Article: Will people in India pay their dividend?

Skilling

Will people in India pay their dividend?

2010 has seen the beginnings of a renewed battle for talent within India Inc. As employers learn to cope with an unprecedented talent crunch, the failings of our educaion policies and vocational training systems are becoming more and more glaring. The labor situation in India - one with an estimated 240 million additional skilled workforce requirement over the next 10 yea
 

Another common criticism of the education system is an outdated curriculum and massive bureaucracy around the setting of curriculum

 

Students take up courses without gathering much information on what the latest industry trends and demands are and end up in jobs without any practical exposure to the corporate

 

2010 has seen the beginnings of a renewed battle for talent within India Inc. As employers learn to cope with an unprecedented talent crunch, the failings of our education policies and vocational training systems are becoming more and more glaring. The labor situation in India – one with an estimated 240 million additional skilled workforce requirement over the next 10 years and with 250 million workers currently untrained and underemployed – has all the makings of a socio-economic disaster. The emerging situation is one that was unthinkable for industry and policy-makers alike a decade ago – surplus capital but insufficient labour.
The cover stories from March – “Where are the People?” and July – “India Skilling” looked into some of these glaring issues

Is India, the People, Falling Short of the Requirements of India, the Economy?
According to a study on the employability of graduates by McKinsey & Company, only 25% of engineering graduates, 15% of finance and accounting professionals and 10% of professionals with any kind of degrees in India are suitable for working in multinational companies. On the same lines, a Nasscom 2009 report predicts a shortage of up to 3.5 million professionals by 2020 in the global sourcing market, which could seriously undermine its 51% share of the industry. Manufacturing is another sector where India has traditionally lagged behind global giants like China; the requirement here is a staggering 73 million factory workers by 2015, 50% more than today. A consumption driven economy, growing middle class and huge disposable incomes mean that retail, hospitality & BFSI will be the fastest growth sectors on the service side with about 20 million trained manpower need projected in the next five years according to the National Skills Development Report 2009. The same report projects a demand of over 15 million skilled manpower in the construction sector. Specialized sectors such as auto and beauty are projected to need around 5 million skilled resources.
When it comes to technical education in India, the macro numbers look impressive with more than 450,000 technical graduates, 2.5 million ‘other’ graduates and over 350,000 post graduates every year. Of course, a consistent 8% GDP growth would need a disproportionate increase in workforce as newer industries catering to domestic demand yield lesser than IT / BPO exports in terms of revenue per individual. But clearly, the problem of talent crunch has less to do with quantity than with quality issues and inefficient resource allocation. What then are the underlying reasons for this quality deficit?

The Root Cause
The first and foremost cause of such skill deficit in India is mediocre quality of education. All engineering schools are regulated by the All India Council for Technical Education (AICTE), which is vested with statutory powers to organize, plan and administer technical education in the country. More than 80% of technical education institutes in India are run by private institutions where typical ‘regulated’ fees for engineering courses range from Rs.30,000-80,000 per annum, depending on the state and the course. At the same time, AICTE does not permit the functioning of colleges from rented premises nor does it allow more than 60 students per discipline and multiple ‘shifts’ per day. The relatively low fees by global standards and added restrictions mean entrepreneurs cannot afford to buy land at market prices for setting up schools nor can they afford to pay teachers market rates for salaries. As a result of the suffocating restrictions, private education is mostly run by educational trusts or societies, which are entitled to benefits from the state such as land at concessionary rates and tax exemptions due to their not-for-profit status. The regulatory framework presents a number of procedural hurdles too and this ‘educational bureaucracy’ can typically be negotiated only with political influence. The loophole is that you have to be a non-profit organization to run an educational institution in such a bureaucratic environment as only then will the government give you cheap land. However, land supply becomes restricted the moment its prices are declared below market prices. And therefore it goes to people who have access to power like politicians, bureaucrats and a few other influential people who are not great educationists and are only interested in either to dispense patronage or to run a business where they can make profit, as is reflected in the large number of politicians associated with or promoting educational trusts in the southern states and in Maharashtra. Now, since the government gives cheap land, it influences fees, which strains revenue flows. Schools therefore pay poorly to teachers, develop poor talent and don’t invest enough back in their infrastructure. Hence it comes as no great surprise that only 15-25% of India’s engineers are employable.
Another common criticism of the education system is an outdated curriculum and massive bureaucracy around the setting of curriculum. Students take up courses without gathering much information on what the latest industry trends and demands are and end up in jobs without any practical exposure to the Corporate. While it is necessary that industry and academia draft the syllabus and curriculum together, retooling teachers is as essential as reworking the curriculum. It is appalling that the same course curriculum that was drafted and designed in the 1990s is still being taught to students. Also, over the years, there has been no retraining of skills of teachers imparting education in these out-dated institutes.
The massive growth and diversification opportunities in new sectors is also creating a dangerous trend of companies building capabilities by poaching teams en-masse from established competitors as opposed to putting in the effort and investment in building a talent pool, thus enhancing the preparedness of the entire industry.

Solutions Galore
In an economy where 90% of jobs are skill-based (as opposed to knowledge based), there are currently about 40 million registered unemployed people in India and probably another 260 million who are under-employed or unemployed in the age group of 18-50 years. Estimates peg the incremental human resource required by 2020 to maintain 8.5-9% growth in the economy at a staggering 240 million across various industries. Staggering, considering the entire country’s employment exchanges gave about 200,000 jobs to the 40 million registered unemployed last year. The current vocational set-up in India, comprising of 7,500 Industrial Training Institutes (ITIs) and polytechnics, caters to only 2.5 million people, which further compounds the demand-supply gap in many sectors. Take the Indian automobile sector for instance. A report by the Society of Indian Automobile Manufacturers states the sector will see the creation of 5 million new jobs in the next three years, 60% of which will be skilled labor. And this figure will reach 25 million by 2016. With the current system failing to live up to expectations in providing a skilled employable workforce, where are these people going to come from?
From the discussion above, some of the solutions seem obvious. The most important one would be to free technical institutions and colleges from the constraints and strictures they face and let market forces dominate the education segment including salaries of teachers and professors. Most crucially, on the training side, a few pioneering entrepreneurs have built capacity and capability in terms of curriculum and training programs, funding from private institutions, tie-ups with global education companies, setting up training infrastructure and creating a network of trainers. Each of these major players is targeting, over the next 5 years, to skill around one to two lakh people annually through government support or with retail programs, with price points of programs ranging between Rs.2,000 and Rs.250,000 depending on their skill level and complexity.
The enormous scale, complexity and far-reaching social consequences of the demand-supply mismatch for skilled workers mean that the planned solution has to be ambitious in its targets and must involve all stakeholders – government, companies, job-seekers, NGOs and industry bodies. Over the last couple of years, there have been some major steps taken by policy makers and industry bodies as a collective response to the brewing skill crisis. Primary among these policy initiatives is the formation of the National Skills Council (NSC) and the National Skills Development Council (NSDC). NSDC has been mandated with the behemoth task of skilling 150-200 million people by 2022 and there will be a requirement of Rs.15,000 crore to achieve this feat. Another big step in improving vocational training standards and output was the centre’s decision to provide financial support for the upgradation of the Industrial Training Institutes (ITIs) through Public–Private-Partnership. 1,396 ITIs have been proposed to be upgraded into ‘centers of excellence’ in specific trades and skills under PPP. Under the proposed scheme, the state government, as the owner of the ITI, continues to regulate admission and fees while the new management will be given academic and financial autonomy and the central government will provide financial assistance by way of seed money. The central government’s proposal also includes an interest-free loan of up to Rs.2.5 crore to each ITI for upgradation and revision of courses. It is envisioned to upgrade at least 300 ITIs every year under the PPP model. Currently, 250-300 ITIs have been ‘adopted’ by industry bodies FICCI and CII, who in turn have brought in industry members as sponsors.
With the necessary economic growth, government intent, policy framework, industry readiness and training capability all in place, the stage is now set for execution. The entire skills development and vocational training landscape is set to see an overall spending upwards of Rs.25,000 crores over the next decade – an amazing opportunity for entrepreneurs in the areas of skills assessment, curriculum building, training infrastructure, trainer networks and temporary staffing solutions.
 

Topics: Skilling, C-Suite

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