of the last hundred years have been mispricing carbon, have been mispricing care work, and have been mispricing government debt.

So, you know, those are three things. How would we misprice care work better? Or how would we price care work better? I think the modern economy, we pay our teachers, our nurses. Every country, it's not India. Every country in the world pays them less than I think that they... Except perhaps Scandinavian countries. Even they don't pay that. Well, that's storytelling. They're good at storytelling. Anyway, they're too small to be scalable, replicable and generalizable.

Singapore and Finland should be excluded from all conversations because they are petri dishes which are not replicable. But I think that the mispricing of government debt... is a reality which we will have to see. How will Japan solve 350% even if its population comes down from 125 million to 75 million, which it will in our lifetime.

And China, I mean, the population of Nigeria might be more than China by 2060. So China also has a real problem of this. So I think counting on demographics to solve our problems is not the solution. But this catastrophe... I am you know There was this Paul Elric, who wrote a book called Population Bomb in the 1970s, right? And he was at Stanford, which said that Indians should have a good fame in because that's the only way to solve the world's problems.

I think you can think of 10 other such Catastrophiders or Rudalis or, you know... just screaming and mourning at every funeral. And I've now concluded that optimists will get less respect than pessimists, right? Because pessimists sound like they're protecting you and optimists sound like we're selling you something. You know, I am selling India.

I am selling. And I think I'm doing it because I genuinely believe in the human creativity, in the human abilities, and the structural systems to recognize that. Everything is better than it was 50 years ago, 100 years ago, 200 years ago. And there's no reason for me to believe that we are committing this collective suicide by allowing AI to take over or stuff like that.

in the camp, first of all, India has starved ourselves of our destiny or deferred our destiny for too long. It's our turn on a global basis. That's going to happen anyway. We are far from the productivity frontier. So $2,500 going to $10,000 doesn't require a huge amount of creativity. It just requires unbottlenecking.

$10,000, the new $30,000, given how much is free, and given technology has made more, everything in the phone is 10 instruments than it used to be, so there could be a case for deflation of... of many things, not of health care, not of housing, not of education, but everything else in the world has deflated quite substantially to say that $30,000 per capita of the 1970s.

if you exclude education, healthcare, and medicine, may actually be $10,000. So I think to model these systems, to catastrophize, I think nobody has enough information to believe that... For us, the train has left the station on manufacturing. That's not true. For us to say that AI will, you know, our people will be left on farms. Sorry, I mean, on manufacturing now.

Since the time the Make in India initiative was announced, our share of manufacturing as a percentage of GDP hasn't budged. In fact, it's slightly fallen. and we've given it enough time. So what is it? Is it a question of more time? It's 800 jail provisions in the Factories Act. There are a factory... in Uttar Pradesh has 2,200 ways to go to jail. It has 6,700 recurring compliances.

I mean, it's just India is a really difficult place to do business. The largest factory in India is 45,000 employees in one place. Foxconn at its peak had 600... I mean, you would be stupid to have 600,000 people in one location in India, just given that you'd become an ATM machine for every bureaucrat, politician, trade union leader, and everybody with the way the laws are.

currently written so I think that sorry I mean I must interrupt you there I mean one of the famous lines that's talked about in the context of Bangalore's IT services industries it came about during the night and when politicians in Delhi weren't watching. So the only reason why the Indian IT services industry came up was because it came up beyond people's radar and sight.

So is that in some senses, are we now like, you know, saying that like, you know, how do you you're essentially arguing for that, but in a more direct manner, saying take away regulatory cholesterol, let it come up in plain sight and in sunlight. And even if people can see it, don't let them impact it. Well, I mean, the transmission losses between how the law is written, interpreted, practiced and enforced is a very inefficient way to run the country.

The way our laws are written are not how they are interpreted, practiced and enforced. See, development is moving from deals to rules. In India, if you follow a rule, you feel like you missed a deal. I think that this, the regulatory cholesterol in my mind is basically unenforceable laws. I mean, the chief labor commissioner just told me we're trying to enforce the unenforceable. Right. So, so I think the eventually ends up being a court.

like you know a company taking the government to court and that playing out over like years or corruption so I think just I am actually a big believer that The only binding constraint is regulatory cholesterol. And once we get rid of the regulatory cholesterol, will that take us straight to $80,000 per capita income? No. But actually, we have clear runway to $10,000, $12,000. Got it.

This episode was produced by Hari Krishna. Mixing and mastering for the episode was done by the wonderful Rajiv Sian, our resident sound engineer. And before you check out, if you've been a long time listener of the podcast and are glad we're back. Do tell the world that by sharing this episode with everyone you think will find it valuable. Okay, this is me, Rohan Dharmakumar signing off. We'll be back soon with another episode.