by Vivek Kaul
The company has trained around 50,000 individuals over the past two decades. This tells us very clearly that even those companies operating their own training institutes cannot, for all that, bridge the larger skill gap.
What we have seen until now is that the government’s sole solution, in the form of courses offered by the ITIs for building the skillsets of Indians, hasn’t really worked. At the same time, private companies, operating on their own will, lack the scale required to make a substantial difference.
Furthermore, if we go beyond a few large firms, the firms operating in the construction sector lack the incentive to train their own workers. Most of these firms are either micro-firms, with less than ten workers on their rolls, or small firms, with ten to fifty employees. These firms choose to remain small because of the high cost that comes with following the surfeit of India’s labour laws, which start to kick in once firms employ more than 100 people. Also, these firms employ contractual workers, who are paid daily wages. Given this, they really don’t have much incentive to train and skill these workers.179
In this scenario, the best possible solution is one in which the government incentivises private firms to offer vocational training. And this is precisely what is being done through the National Skill Development Corporation (NSDC) over the past few years. As Akhilesh Tilotia writes in The Making of India: “With the government now opening up its purse-strings for private companies to receive grants (low-cost debt, equity funding via NSDC) and zero-cost debt[s] (Rs. 2.5 crore interest-free loan[s] for each ITI) for starting training institutes at the lower end, there is now an active interest [being taken] by the private sector in the training space in low-end skill development.”180
The NSDC was set up in 2008 with the objective of creating a market ecosystem for skill development. Between 2008 and March 31, 2015, it had trained more than five million (50 lakh) people. Of this, around 3.4 million (34 lakh) people were trained in 2014-2015. This basically tells us that it is only after the Narendra Modi government came to power that the NSDC actually started to work at some pace. It set a target to train 6.6 million (66 lakh) people in 2015-2016, double of what it had achieved in 2014-2015.181
The NSDC has a target to train 150 million (15 crore) people by 2022. And given this, it has to scale up rapidly if it wants to get anywhere near that target. As of writing this, the figures for 2015-2016 were not available. But, assuming that the NSDC achieved that target, it is still a long way away from the 150 million target. It still needs to train around 138 million (13.8 crore) individuals. This has to be done within a period of five to six years. This means training close to 23-27 million (2.3-2.7 crore) people per year for the remaining five to six years. And that is a daunting task, to say the least.
This task becomes even more important when we take into account the fact that over 97 per cent of individuals aged between 15 and 65 have had no exposure to any training. Hence, there is a great need for offering training as well as expanding the outreach of those who provide the training.182
The good thing is that, unlike the ITIs, the NSDC works through its partners and tries to place those it has trained. For 2014-2015, 66 per cent of those trained were placed. As the NSDC annual report points out: “While the overall placement percentage remains around 66 per cent, a large number of people have become self-employed post-training.” Since its inception, the NSDC has done a decent job of placing the individuals that it trains in skills, as can be seen from Table 5.2.
Table 5.2: NSDC’s training and placement track record.
* The number does not include people trained through the STAR scheme (also known as the National Skill Certification and Monetary Reward Scheme), which has a mandate to skill one million people. Hence, the number is lower than the 3.4 million (34 lakh) number quoted earlier.
** The figure is different from the 66 per cent placement that S Ramadorai, the Chairman of NSDC, talks about in the annual report.
Source: www.nsdcindia.org.
The NSDC is obviously doing better than the ITIs when it comes to training as well as placement. As its annual report points out: “NSDC this year [2014-2015] managed to build a network of 211 training partners, with 3,611 training centres providing standardised vocational education.” Another major issue with the ITIs has been that they have been following an outdated curriculum. Having said that, all is not well with the NSDC. There has been talk about the training not being good enough. In fact, some of the larger training partners had got their employees re-skilled and got the government to pay for it.183
In an interview, Rajiv Pratap Rudy, who heads the Ministry of Skill Development and Entrepreneurship, admitted to the same, i.e., about some corporates passing on their training costs to the government. Furthermore, the NSDC wasn’t tracking placements, the minister claimed. As he said: “Earlier, they would claim 70 per cent placements. Now, at least they admit that this is not really happening.”184 Tracking placements is very important, because that is what will make the NSDC different from the ITIs.
These are the perils associated with an organisation which is looking to expand at a fast pace. The NSDC needs to grow fast if it has to get anywhere near training 150 million, or 15 crore, individuals by 2022. Nevertheless, this approach, where private sector enterprises are involved and the government is looking at creating a market-based solution to the skilling problem, is better than what has been tried in the past, where the government tried to do everything on its own through the ITIs. Of course, there are going to be problems with the new approach as well, and these will have to be tackled quickly and efficiently.
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Until now, we have talked about skilling and vocational training at the mass level. But how are things with engineers and MBA-degree holders (traditionally called MBAs)? Are their skillsets up to the mark? It turns out that they are not. In fact, CRISIL Research, through interactions with the industry, found that around 70 per cent of engineers are unemployable because they lack both technical skills and soft skills.185
The Aspiring Minds 2016 National Employability Report of Engineers found similar results. It found that only 17.9 per cent of engineers were employable in the software services sector. The number had stood at 18.4 per cent a year earlier. Only 3.7 per cent of engineers were employable for software products, against 3.3 per cent a year earlier. When it came to non-functional roles, such as business process outsourcing, only 40.6 per cent were employable, against 39.8 per cent a year earlier.
The study also found that 52.2 per cent of engineers were rejected because they were not soft skills trainable in a short period of time. Around 49.3 per cent were rejected because they were not technically trainable in a short period of time. The training is usually imparted over a period of three to six months. The study also found that the English language skills, both written and spoken, of engineers were not up to the mark. Take the case of the role of analytics in the Knowledge Process Outsourcing industry. Only 11 out of every 100 engineers are good enough to be employed in this sector. Almost 72.8 per cent of engineers do not have English language skills, which are so necessary for this role. Nearly 59.4 per cent do not have the required analytical and quantitative skills.
I had been brought up with the impression that engineers had good mathematical and analytical skills. Of course, this impression was all wrong. I figured this out when I started my MBA at one of the better business schools in India. It was then that I realised that many engineers in my class did not have basic analytical skills. Some of them didn’t even know how to go about calculating the compounded average growth rate (CAGR) of something over a period of time. This is something I was taught in my fifth or sixth standard, when we were taught the basic concept of compound interest.
A degree in engineering and analytical skills probably went together until the late 1980s, when there were only a few engineering colleges around. Back then, it was difficult to get into an engineering college, and only the best of the lot made the cut. The same is not true anymor
e.
In 2006, India had a total of 6.6 lakh engineering seats on offer. By 2015, this had jumped to 16.7 lakh.186 This huge jump in numbers has impacted the quality of students graduating out of engineering colleges. This trend is also visible in the fact that around 30 per cent of those unemployed in 2011-2012 were at least college graduates and above. This number was at 24 per cent in 2004-2005.187
One reason for this massive jump in the number of engineering colleges is because politicians have got around to setting up many engineering colleges over the last few decades. A 2003 newsreport in The Economic Times talks about politicians owning a bulk of the engineering colleges in Maharashtra. Of the 137 private engineering colleges, 104 were owned by politicians. Only twelve colleges were run by organisations which had no political influence. The remaining were run by businessmen along with politicians. The state had only 20 government-run engineering colleges at that point of time.188
There is no real reason to believe that the situation would have changed since then. Maharashtra is not the only state facing this problem. Newsreports suggest that engineering colleges in states like Tamil Nadu, Orissa, Karnataka, the erstwhile Andhra Pradesh,x etc. all have colleges owned by politicians.
Given the fact that many of these engineering colleges were set up by politicians, the All India Council for Technical Education (AICTE) went easy on approving these institutions. For politicians, establishing engineering colleges (on cheap government land, I might add) was a good way of putting their ill-gotten black money to use.
Also, once the college was in place, the hope was that the management quota seats would keep bringing in the black money. This would also be done by ensuring that the society running the engineering college did not own any assets of its own and that everything was on hire. Black money, as we shall see in Chapter 9, is another manifestation of Big Government.
Hence, education made for a great business model. The key assumption here was that the demand for engineers by information technology companies would keep exploding. Of course, the model also worked on the assumption that an engineering degree would continue to be aspirational for middle class and lower middle class households.
In fact, a February 2015 report on black money put out by the business lobby Federation of Indian Chambers of Commerce and Industry (FICCI) points out:
Misuse of the tax incentives available for indulging in charitable activities and manipulations through entities claimed to be constituted for non-profit motive are among the sources of generation of black money in the non-profit sector. The Indian education system generates about Rs. 48,400 crore of black money every year. The major source of unaccounted money is the capitation fee used for getting admission to UG [under-graduate], PG [post-graduate], medical, engineering and other professional courses. IT authorities detected Rs. 288 crore of black money with educational institutes in 2009-2010, a growth of 550 per cent from 2008-2009.
Given that most educational institutions are run by politicians, it wasn’t surprising that the Income Tax authorities managed to detect only Rs. 288 crore.
Hence, this proliferation of engineering colleges run by politicians has made it easy for students to get into an engineering college. But, at the same time, this has led to the quality of learning coming down, given that many engineering colleges do not even have the most basic facilities in place. Also, the teaching staff quality is poor.
But the fascination for an engineering degree remains, especially among parents. In my extended family, when a kid grows up, the parents push him or her towards getting an engineering degree. If I may be allowed to generalise a bit further, this is largely true for the Kashmiri Pandit community, which my parents belong to.
Once a youngster gets into an engineering course, all is forgiven, and it is automatically assumed that the future will now be bright. And this may have been largely true for the nineties and the 2000s, when India’s information technology companies were taking off. But now we are in the teens, and the story has changed.
Why? The ‘indifference principle’ is at work. As Steven E Landsburg writes in The Armchair Economist: “Unless you’re unusual in some way, nothing can ever make you happier than the next best alternative.”189
Landsburg explains the indifference principle through an example. As he writes: “Would you rather spend a bright summer day at the shopping mall or the… Fair? … If the Fair is more fun than the mall, people flock to the Fair, building up the crowd size until it’s not [emphasis original] more fun than the mall.”190
So, the Fair doesn’t remain fun anymore because way too many people turn up. Something similar has happened to the engineering degree in India. The country is producing way too many engineers. As Philippa Halmgren writes, in a slightly different context, in Signals— How Everyday Signs Can Help Us Navigate the World’s Turbulent Economy: “Whenever the majority of the population seeks to pursue the same idea at the same time, it usually ends in tears. It is a sure sign of trouble when 85 per cent of business school graduates want a job in the financial markets.”191
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As we saw earlier in the chapter, India had around 16.7 lakh engineering seats in 2015. In fact, the country now produces more engineers than China and the United States combined.
As Akhilesh Tilotia writes in a research note titled ‘How many graduates are required to change a light bulb?’: “[The] engineering graduate output of Indian universities stood at 15 lakh a year in 2014-2015, up from 3 lakh in 2004-2005.”192 Tilotia’s estimate on the number of engineering seats in India is a little different from the estimate quoted earlier, but the difference between the two estimates is not that much.
Hence, over the last decade, the number of engineers being produced has gone up five times. In 2016, 15 lakh engineers are expected to graduate in India. China is expected to produce 11 lakh engineers, and the United States, just one lakh.193 One impact of so many engineers being produced is that it has “reduced the importance of capitation fees”. Capitation fees are huge generators of black money for politicians, who typically run engineering colleges.
Even though the number of engineering seats has increased dramatically and it has got much easier to get into an engineering college, the trouble is that the employment opportunities for engineers haven’t gone up at the same rate.
Information technology companies, which were taking in a bulk of the country’s engineering graduates, continue recruiting at the same pace as they were in the past. The net hiring by information technology companies had remained stagnant, at around 2.5 lakh per year, for the period of the five years up to March 31, 2015. These numbers also include the engineers recruited by the business process-outsourcing companies. For the financial year ending on March 31, 2015, the number of employees recruited by the information technology companies had stood at 2.1 lakh. 194
The fascination of Indian parents for pushing their children towards getting an engineering degree has been built on hearing too many success stories of Indian engineers working in information technology companies in the United States (on dollar salaries) and other parts of the world.
Even those Indian engineers who have settled in the country and had started working for the information technology companies in the nineties and up to the mid-2000s have done well for themselves. And these success stories have had a lot of impact on the thinking of parents.
The trouble is that the story has changed. This is clearly visible in the huge number of seats across engineering colleges that find no takers across the country.
Take the case of Maharashtra, which has 1.35 lakh engineering seats. Newsreports point out that around 51,000 seats went vacant in 2016.195 That is around 38 per cent of the total seats. In Tamil Nadu, close to 1.2 lakh seats in engineering colleges found no takers.196 Tamil Nadu has the highest number of engineering seats in the country, at around 2.79 lakh. Maharashtra comes in second.
In fact, as the government told the Lok Sabha in August 2016: “Overall, there is surplus capacity i
n the engineering sector, with 8,44,328 seats remaining vacant in 2014-15.”197 The surplus capacity does not mean that the competition to get into a good engineering college has become any easier.
What makes the situation even more difficult is the fact that the information technology companies have gone on record to say that they are looking to further automate their workflow. And this is likely to impact the prospects of entry-level engineering graduates.198
Jobs in information technology companies are the first choice of most engineering graduates. This comes from the great Indian fascination for office jobs. The information technology companies end up recruiting the best engineers of the lot, leaving very little for other companies. Take the case of the construction companies, which are always looking for good civil engineers. A bulk of the good civil engineers prefer information technology jobs and end up joining these companies, making things difficult for companies into construction as well as other businesses.
As AM Naik, the Group Executive Chairman of the engineering and construction firm Larsen and Toubro put it in a 2007 interview: “My complaint is that these companies [the information technology and outsourcing companies] sign up civil engineers, mechanical engineers, electrical engineers.”199 Hence, the information technology companies recruit the cream among the engineers who graduate. This creates a huge headache for companies which need engineers for their core skills. The trouble is that an IT job shouldn’t be as coveted as it used to be earlier, but that is something that hasn’t really changed.
Furthermore, the skillsets of a large section of the engineers who do not make it into IT companies remain shaky at best. As Landsburg writes: “In order for one activity to make you happier than another, you must be unusual in some way.”200 This is clearly not the case with most engineering graduates being produced in India.