The skills India needs

Excessive centralisation of skilling programmes may hinder the ability of training institutions to effectively respond to Indian market requirements

About a month ago, the Government of India launched the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) 3.0, the third phase of the short duration national skilling programme. Unlike some other public policy campaigns of recent times, there are many concerns about the skilling programmes of the government. There is a need to think about the most useful ways forward.

In any field, the first question to ask, when discussing state intervention, is: What is the market failure? In the case of skills, the market failure arises out of positive externalities. When one individual increases her skills, some of the benefits accrue to her and to her employer, but some of the benefits accrue to others in society.

Firms worry that the employees would leave, so some of the gains of her increased skills would go to future employers. Individuals are often hobbled by the difficulties of Indian finance, and face high interest rates or absence of credit access.

Individuals face asymmetric information and lack confidence that spending money on skilling will generate a useful impact on their labour market prospects. These difficulties of finance and of information lead to under-investment in skills. State intervention can help address the market failure. This is the intellectual genesis of government involvement in skills.

State intervention can be organised as state production (the government runs skilling programmes for individuals), state financing (private persons run skilling programmes but the government contributes some part of the fees paid by individuals) or state regulation (the state uses its power to intervene in the way private persons build skilling businesses). The bulk of skills take place through the process of work. There is learning by doing, rather than learning in a classroom. Hence, everything that is done in this field should have a strong connection with employers.

The backbone of the present system is the network of Industrial Training Institutes (ITIs). There are about 14,000 ITIs across the country and over 80 per cent of these are private. On completion of training, most students are certified through a national or a state council, which are executive bodies and not statutory regulators like the University Grants Commission or the All India Council of Technical Education.

This skilling system has suffered from the usual difficulties of state capacity, and the landscape is similar to that seen in parts of health and education. The offerings of the institutions tend to lag behind the changing needs of the economy. Government ITIs tend to have decent land and buildings, but have average quality labs and equipment, and high vacancies in teaching positions. 

The staff have formal qualifications, high wages, but low accountability and low motivation to serve their customers. At the same time, private sector production is not a ready panacea. While there are a few high quality private skills institutions, the average private ITI has less resources and delivers inferior results to the average government ITI.

Illustration: Binay Sinha

Over the last 15 years, a new approach came together, in parallel to the main mechanism of the ITIs. This involved short duration programmes that emphasised prospective employment in new areas of the services industry, which did not require training on using expensive machines, and originated in initiatives of GOI ministries. A novel state intervention was born in 2007-09 when the GoI created the National Skill Development Corporation (NSDC) as a public-private partnership, to support early-stage skill training institutions with soft loans and grants. Courses were certified by industry led Sector Skills Councils. These initiatives helped catalyse a new skilling industry.

The key challenge in this new mechanism, as with the ITI mechanism, is quality assurance and the trust of employers and workers. There are a large number of private providers, the quality of training is varied, assessments are not entirely standardised and reported employment outcomes are typically low. The challenge for policy lies in addressing these gaps. For this, we need to assess the difficulties of the Indian labour market and the place of skills in it.

The bulk of the Indian workforce is in firms with below 10 workers. If a person gains skills and becomes self-employed, i.e. if there is no employer, that is a perfectly good outcome from the viewpoint of society. Skilling programmes should not be defined around the formal and large-scale employers only.

In order to recognise and support migration flows, skilling solutions have to take place with an eye to the national market for labour. There are considerable labour migration flows taking place within the country and across the border. There is a need to address foundational skills, including soft skills, recognising the limitations of elementary education. A great deal of the actual learning takes place in apprenticeship with employers, and this needs state support, but we need to think about apprenticeship as it takes place in the Indian informal sector and not a formal machinery that works only for formal sector firms.

Excessive centralisation of design, of policy or of skills programmes, hinders the ability of skilling organisations to respond to the felt needs of the community. This calls for a flexible approach where decision-makers at the ground level look at the reality around them and adapt themselves to fit in it.

Looking forward, state intervention can be usefully separated out into production, financing and regulation, each of which requires a different organisation design and skillset. For an analogy, production of telecom services and regulation of private telecom firms was once fused into the Department of Telecommunications, but in modern times, a clean architecture has emerged with a separation between the pillars of intervention. In a similar fashion, the old design of government in skilling, and of the NSDC, did not clearly separate these things out. In recent years, there has been a move towards rationalisation. One key element of the landscape is the new National Council for Vocational Education and Training, which will be a regulator for this field. The unfinished agenda is decentralisation of design and implementation of programmes in line with the constitutional mandate for a concurrent list subject.

The writer, a retired secretary to GoI, is now a professor at the National Council of Applied Economic Research and non-executive chairman of Shriram Capital