Is India on Track?

While on the one hand, India Inc. is struggling to maintain a healthy growth rate & profitability, on the other hand, the Sector Skills Councils - charged with workforce development of particular industry sectors - are struggling to fulfill their core functions. Will the doubling of the allocation for National Skill Development Fund help put the skilling agenda back on track?

People Matters delves deeper into the various initiatives and developments in skilling to assess whether the efforts are in sync with the stated skilling target given the current macro-economic challenges.

The People Matters Entry Level Hiring Survey, 2012, reveals that 84 percent respondents would prefer hiring freshers with vocational skills. However, the larger question is – are there enough people being skilled to bridge the demand-supply gap and will the prolonged economic slowdown in any way derail India’s skilling agenda?

The skills gap

The skill requirement studies estimate that India will require around 260 million skilled people by 2018 and around 340 million by 2022. Over 13 million people are required incrementally every year in over 90 categories of skills. A CII–ICRA report envisions that by 2015, approximately 2.25 million skilled workers will be required in the auto sector, about 5 million in the banking and financial services sector, 4 to 5 million in retail and 13 to 15 million in the construction sector. Similarly, a report published by CII and the Boston Consulting Group (BCG) in 2010 offered clues to India's demographic dividend complexities. In manufacturing, the report estimates that even with technological change, automation, improvements in overall productivity of 5 to 7 percent (in real terms) to 2025, India will still lack a trained workforce of between 50 to 60 million.

For India to realize its fabled demographic dividend, its yawning skills gap needs to be bridged. According to the Survey, 79 percent affirm that the present educational institutes do not provide enough practical exposure to make candidates employable. Further, 66 percent say that there is not enough quality entry level talent entering the workforce; a fact further cemented as an overwhelming 97 percent of the respondents agree that training entry level talent is a must. Research reports suggest that out of 5 lakh students targeted to be trained per year, only 75,000 were actually trained last year; an achievement ratio of just 16 percent. If this trend of under achievement were to continue, the demand supply mismatch perhaps cannot be bridged. In the light of these statistics; the focus therefore not only has to be on the number, which is humongous in itself, but also on the quality of skills being imparted.

The positive vibes

The growth prospects of the Indian economy depend, to a large extent, on how the country tackles certain issues of intellectual capital today. The good news is that the government, in its bid to skill 500 million people by 2022, has undertaken a series of initiatives almost on a war footing in the past few years. The government’s National Skill Development Plan (NSDP) is the flagship initiative. To this end, the NSDC has been entrusted with skilling 150 million people, the Ministry of Labor and Employment (MoLE) has a target of 100 million, the Ministry of Human Resource Development (MHRD), 50 million and the rest of the 200 million among 17 other ministries.

The government has further taken a significant step towards making people more employable and plugging a looming skills deficit by announcing the creation of a vocational education framework and integrating this with its mainstream education system. The national vocational education qualification framework will come into force from the 2012-13 academic sessions in polytechnics, engineering colleges and other colleges under the university system. In the first year (2012-13), the new vocational stream will cater to the needs of companies in information technology and back office services, as well as retail, food processing, automobile, fashion design, and construction businesses. The new vocational stream is expected to cater to 5 million people with the equivalent of a graduate degree or diploma every year. Besides this, the launch of credit guarantee fund and exempting vocational training institutions from service tax will make skills training affordable.

Skill development or creating a pool of skilled workforce cannot be solely the government’s responsibility. While the government has taken up this agenda with an intention to leverage the demographic dividend; India Inc. too necessarily needs to come to the forefront, partner with the government to draft skill competency standards and qualifications, and treat workforce who have undergone vocational education at par with the ones who opted for mainstream education.

The industry participation

To a large extent, industry is the victim as well as the culprit when it comes to scarcity of skilled workforce. However, there is a palpable trend in India Inc., starting to train its people on a scale large enough to alter the nation's future. The Survey finds that 91 percent of the respondents have an in-house facility to train their new hires. Apart from in-house training modules and outsourcing, there are a number of private firms across industry verticals that are also adopting ITIs. This approach helps companies skill future workforce. For instance, Maruti Suzuki India is adopting 40 state-run technical schools to create a customized labor pool, needed to fuel its Rs.18,000 crore expansion in Gujarat. The ITIs, mostly in northern India, will not only ensure a steady supply of trained personnel to the auto maker, but also to its dealers and vendors such as Sona Koyo, Amtek Auto and Rico Auto Industries.

S.Y. Siddiqui, COO, Maruti Suzuki India shares, “At Maruti, we do not look at the cost of training as an expense, rather it is viewed as an investment for building a talent pool for future organizational requirements to face the challenges of the competitive business environment.” This corroborates to industry belief as approximately 40 percent of the Survey respondents confirm that they spend more than Rs.25,000 per candidate on training and skilling fresh candidates.

In fact, the ITIs adopted by various companies such as the Taj Group, Hindustan Unilever, Videocon Industries, India Cements and Punj Lloyd, have shown to have better placement record. This is primarily because in such cases ITIs get better infrastructure, contemporary curricula in sync with the industry demand which consequently also improves their placement record. The adoption of government ITIs is a win-win situation as it helps the cause of modernization, and from the company perspective, it helps them to get industry ready workforce. 82 percent of the respondents affirm that mainstream education coupled with vocational training helps in bringing down training cost and time required to make candidates productive on the job.

Further, there are seasoned players like Centum Learning (Bharti Group) that bring to the table both backward and forward linkages. They work with companies to understand their skill set requirements over a period of time and then work backward to decide what courses they should launch and where should they open new training centers. TeamLease, a people supply chain company, is emphasizing on backward integration. Manish Sabharwal, CEO, TeamLease, shares, “We currently offer short term courses in English, Soft Skills, Accounting, Finance, Sales, IT Hardware and will be soon adding hospitality and retail.” He further adds that they are working with several states to go live with ‘Vocational Universities’ that will set up community colleges offering two year associate degrees which will create the missing mobility between certificates, diplomas, associate degrees and degrees. Besides these, there are dozens of training companies with ambitions of training millions in engineering, construction, manufacturing, retailing, insurance, banking services including microfinance, accountancy, hospitality, healthcare and other vocations, sprouting up around India. For example, Core Education and Technologies, an education company, plans to invest at least Rs.225 crore to open a chain of vocational education institutes across India to train some three million people over the next five years. Companies could do well to partner with such training companies to bridge their existing skills gap.

Dilip Chenoy, MD & CEO, NSDC, enunciates the multiple role the industry needs to play as outlined in the National Skills Policy 2009. He shares, “The industry should own the skill development agenda, proactively set up sector skill councils which will provide the labor market information system, the national occupation standard, the competency levels for people in different jobs not only in the current economic conditions but also in the future.” He further points out that the industry should also accredit training organizations, certify the trainings, and get the industry to preferentially employ people who have been certified. T. V. Mohandas Pai, Chairman, Manipal Global Education Services, believes that there is an urgent need for reforms to bring the necessary amendments to the Apprentices Act. He explains, “Companies, hotels, business institutions can take apprentices up to 2-5 years and pay them a stipend. The government on its part can subsidize the stipend so that more people can be taken in by industry players.” This will help people get trained and then absorbed or given a certificate in training.

The government’s well intentioned initiatives as well as India Inc.'s newfound push on skilling could help it follow the footsteps of South Korea or even Germany where an intense vocational focus in education and training helped the countries rapidly expand their economies. If the dozens of training institutes mushrooming in India can deliver it a skills edge, the country could reap benefits of its demographic dividend.

The academia – industry alignment

85 percent of the respondents assert that educational institutes are not equipped to impart practical knowledge which can help students become employable. In light of this, education as it is falls short of empowering the youth for the competitive market scenario. Dr. Santanu Paul, CEO, TalentSprint, minces no words and says, “Quite frankly, the industry has been complaining for a long time that they can’t find enough employable graduates and those they select need to be trained; college education isn’t sufficient for them to be industry ready or employable.” Further, studies too suggest that only a part of graduates are employable out of the enormous volume of the output of educated youths. If education has to strengthen its role and remain relevant to the world, it will have to render skills development an integral part of its endeavor. The challenge of skilling/up-skilling 500 million by 2022 will require both fundamental education reform across primary, secondary and higher education, and significant enhancement of supplementary skill development. At present, in India, approximately 12.8 million people join the job market every year. The current skill capacity of the country is about 3.1 million - a deficit of more than nine million annually. To add to the woes is the quality of training, which has limited industry linkages and fails to meet the industry standards. This is further accentuated by the fact that the current academic curriculum is not aligned to industry requirements as concluded by 76 percent respondents. As the gap between skills, employment needs and the quality of the output continues to widen, there is a drastic need for a different strategy to bridge this gap and this requires the intervention of the government, academia and industry. Thus, the curriculum for training and skill development, which is critical for providing decent employment opportunities, has to be evolved in consultation with and with active involvement of, the industries which require the manpower. An industry-academia team which understands the industry needs and thereby factors this in the teaching and curriculum must be in place.

The required mind shift

While education imparts one kind of training, industry demands another kind of skills set in job seekers. As a result of this - while there is manpower crunch, the degree holders who are seeking jobs are being denied the jobs. “The belief is that once you get a degree you are eligible to compete for a job; that has led to everybody aspiring for a degree, and having a degree even without a job” says Dilip Chenoy. This paradoxical situation is in a way reflective of the obsession with degrees and the white collared jobs that they potentially secure. There is no perceptible effort done at the lower educational level to sensitize and orient the young to understand that it is a stigma that prevents them from entering the ‘skill world' and thus, save them from the aimless pursuit of higher education. The importance and hence the acceptance of vocational education has been clearly undermined. As a matter of fact, formal education system in India still remains divorced from any sort of vocational education or training.

Skills development is going to be the defining element in India’s growth story. There is a need to re-define the relationship of education, employment and skills development. Often, vocational education is even dismissed as good education. People perceive vocational education as something which one pursues when one cannot get into a mainstream course. It is believed that a vocational course takes one to a shop floor while a graduation will lead to a good office. People’s perception needs to undergo a change.

The change in perception is all the more important as the prevailing higher education system in India is not churning out skilled individuals and thereby, affecting the employability quotient. There is also a dearth of quality institutions as compared to the number of students coming out of secondary schools and joining higher education. In such a scenario, vocational education can prove to be a lucrative option for students as it will skill them and help gain employment.

This is possible only when there is proper recognition for the various courses and acceptance of the same by the industry. S. Mahalingam, Chairman, CII Council on Skill Development and CFO & Executive Director, Tata Consultancy Services explains, “There is very little promotion of vocational education and we need to create a positive environment for making people opt for vocational stream as people think that the only form of education is the formal higher education format. There is a need to promote vocational education as a form of education which is very critical to create employability”. Further, vertical mobility options for students opting for vocational education at the UG and PG level is also essential, failing which students may not prefer it at the school level.

The way forward

In the present context of continuing demographic dividend, the unique problem facing the country is that of labor surplus and skills scarcity. The International Monetary Fund’s April 2012 Regional Economic Outlook: Asia and Pacific, “Managing Spillovers and Advancing Economic Rebalancing” categorically states that India’s continuing demographic dividend can add about 2 percent to the annual rate of economic growth, if harnessed properly. Hence, if India is to maintain its growth and prevent the economy from derailing, the ‘skill gap’ issue has to be addressed immediately.

However, the greatest roadblock continues to be as to who will foot the skilling bill? Manish Sabharwal reasons the dynamics of the challenge, “There is a bit of a market failure in skills; companies are not willing to pay for training or candidates but willing to pay for trained candidates. Candidates are not willing to pay for training but jobs.” This problem is further accentuated by the fact the neither banks, nor microfinance institutions are willing to pay for training unless a job is guaranteed. As a result, training companies are unable to fill up classrooms because many deserving candidates cannot afford the fees. The criticality of the issue is such that the three payers - individuals, government and companies - will have to work together to find a financing solution that is scalable, sustainable, transparent and honest.

The global woes and India’s own faltering economic indicators does raise a question on long term sustainability of the skilling agenda. Will the target be met? The 500 million skilling target is nevertheless herculean and so are the stakes. If it fails, India better get ready to deal with a demographic debt or in a worst case scenario, a demographic disaster. But at this juncture failure just cannot be an option for India. Is India on track?

By Rajlakshmi Saikia & G. K. Kashyap