India's skills crisis

India faces a skills crisis. What could this emerging giant learn from a country like Germany, with its very successful skills policies?

India faces a skills crisis. What could this emerging giant learn from a country like Germany, with its very successful skills policies, based on a "dual system of vocational education"? This was the agenda of a conference organized by Infosys and Germany's Bertelsmann Foundation on February 6 – 7, 2014 at the Infosys Campus in Bangalore.

Incredible India has been stumbling these past couple of years with economic growth faltering, rising inflation, and growing budget and current deficits. But underlying these macroeconomic symptoms are weak and corrupt governance, inadequate infrastructure, and above all, poor skills development in its vibrant and youthful population.

India is sitting on top of a demographic window of opportunity. Looking ahead to the year 2020, it is set to become one of the world's youngest nations, with the average working Indian being only 29 years old, against 37 in China and the US, 45 in Europe and 48 in Japan. These youthful and energetic human resources could give India a global competitive edge.

But India faces immense challenges in exploiting this opportunity because of persisting "skills gaps" in the labor market, according to a recent study by Santosh Mehrotra and his team, conducted for the Bertelsmann Foundation out of Germany. Indeed, India has one of the lowest proportions of trained youth in the world.

Vocational Education Training (VET) has received very limited funding, is of poor quality, and involves little industry collaboration. The result is that just 2 per cent of the Indian workforce has skills training in formal vocational education. And only another 2 1/2 per cent have received any informal vocational training at all.

What's more, graduates who have received vocational education all too often lack the skills required in the labor market. Thus, employability of graduates is a major concern -- there is no formal link between general education and vocational training in the country.

In the future, India's skills crisis will bite even harder. Industrialization and industrial upgrading are increasingly seen as critical for development. A dynamic services sector alone is not sufficient. But India's youthful workforce does not have the necessary skills.

This is especially the case for rural workers who are flowing into cities in search of opportunity in the construction, manufacturing and service sectors. Without any vocational training, these workers end up in the informal sector, working in low-paid jobs, and joining the ranks of urban poverty.

Overall, India faces a great "skills mismatch". Both foreign and domestic firms, big and small, face shortages in the quantity and quality of skilled workers in areas like manufacturing, software and automobiles -- despite high unemployment and especially underemployment. Ironically, some firms are responding by employing more machines to fill the skills gap.

While the government is seeking to improve the current system of VET, firms argue that there is a lack of linkage between theory and practice, and moreover a lack of qualified trainers. Firms have expressed interest in working together on skills development and basic training, with small firms interested in cluster-based training.

In short, India needs a drastic restructuring of its VET system. If India does not tackle its skills crisis, it will lose the potential benefits of its demographic dividend. Indeed, it could face the risk of social tensions and unrest from frustrated and discontented youth.

Could a country like Germany, with its very successful "dual system of vocational education", offer some lessons for India?

In the German system, vocational training is 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.

Mehrotra argues that India can indeed learn many lessons Germany’s dual principle, which has been systematically institutionalized in its VET system. He argues that "the dual principle must become the cornerstone of reforms in the Indian VET system, especially in secondary schools. This requires the integration of up-to-date theory in vocational schools and practical training in companies".

Mehrotra supports Germany's integrated approach to VET by which various stakeholders -- firms, government, trade unions, employers’ associations etc -- are actively involved in VET sector through public-private partnerships. Currently, the contribution of the private sector to curriculum building in India is almost non-existent and certification is governed solely by the government. The VET system should be "more organic and integral to the requirements of the economy".

Mehrotra also recommends public-private participation in sharing the cost of training, such as through a National Training Fund in India. While more than 80 per cent of training costs are met by the private sector in Germany, the percentage is extremely low in India.

Despite the many lessons that Germany's experience has to offer, the Indian labor market requirements and skills needs raise concerns that go beyond the German experience. One size doesn't fit all.

Thus, Mehrotra suggests other important steps to reform India's VET. A necessary precondition for a qualified workforce is qualified trainers who are able to teach the theoretical and practical skills relevant for industry in India. Small firms can develop cluster-based training approaches to solve the lack of training capacities. And the adoption of Industrial Training Institutes/Industrial training centers by employers’ organizations or private firms could be one way to enhance public/private cooperation.

The agenda is large, but the stakes are also high. The rapid economic development of East Asia, as well as India's own IT industry, demonstrate how essential a skilled labor force is.

Despite this dire analysis, some progress is being made. Multinational companies, notably from Germany, are investing strongly in the skills of their employees, as are leading Indian companies like Infosys, which boasts the world's largest corporate university at its Mysore Campus.

And looking ahead, the prospects may be much brighter, according to a conference on “How to tackle the skills mismatch in India – a company driven approach”, organized by Infosys and Germany's Bertelsmann Foundation on February 6 – 7, 2014 at the Infosys Campus in Bangalore. Representatives from Indian, German and other multinational companies expressed a very strong interest in working together to tackle India's skills crisis.