Case in Point: India's Demographics - A Dividend or a Challenge

Jul 07 2014, 16:14 IST
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SummaryIndia will have 64% of its population in the working age group by 2020.

Every third person in an Indian city today is a youth. By all estimates, India will have 64% of its population in the working age group by 2020. As good as it sounds, ensuring employment for such a vast population poses a tough challenge. Barring the past 4 years of sluggish economic growth, the country experienced a phenomenal growth but without yielding jobs. Besides the many impediments of the poorly growing manufacturing sector - one of the major engines of jobs creation - such as poor infrastructure, lack of skilled labor has aggravated the problem. As a country endowed with labor, India's situation is at best ironic. What adds to the irony is that there are 17 central government ministries that offer skill development initiatives. The large size of the population alone cannot be Indiaís problem since China, with a similar scale of population and training structure, has better labor productivity. Another common argument made for explaining the failure of vocational training initiatives in India is the lack of private sector participation due to stringent labor laws. It is argued that laws such as the Minimum Wages Act and the Industrial Disputes Act, which guarantee minimum wages and impose restrictions on downsizing workforces, create a disincentive for private firms from investing in training since they do not have the autonomy to retrench workers or alter their wages during unprofitable periods. This argument however is problematic because most laws are applicable only to the regularized work sector where the government can monitor a firmís activities, whereas the informal sector that employs the majority of the total labor force is mostly unregulated. It can thus be reasonably argued that creating demand for labor is not enough, ensuring supply side is equally crucial.

So, What can be done? Presently, The Directorate General of Employment and Training under the Ministry of Labor and Employment is the main organization that forms vocational training policies at the national level, while The industry or the private sector plays only an advisory role. The Government of India has set out an ambitious target of creating a skilled workforce of over 500 million by 2022 under the umbrella of National Skill Development Council, which has been set up as a public-private venture to engage the corporate sector in vocational training. Over two-third of this target is to be achieved through the existing vocational training programs from the 17 ministries. However, the quality of vocational training in the existing system is sub-par. There are high barriers to entry under the current set-up. For instance, the existing structure requires secondary education (class VIII) as a prerequisite for enrolment into vocational training schemes thereby restricting a significant proportion of illiterate or less educated workers from even entering into the formal training system. Such barriers must be lowered.

The need of the hour is a much stronger partnership between Government and Industry to ensure that the quality of ITIs improves significantly and a greater synergy is ensured among the various programs of ministries.

By Amit Pandey, Indian School of Business

NOTE: The views expressed are those of the author alone

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