What started as an academic theory in 2007 – that India will need to skill 500 million (50 crore) people by 2022 – is today a reasonable target accepted by Government, policy makers and industry. This has given birth to one of the larger entrepreneurial opportunities of today – a (projected) USD 100 billion ‘Skilling Industry’ that is attempting to bridge a humungous skills gap which needs serious closing down if the nation’s economy were to continue on its growth path. People Matters looks into the progress made in this sunrise industry over the last year and how private players have taken giant strides forward in spite of a weak and myopic policy backdrop.

The increasing skills gap in India has seen a lot of activity in the skill development space over the last few years. While the size and scale of gaps calls for a restructuring of the formal education system, the numbers with respect to the availability and the required capacity to skill en-masse might not be catered to at the required rate by just formal education alone. This obvious gap has attracted many private players who are vying to capitalize on this newfound business opportunity - a National Treasure that is waiting to be explored and nurtured by the entrepreneurs in the non-formal skilling sector that has emerged in the last couple of years.

The genesis of the sheer audacity of numbers in this industry first stemmed from Dr. C.K. Prahlad’s prediction in 2007 that double-digit growth in India will see light only if the country is able to make available 200 million graduates and 500 million skilled people by 2022. As various stakeholders – mainly Government and industry - have come to share the same view, this has created an undoubted necessity to scale up vocational education to cater to India’s demand for higher economic growth, demographic changes, and the obvious demand-supply mismatch in available skills in many sectors.

Union HRD Minister, Kapil Sibal* was quite candid in explaining the nature of the challenge at a recent skills summit. “Let me just you give you a perspective of the task we are confronted with. There are about 40 million children who reach class 9th to 12th every year and this is with the existing 56% dropout rate. With the Right to Education Act, we hope by 2020 there will be 100% retention of students in class 12. Let’s assume that this number of 40 million will go up to just 50 million in the next 10 years, which means we will have 500 million children moving out of class 12. Our gross enrollment ratio on children aged 18 to 24 years who enter college is 15% at present. Let’s assume that we are able to take that up to 30%. This means that by 2022, there will be 150 million people out of these 500 million who will actually go to colleges while the rest 350 million will not”, he articulated.

This skilling challenge is further magnified by the fact that 70% of this population falls in rural and tribal India. The numbers being huge, Kapil Sibal explains that solving the same is impossible unless there is integration of skill development and the formal education system. Moreover, it demands a collective effort by varied government initiatives like MES (Modular Employable Skills), PPP (Public Private Partnership), National Vocational Qualification Framework and large and small scale private players. The scale and speed at which action must be taken in this regard makes this one of the larger entrepreneurial opportunities on the planet.

The National Skill Development Council (NSDC) has been set up to promote skills development by providing gap funding and equity investment to build scalable, for-profit vocational training initiatives. As projected by the Human Resources and Skill Requirement in Education and Skills Development Sectors in 2022 Report by NSDC, the existing skills gap is slated to increase the demand for vocationally skilled people. NSDC has mapped skill gaps in 20 high-growth sectors and the unorganized sector till the year 2022 which will add to the demand for skilled people anywhere between 25% and 85% depending on the nature of the industry.

The report further states that about 12 to 15 million people are expected to join the workforce every year. Given India’s existing skill development capacity of about 3.4 million, the urgent need to enhance skilling and technical education capacity is evident. Dilip Chenoy, CEO & MD, NSDC confirms, “NSDC has approved 36 projects which would skill roughly 55 million people in the next 10 years. They would create a capacity of 11.2 million when they come into full scale, which will happen in about four to five years. The total estimated turnover of the 30 projects (plus 6 are sector skill councils), is estimated to be Rs. 78,000 crores.”

Estimating the size of a nascent industry can be a thankless, but an exciting exercise. People Matters’ estimates of the skilling industry are based on economic realities, as expressed by industry participants, and by the larger macro-economic requirements. If NSDC’s 36 approved projects are slated to skill 55 million over the next 10 years with an estimated turnover of Rs. 78,000 crore, then the projected challenge of skilling 500 million could create an approximate industry size of $100 billion. Such a massive opportunity is enough to spur the level of activity that the industry is witnessing with an increasing influx of players of all sizes and backgrounds entering this space (refer People Matters story “India’s New El Dorado”, February 2011 issue).

Over the last couple of years, the non-formal skilling industry has seen the entry of a variety of private players - coaching institutions like FIITJEE, IMS, TIME, Career Launcher, as well as broader players in the education space like Educomp, Everonn, etc. which initially began as teaching and training content providers, but have expanded into K-12, and the higher education space. Larger industry players like Bharti‘s Centum Learning have also jumped onto the opportunity to cater to their specific organizational skill gap, and in turn contribute to reducing the larger skill gap experienced in their respective industries by turning their scalable capabilities into successful business units through the captive model. Even players like TeamLease, a temporary and permanent manpower solutions company, which had been hiring one person every 5 minutes over the last 5 years, decided to enter the skilling space when it saw that it could hire only 5% of the candidates who came for a job, and has recently bought large stakes in IIJT (Indian Institute of Job Oriented Training). There is also an advent of many education products and service providers which create expert solutions that can be embedded into the existing K-12, higher education and college systems.

In spite of the (still) fragmented nature of this industry, the confluence of multiple, diverse private players are slowly forming a structure. There is an emerging construct based on the specific skills, industries and population sets that these organizations are looking to address.

Is there a method to the madness?

While players in the non-formal skilling industry are many and increasing, and each has identified its specialized area of expertise, this story probes further to understand if these service providers have been able to identify their place in the larger context of the industry. And also whether or not there is a possible structure evolving in this new space, although the early growth stage of the industry which is barely 2 years old makes such an analysis difficult. A common trend seen is that, as new players get acclimatized to the new industry they often extend their business interest beyond the one or two areas that they began with, resulting in most organizations trying to cater to multiple pieces of the industry construct. Finally, for each player, the attempt has been to get the equation of cost, scale and quality right when identifying which piece of the larger industry they want to address.

To simplify the industry construct for better understanding, the proposed structure looks at the system from the point of view of one of its end-users, that is, the unemployable but eligible youth. Going by the minimum age stated in Convention 138 of ILO (International labor Organization), this group includes anyone who is 14 years and above including school dropouts, graduate-dropouts and graduates, who join the employment market every year. Their opportunity for skill enhancement is two-fold, i.e., they can either enter the vocational market (for school dropouts) or the conventional college education. While the vocational market in the last two years has seen tremendous activity with increasing impetus from the government, this space has seen an influx of private players as well as the government’s PPP model through the creation of the NSDC. The combined efforts of these three ownership models are working together to bridge the prevailing technical and soft-skills (together referred to as employable skills) gap. On the flip side, those who successfully pass the K-12 level, again have the option of either choosing between college education and the vocational schemes. So this structure shows the wide range of options available to a student to make him/herself employable by acquiring the right skill. And as we move ahead on the ten year journey, this space will perhaps see some consolidation as private players in the non-formal skilling industry identify their core competencies and build a sustainable business model around that.
Further the collective initiatives of various large and small private players in this space form the intersection of employment and employability where the required forces work in tandem to afford people (whether school/ graduate dropouts or graduates) the required skills that will make them eligible for employment.

The required mindset shift

Education in India is viewed as a passport for class-upgradation and there is a social stigma attached that only those who are educated deserve the highest pedestal of respect in the society. This mindset continues to allure students to opt for the formal education system, despite the present system’s inability to provide the right employable skills and a job. A student is more than willing to spend three years studying (say) Political Science (or a similar subject that might not have been their subject of choice) only because it will make him/her a graduate. A child’s career is seen as destroyed if he goes into a skill development program as it does not allow him/her to shift into formal academics later on. So students, and even their families, are more concerned about getting a degree than whether or not that degree leads to a job. While this stigma acts as a hindrance in increasing the acceptability of vocational education by the student and their families, the absence of the employers’ mandate and recognition further adds to the problem.

The acceptance of vocational education will happen when employers view it at par with formal degree programs, and begin to recognize certifications. Additionally, easy movement between formal education and skilling programs will also prompt families to encourage their children to opt for vocational education in the short-term. This will help younger population in becoming employable and get a job while keeping the option open for acquiring a formal degree at a later stage.

Quality, Cost & Scale - The impossible trinity

To capitalize on the opportunity, skilling companies must get the cost, quality and scale equation right. There is a need to skill in scale while maintaining training quality for the candidate to be eligible for a job, at a price that is affordable by the Indian masses. Manish Sabharwal of TeamLease elaborates, “If you raise quality then you raise cost, but you need scale; if you raise scale, you have the danger of lowering quality while you lower cost. It is a type of linear programming between cost, quality and scale.” The traditional equation of cost, quality and scale where cost is directly proportionate to quality and scale, will not apply here. Therefore, getting the recipe right is crucial as this is not a training problem alone, but the challenge is one of effective execution and implementation of training mass employable youth in multiple geographical locations.

To make this possible, the first imperative is for companies to identify whether they can scale up or not. They can accomplish this either by raising equity, by adopting the franchise model, by embedding solutions in the existing formal education system, or by specializing in a given area. Different players have adopted various methods which are working for them. TeamLease (IIJT) has raised equity funds to the tune of 100 crore for developing vocational education, while Centum Learning chose to work on a captive model. In case of large organizations which are already in the business of employing large workforces like in retail, insurance, etc., the captive model helps in skilling people for their own business, and also has the opportunity to transform it into a SBU to skill people for the entire industry. The third model is the franchise model where the company concentrates on building the right curriculum and process, and builds franchisee partners to deliver the same across locations.

Many players have also chosen to restrict themselves to the development of content and products for skill enhancement which can be embedded into the existing formal education system, thereby enabling them to scale in the absence of any infrastructure investment. Yet another way to scale is for players to specialize on one skill and concentrate on enabling speed and scale of execution in that particular area.

Who is the Customer?

But before one can strike the right business model, the first hurdle for skilling companies is to identify who is the consumer of this industry - is it the employer or the student? While both parties are consumers to a reasonable degree, there is an inherent resistance from both the student and the employer to bear any added skilling cost and this makes it difficult to evolve a sustainable revenue model for skilling organizations.

Models adopted by players are varied depending on their capability and scope. While many have resorted to quick fix solutions by investing in marketing efforts just to get students into the classroom, the same can backfire if the skilled candidate fails to find a job or be productive on the job as a result of inadequate or poor quality training.

The existing skill gap can choke employers’ growth plans. Therefore, employers must take joint responsibility with private players, government and bodies like NSDC and CII to build their own talent supply chain.

For example, the TMI Group follows a job-specific and company-specific approach where they first identify specific companies and their talent requirements, and accordingly train specially selected candidates for the identified job. T. Muralidharan, Chairman, TMI Group and MD of TMI e2E Academy says, “In TMI’s unique JOJOE (Jointly-Owned, Job-Oriented Education) model , the fee is paid by both the employer and the student initially - the company pays one part as soon as the student joins the company and the balance is paid by the student before the course begins. This student payment is later reimbursed to the student as retention bonus, after he/she completes 9 or 12 months working in the organization.”

The Government, through the Ministry of Rural Development, Urban Development, Textiles, to name a few, is engaged in PPPs where they mandate private skill providers to train a certain number of people for a pre-agreed sum of money. For example, IL&FS is a very strong player in the Ministry of Rural Development, and trains about 200,000-300,000 people a year under these schemes.

The Sector Skill Councils set up by NSDC support in building a sustainable revenue model through partnering with private players in each chosen sector. They represent a healthy combination of state-sponsored, employer-led programs which allow scalability of industry relevant skill development programs and aim to address the problem of lack of recognition and value for certified skills programs by industry players.

Other bodies like CII are working through MoUs with partners like Pan IIT Alumni India to set up 30 skill Gurukuls across India. These Gurukuls are residential programs that impart technical skills training to those below the poverty line (which forms the larger proportion of the 500 million) and is backed by 100 percent placement through prior partnerships with employers who have committed to hire these skilled people.

Need for financial infrastructure

The efforts of skilling organizations and the government to create skilling capacity will see results if the identified customer (the candidate) can ultimately pay. 70% of the target population belonging to rural and tribal areas has no capacity to pay. This inability of candidates to foot the bill for skilling programs is a challenge that must be addressed. While skill development organizations have to create shorter and affordable programs that will equip candidates with the right skill-set for a job, the industry also needs financial infrastructure in the form of banks and other financial institutions being open to financing vocational education.

Presently, banks are not willing to give loans for vocational education which makes it impossible for candidates to opt for a course even when they see the need and the opportunity.

But are these efforts enough?

While the private players in the skilling industry see this opportunity and are working towards increasing skilling capacity, they have a natural inclination to zone in on the proverbial low hanging fruit. The numbers to be achieved are huge and the current capacity or extent of work done in the area so far does not still look promising enough for the industry to reach the 500 million mark by 2022. The reality is that collectively India was able to skill only around 25-30,000 people last year which poses a question on whether the current speed and scale can meet the skilling target of 50 million per annum for the 75 year old India of 2022. There are a number of policy issues that will need serious consideration if the skilling eco-system should to be able to be able to reach that kind of scale.

Firstly, there is no plan or roadmap for integrating vocational training into the formal graduation system and for students from the vocational system to enter into the formal system at a later date. If not for a well-laid policy in this direction, the inherent cultural barriers will continue to hinder youth from entering the vocational training segment. This further tie in with the issue of standardizing vocational training programs with private involvement. Also, the current formal educational set-up is not flexible enough to accommodate students from vocational backgrounds and the overall education system not robust enough to improve, owing heavily to its prevalent roots in nepotism.

Also, industries with skills deficit will need to create standardized arrangements with training services companies to bear a part of candidates’ fees and be re-paid over time. Data shows jarring skill gaps in 22 sectors (NSDC reports) which cannot be addressed without the active participation of the industry sectors in building their talent supply chain. Finally, there is need for financial impetus through access to loans from financial institutions for vocational training with efficient collection mechanisms to ensure sustainability and scale.

If Government fails in creating a well-orchestrated environment for skills development, it will boil down to the familiar Indian story of “not because, but in spite of Government”. And still the question remains if employers and skilling companies can meet the humungous skills gap of 500 million in 10 years, without a pro-active shift in education policy.