INDIA
01 June 2014
India needs inclusive growth now!
If Narendra Modi is to succeed in reviving India's fortunes, he must pursue an agenda of inclusive growth, focusing in particular on the nation's desperate education and training needs.
If Narendra Modi is to succeed in reviving India's fortunes, he must pursue an agenda of inclusive growth, focusing in particular on the nation's desperate education and training needs. Countries like Australia can make an important contribution to this challenge.
Just three decades ago, India was at about the same level of economic development as China. Now it is behind on virtually every score -- GDP per capita, education, health, infrastructure and technological sophistication. The hope is that India can now finally begin to redress this gap.
But India is way ahead of China when it comes to democracy. These recent elections, spanning several weeks and with over 500 million voting, were highly successful and a clear demonstration of what India is capable of. The peaceful transition of power from the Indian National Congress Party to the BJP is proof of the strength of Indian democracy, and the capacity of perhaps the world's most diverse country to function as one. For all its challenges, Indians enjoy much more freedoms than their friends in Communist China.
These elections provided a "double-result". They were a massive loss for the Congress Party, after years of corrupt and incompetent government by the dynastic party. Indians are sick and tired of the politics of handouts and subsidies. They want opportunity. And education and training are one of the keys to such opportunity.
The elections were also a massive victory, a veritable tidal-wave, for the BJP and above all Modi, the charismatic son of a tea-seller. Hopefully, this is the end of dynastic politics in India.
Modi is seen as the man who made the miracle of Gujarat, the state of which he has been Chief Minister for over one decade. His credibility as a good economic manager was also key to his electoral victory.
Gujarat has indeed been very successful under his strong leadership, although this state has always had an above-average economic performance. But when you look at Gujarat's social indicators, like poverty, nutrition, education, health and so on, you see rather indifferent outcomes.
India as a nation is in desperate need of pro-business policies for which Modi is famous. Things like cutting through red tape, pushing deregulation, improving infrastructure, and cleaning up corruption. And while pushing ahead with this agenda at the national level will be much more problematic than it was at the state level, it is hoped that his strong mandate will enable him to reap the many low-hanging fruit for growth.
But even if Modi can unlock the Indian investment machine, India's growth potential will be held back by the country's large education and skills deficit. Half of India’s citizens are still functionally illiterate!
As East Asian countries have demonstrated, for economic growth to work, it be must be "inclusive". And this means equipping citizens with the necessary education and skills for them to be economically productive.
An Asian Development Bank study showed that in 2010, Indian children had the lowest number of years schooling out of 12 leading countries from developing Asia (including Pakistan). India's average number of years schooling was 5.13 years in 2010. This is well below the average for "Emerging Asia" (7.05 years), and even much further below the 11.0 years of developed countries. India also suffers from a great educational gender gap, with girls having much less access to education than boys.
The OECD's PISA study (Programme for International Student Assessment) is well known for documenting the East Asian education miracle, based on its measures of literacy, numeracy and science capacities of 15 year old students. Two Indian states -- Tamil Nadu and Himachal Pradesh -- participated in the PISA 2009 exercise. Although they are among the best-performing states in India, they were ranked in the bottom three participants of the 74 participating economies, along with Kyrgyzstan, for all three criteria.
Only 17% of Tamil Nadu students are estimated to have a level of reading literacy that would enable them to participate effectively and productively in life. And for Himachal Pradesh, it is even lower at 11%. This compares with 81% for OECD countries. Most regrettably, India then withdrew from the 2012 PISA exercise, in which Shanghai came top, with six other East Asian economies being in the top ten, besting out the leading economies of North American and Europe.
Another OECD study also provided a very critical assessment of access and quality in the Indian education system. It also highlighted high drop-out rates, low student attendance and enrollment rates, large disparities in enrollment across states and also across minority groups, and poor test results.
It was hoped that the Right to Education Act, guaranteeing free schooling to every child ages 6 to 14, would lead to improvements. Yet the evidence shows that nearly half of students are still likely to drop out before completing their elementary education.
Mr Modi and his team have much work to do improve the performance of India's education system. They have much to gain by working more effectively with countries like Australia, which scored above the OECD average in the PISA study, as well as with organisations like the Asian Development Bank and the World Bank.
As dazzling as India's IT and business process management sector might, it only employs some 3 million people. To jump on the development train, India must develop a competitive manufacturing sector and this means massive investments in both basic education and vocational skills.
Over the next ten years half a billion young Indians will enter the labor force. At that time, one-quarter of the world's working-age population will live in India.
India has the potential to reap a large demographic dividend thanks to this large, youthful and energetic labor force. But without education and training, this could turn into a demographic time bomb. Social unrest in Arab countries and elsewhere shows the social and political risks of large populations of unemployed and frustrated youth.
The new Indian government must create an effective vocational education and training (VET) system. This will be the decisive factor determining whether the country experiences a demographic dividend or a demographic time bomb.
The inspiration for the conference was delivered by President Gauck who argued that Germany's work-study VET system could prove effective in helping India master the enormous economic and demographic challenges it currently faces.
A key ingredient in Germany's successful economic model has been its "dual system" of VET, with training being provided both in the company and in a vocational training institution. In the company, a corporate instructor teaches practical skills that apprentices need to be work-ready after their graduation. At the vocational training institution, apprentices learn theoretical skills that are relevant in the respective profession.
The German has indeed been very successful. During the recent crisis period, European countries like Germany with VET systems have experienced much lower and more stable youth unemployment.
Germany’s dual system cannot provide an exact blueprint as every economy has its history, traditions and culture. But it does provide useful lessons and inspiration.
And the fact that German companies doing business in India, including Bosch, BMW and Volkswagen, are very active training their workers, and are willing to do more, provides hope that the German approach can contribute to solving India's skills crisis.
Infosys is an exception in India, where many companies do not view training as an investment in the future. The key lesson from Infosys is its "enlightened self-interest" and long run perspective. In other words, it pays over the longer term to train your staff, even if you lose some. Indian companies should look very closely at Infosys as a model for VET.
As President Gauck argued, “For the system to function, companies must be willing to take responsibility even beyond of their own business operations".
India currently has very restrictive policies to towards FDI, according to OECD analysis. And FDI inflows to India, at around $30 billion a year in recent years, are much less than for the other BRICs of Brazil, China and Russia -- and certainly much less than India's potential for absorbing FDI.
However, despite India’s importance as a source of Australia's international students, the fact that China sends three times as many students, suggests that there is much scope to grow the Australia/India education relationship further. For its part, Australia should also take a more positive attitude towards the potential for development cooperation in the area of education and training. The present government’s decision to cut back on official development assistance is very short-sighted and most regrettable.
Australia’s Prime Minister Tony Abbott will reportedly attempt to schedule a visit to India before hosting the G20 summit meeting in November this year in a bid to use the election of Narendra Modi as India’s Prime Minister as a stepping stone for a much closer relationship with New Delhi.
There will of course be many subjects on the agenda. It can only be hoped that India’s VET challenges will be at the top of this agenda. It may be the most critical determinant of this great nation’s destiny.
Executive Director
Asian Century Institute
India's inclusive growth imperative
India, and indeed the whole world, is positively excited by the ascension of Narendra Modi and the Bharatiya Janata Party (BJP) to the leadership of this immense nation.Just three decades ago, India was at about the same level of economic development as China. Now it is behind on virtually every score -- GDP per capita, education, health, infrastructure and technological sophistication. The hope is that India can now finally begin to redress this gap.
But India is way ahead of China when it comes to democracy. These recent elections, spanning several weeks and with over 500 million voting, were highly successful and a clear demonstration of what India is capable of. The peaceful transition of power from the Indian National Congress Party to the BJP is proof of the strength of Indian democracy, and the capacity of perhaps the world's most diverse country to function as one. For all its challenges, Indians enjoy much more freedoms than their friends in Communist China.
These elections provided a "double-result". They were a massive loss for the Congress Party, after years of corrupt and incompetent government by the dynastic party. Indians are sick and tired of the politics of handouts and subsidies. They want opportunity. And education and training are one of the keys to such opportunity.
The elections were also a massive victory, a veritable tidal-wave, for the BJP and above all Modi, the charismatic son of a tea-seller. Hopefully, this is the end of dynastic politics in India.
Modi is seen as the man who made the miracle of Gujarat, the state of which he has been Chief Minister for over one decade. His credibility as a good economic manager was also key to his electoral victory.
Gujarat has indeed been very successful under his strong leadership, although this state has always had an above-average economic performance. But when you look at Gujarat's social indicators, like poverty, nutrition, education, health and so on, you see rather indifferent outcomes.
India as a nation is in desperate need of pro-business policies for which Modi is famous. Things like cutting through red tape, pushing deregulation, improving infrastructure, and cleaning up corruption. And while pushing ahead with this agenda at the national level will be much more problematic than it was at the state level, it is hoped that his strong mandate will enable him to reap the many low-hanging fruit for growth.
But even if Modi can unlock the Indian investment machine, India's growth potential will be held back by the country's large education and skills deficit. Half of India’s citizens are still functionally illiterate!
As East Asian countries have demonstrated, for economic growth to work, it be must be "inclusive". And this means equipping citizens with the necessary education and skills for them to be economically productive.
India's backward education system
Whichever way you look at it, India's education and training systems are behind the curve.An Asian Development Bank study showed that in 2010, Indian children had the lowest number of years schooling out of 12 leading countries from developing Asia (including Pakistan). India's average number of years schooling was 5.13 years in 2010. This is well below the average for "Emerging Asia" (7.05 years), and even much further below the 11.0 years of developed countries. India also suffers from a great educational gender gap, with girls having much less access to education than boys.
The OECD's PISA study (Programme for International Student Assessment) is well known for documenting the East Asian education miracle, based on its measures of literacy, numeracy and science capacities of 15 year old students. Two Indian states -- Tamil Nadu and Himachal Pradesh -- participated in the PISA 2009 exercise. Although they are among the best-performing states in India, they were ranked in the bottom three participants of the 74 participating economies, along with Kyrgyzstan, for all three criteria.
Only 17% of Tamil Nadu students are estimated to have a level of reading literacy that would enable them to participate effectively and productively in life. And for Himachal Pradesh, it is even lower at 11%. This compares with 81% for OECD countries. Most regrettably, India then withdrew from the 2012 PISA exercise, in which Shanghai came top, with six other East Asian economies being in the top ten, besting out the leading economies of North American and Europe.
Another OECD study also provided a very critical assessment of access and quality in the Indian education system. It also highlighted high drop-out rates, low student attendance and enrollment rates, large disparities in enrollment across states and also across minority groups, and poor test results.
It was hoped that the Right to Education Act, guaranteeing free schooling to every child ages 6 to 14, would lead to improvements. Yet the evidence shows that nearly half of students are still likely to drop out before completing their elementary education.
Mr Modi and his team have much work to do improve the performance of India's education system. They have much to gain by working more effectively with countries like Australia, which scored above the OECD average in the PISA study, as well as with organisations like the Asian Development Bank and the World Bank.
India's skills deficit
It is not surprising India's jobs market suffers from shortages of working age skilled labour, while at the same unemployment and underemployment are also widespread. The problem is that barely 2 per cent of the Indian workforce has formally acquired skills and only another 2.4 per cent of workers have some technical education.As dazzling as India's IT and business process management sector might, it only employs some 3 million people. To jump on the development train, India must develop a competitive manufacturing sector and this means massive investments in both basic education and vocational skills.
Over the next ten years half a billion young Indians will enter the labor force. At that time, one-quarter of the world's working-age population will live in India.
India has the potential to reap a large demographic dividend thanks to this large, youthful and energetic labor force. But without education and training, this could turn into a demographic time bomb. Social unrest in Arab countries and elsewhere shows the social and political risks of large populations of unemployed and frustrated youth.
The new Indian government must create an effective vocational education and training (VET) system. This will be the decisive factor determining whether the country experiences a demographic dividend or a demographic time bomb.
German lessons for India's VET challenge
In February this year, I had the distinct honour to moderate a conference with the participation of German President Joachim Gauck, Infosys Chairman Narayana Murthy, and Vice-chair of the Bertelsmann Stiftung Liz Mohn, together with some 100 Indian and German business leaders, politicians and academic experts at the splendid Infosys Campus in Bangalore.The inspiration for the conference was delivered by President Gauck who argued that Germany's work-study VET system could prove effective in helping India master the enormous economic and demographic challenges it currently faces.
A key ingredient in Germany's successful economic model has been its "dual system" of VET, with training being provided both in the company and in a vocational training institution. In the company, a corporate instructor teaches practical skills that apprentices need to be work-ready after their graduation. At the vocational training institution, apprentices learn theoretical skills that are relevant in the respective profession.
The German has indeed been very successful. During the recent crisis period, European countries like Germany with VET systems have experienced much lower and more stable youth unemployment.
Germany’s dual system cannot provide an exact blueprint as every economy has its history, traditions and culture. But it does provide useful lessons and inspiration.
And the fact that German companies doing business in India, including Bosch, BMW and Volkswagen, are very active training their workers, and are willing to do more, provides hope that the German approach can contribute to solving India's skills crisis.
Lessons from Infosys
Infosys is a leading Indian IT company which employs more than 158,000 people and is a pioneer in successful training and certification in the Indian service industry. In recent decades Infosys has trained more than 320,000 employees and established one of the most successful and innovative training models in the area of Software and Services. Its Global Education Center at its Mysore-based corporate university, the world’s largest corporate university, accommodates up to 13,500 new recruits.Infosys is an exception in India, where many companies do not view training as an investment in the future. The key lesson from Infosys is its "enlightened self-interest" and long run perspective. In other words, it pays over the longer term to train your staff, even if you lose some. Indian companies should look very closely at Infosys as a model for VET.
As President Gauck argued, “For the system to function, companies must be willing to take responsibility even beyond of their own business operations".
Foreign investment and VET
Foreign direct investment (FDI) can play a critical role in improving a nation’s education and training, given the important role that multinational companies play in training their staff. In this regard, it will be important for India to improve its attractiveness to FDI.India currently has very restrictive policies to towards FDI, according to OECD analysis. And FDI inflows to India, at around $30 billion a year in recent years, are much less than for the other BRICs of Brazil, China and Russia -- and certainly much less than India's potential for absorbing FDI.
Australia's education partnership with India
International cooperation can also make an important contribution to improving a nation’s education and training. Indeed, India is one of the world's largest sources of international students, and Australia is an important destination for Indian students. Some 50,000 Indian students are presently enrolled in Australia, making India the second largest source of international students in Australia, after China. And over half of the Indian students are undertaking VET studies.However, despite India’s importance as a source of Australia's international students, the fact that China sends three times as many students, suggests that there is much scope to grow the Australia/India education relationship further. For its part, Australia should also take a more positive attitude towards the potential for development cooperation in the area of education and training. The present government’s decision to cut back on official development assistance is very short-sighted and most regrettable.
Australia’s Prime Minister Tony Abbott will reportedly attempt to schedule a visit to India before hosting the G20 summit meeting in November this year in a bid to use the election of Narendra Modi as India’s Prime Minister as a stepping stone for a much closer relationship with New Delhi.
There will of course be many subjects on the agenda. It can only be hoped that India’s VET challenges will be at the top of this agenda. It may be the most critical determinant of this great nation’s destiny.
Author
John WestExecutive Director
Asian Century Institute
REFERENCES:
- German President visits Bertelsmann Stiftung conference on creating vocational education system in India, Bertelsmann Stiftung- Germany's dual vocational training system - a model for other countries? Bertelsmann Stiftung
- OECD. PISA 2012 Results
- Lee, Jong-Wha and Ruth Francisco. Human Capital Accumulation in Emerging Asia, 1970-2030. Asian Development Bank Economics Working Paper Series. No.216. September 2010
- Hill, S. and T. Chalaux (2011), “Improving Access and Quality in the Indian Education System”, OECD Economics Department Working Papers, No. 885, OECD Publishing.