Why industry is pussyfooting on skill development

Industry reluctant to creating adequate salary differential between skilled and unskilled workers; many firms consider skilling a part of CSR

First, the good news: A host of companies such as TVS, Future Group, NIIT and Infrastructure Leasing & Financial Services Limited have made small beginnings in skill development. And, non-governmental organisations such as Pratham or educational institutions such as the Centurion Group of Odisha are ready to join hands with the National Skill Development Corporation (NSDC) to start sustainable skill development ventures.

Kishore Biyani’s Future Learning has formed Future Sharp Skills, in which it owns 73 per cent stake, with NSDC holding 27 per cent. Future Sharp Skills has trained about 90,000 people in the past three years. “Once the industry gets a taste of trained people, we are confident the segment will be successful,” says Muralidhar Rao, chief executive, Future Human Development, a subsidiary of Future Learning.

In addition to training manpower in specific skills in segments such as retail and hospitality, Future Sharp Skills is creating co-branded courses with Mobilestore and ITC, among others.

NSDC says so far, its partners have cumulatively trained about 8,00,000 people in various sectors across the country, with a placement percentage of about 60 per cent. The council plans to skill one million people this financial year.

But this is where the good news ends. Quite a few private companies that jumped on the skills bandwagon with much enthusiasm aren’t excited any longer. For instance, Educomp Solutions, which joined hands with Pearson Vue to set up a skills training venture, IndiaCan, sold its stake to Pearson Vue in 2012. Bharti group’s Centum Learning was in talks with Everonn Education to sell the company.

“The skills development segment has a serious problem. The people you want to train, you don’t know where they are. All the money goes into hunting for them. Then, they don’t have money to pay you. A lot of people get trained and do not return,” said a senior Educomp Solutions official. “Though NSDC funds a lot of these ventures, barring a few that are directly linked with some schools, nobody has been able to make money in skill development.”

Challenges for the skill training segment are many. First, student aspirations are not aligned with industry expectations on salaries and job roles. Many prefer to remain unemployed than take up a job offering a monthly remuneration of Rs 8,000. Second, employers do not necessarily hire those with certified skill sets; often, they want the cheapest resource. “Until there is a premium on skills and a minimum standard for recruitment, skills development will not take off. While sector skills councils are off the ground, results would take time,” says Amit Bhatia, founder and chief executive of Aspire Human Capital Management, a social entrepreneurial firm in employability education.

The primary challenge faced by 76 per cent of Indian businesses is the shortage of technical or specific skills; India Inc takes an average of 96 days to recruit skilled workers, says a Grant Thornton International Business report. Other challenges include shortage of general employability skills such as team work and communications, as well as the lack of applicants and required work experience faced by 61 per cent of businesses.

Despite the skill shortage epidemic, there is little initiative from Indian companies in this regard. This is because to many companies, skilling is still a part of their corporate social responsibility initiatives. Besides, the industry aggravates the situation with its reluctance to encourage skilling by hiring skilled workers at all levels or creating an adequate salary differential between skilled and unskilled or semi-skilled workers so that people are encouraged to become skilled.

“In the short term, businesses would need to plug these skill gaps with people from outside the organisation as best they can. But in the longer term, they need to invest in internal training programmes to mould the people, as this would help them deliver on strategy, innovate and ultimately grow,” said Vinamra Shastri, national staff partner, Grant Thornton India.

It’s obvious more needs to be done. “The pace at which this transition happens would determine where India would stand 20 years from now---as just another fast-growing developing country or an influential member of the first world. Chief executives have to lead and the time to act is now,” said Dilip Chenoy, chief executive, NSDC.

From an investment perspective, too, skill development makes sense. A 2011 Kotak Institutional Equities report estimated skill development would become a $20-billion business by 2022.

Private equity players say despite the odds, the sector is more attractive now than about a couple of years ago. “From an investor’s perspective, a segment of education is interesting when the consumer/trainee spends disposable income to receive the training. Industries that have serious competitive pressures and jobs with a well-defined set of skills are more likely to see private spend on vocational training,” said Sandeep Aneja, founder and managing director, Kaizen Private Equity, an education-focused private equity fund.

This is the last of a two-part series