Wednesday, September 30, 2015

What ails Skills Development in India and how to resolve this?

The government and various agencies such as NSDC are making a lot of effort for skills development, including the launch of the Skills India and Digital India programmes in mission mode. A lot is being done, but the pace is way below India’s aspirations. So what ails skills development in India? 

Consider the following:

  • As per GOI, the requirement for skills training is over 400 million till year 2022, across 37 identified sectors. This includes 112 million fresh entrants the workforce and over 300 million workforce to be retrained.

    • This implies 50 million to be trained per year. Current pace is a fraction of this requirement

    • At 20 thousand rupees per person on average, this would costs 8 lac crore (or about 123 billion dollars).
    • Clearly the government does not have this money to spend on skills development alone or event if it had, is not going to spend this much
    • The industry is already spending where it can – post hiring, and the pace is only going to go up organically. Again too slowly. Therefore the only scalable solution is if individuals start paying for training.
    • However there is not much demand. This is due a mix of the following
    • Low training capacity in the country so training is not available
    • If its accessible, the quality if found wanting
    • People don’t know of the benefits of training as they have either never experienced this before or the community had a poor experience because they were earlier duped by promises of job after training or training quality itself was poor and therefore did not lead to a job.
    • People do not have money to spend on training or if they have money, culturally education is much higher priority than skills development (although education itself is poor with high drop-out and no link to jobs and outcomes). There is no pride to being a skilled master carpenter over even taking up a third rate engineering program which provides no skills and no future
    • People do not want to leave education to experience skills development because it’s a huge risk as once you leave education there is no going back  
    • While CEO’s cry for talent, their hiring managers still have a checkbox in the recruitment for which asks for a formal degree and therefore no job without formal college degree even if the degree is not worth the paper it is printed on.
    •  Hiring managers want people with certified skills but are not ready to give even a small premium over a person they (still) hire without skills.
    • This may be due to inertia. Low capacity so a local institute cannot fulfil entire demand, so unskilled are still hired in larger majority
    • Lack of standards and need for customization means fresh batch of recruits still needs to be put through training program by the company - assuming everyone has no-skill
    • More importantly hiring managers have average starting salary as a performance parameter without assessment of skill levels
    • Therefore a person considering training sees that he can still get in without spending on training (time – 3 months and money – 15-20 thousand)
    • The opportunity cost is not only training fee but also 3 months salary @say 10 ke per month – Total opportunity cost is 20K  + 3x10K = 50 K
    • What a person does not realize is that work performance/productivity and therefore salary increases are much higher if he gets in with a certified skill
    • Now government is spending 15-20k per person through either vouchers (eg PMKVY) or direct reimbursements for training programs
    • This is counter-productive, because even in areas where people are willing to pay for training – say IT for example, students would see this and stop paying for programs leading to market distortion and impacting companies that do not need this government dole
    • Also learners have no skin in the game leading to poor motivation and therefore less than desirable outcomes
    • The government may be seeing this as market catalyst (like online retailers offering discounts) - getting people used to training and seeing the benefits. But needs to watch out for long term, unintended consequences

    Watch out for discussion on solutions in a subsequent post.  I don’t claim to have all the answers so request you to leave your suggestions in the comments section
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