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SummarySkills gap is a clear and present danger, but safeguards are available.

The skills shortage faced by the micro, small and medium enterprises has a larger impact than the productivity loss suffered by individual units. A vital sector rendered uncompetitive by skills shortage would produce inefficient dynamics in the economy and militate against economic growth and market competitiveness. The government's skilling efforts, made through the National Skill Development Corporation, would prove inadequate if measures are taken up on a war footing.

This is because, the globalised economy is characterised by fast technological change and a production dynamic that is evolving towards a knowledge-centred model. This, according to a recent OECD-UN-ECLAC study, leads to an ever greater demand for human capital trained in skills related to technical aspects and to non-cognitive dimensions of learning.

Knowledge is now at the core of the economy and is vital to understanding the production dynamic and the ability to compete and innovate. Part of the business world is moving towards new sectors and new working arrangements, making increasingly intensive use of new technologies in their production processes.

However, many small and medium-sized enterprises are limited by their management’s inability to lead processes of development, technology adoption, innovation, and expansion into new sectors and markets.

The skills gap in management skills and business leadership is more ominous than the gap in technical skills, which are easier to build up and impart. The gap in soft skills—including aspects such as critical thinking, teamwork, problem-solving and change management, oral and written communication, responsibility at work, or the capacity to adapt to new environments—is also daunting.

Often businesses’ demand for skills adapts to the skills’ limited supply, meaning investment decisions are adopted based on the limited availability of human capital. This would constitute a barrier to growth and limit expansion of productivity, especially since the sectors that would be adapting to the shortage are precisely those most connected to the global economy and with greater growth potential.

Though the study by the Organisation for Economic Cooperation and Development and the United Nations Economic Commission for Latin America and the Caribbean, titled Latin American Economic Outlook 2013: SME polices for structural change is limited to the issues of SMEs in the Latam region, its findings and observations are equally relevant to the Indian situation.

In Latin America, low levels of training among the workforce and managers are a major barrier to the development and improved productivity of SMEs. Moreover, there are big differences between the skills required by the production sector and the training provided by the education system. The study has suggested a few measures to overcome the skills gap:

Public policy must develop and strengthen the connection between the education system—especially in technical and vocational training—and the productive sector. This requires smooth dialogue between entrepreneurs, workers and instructors to develop mechanisms so that qualification needs can be defined jointly and the skills demanded by the job market can be anticipated. Brazil’s vocational training system (where workers and entrepreneurs are involved in instruction) is an excellent example of this type of strategy. Furthermore, countries should promote training paths that combine classroom and workplace training which continue over the course of a worker’s adult life–much like the successful German dual-model system.

The syllabus for technical and vocational training must be broadened and strengthened. Certain skills need bolstering, especially soft skills—including generic, cross-cutting skills–in the curriculum, since these skills will enable workers to be effectively integrated into employment. Moreover, these skills allow workers to adapt to the changing demands of the job market and to work in a professional environment in which technology is increasingly being used. Also it is important to bolster the professionalisation of management and senior executives in SMEs by focusing more on training for this sector.

It is necessary to establish or strengthen the institutional structure, which provides incentives for SMEs to provide in-house training for their staff in conjunction with external training programmes. Reference frameworks are needed to define and compare qualifications and accreditation systems for recognising practical training. SME networks are needed to spark synergies and exploit economies of scale, develop tax incentives for training and increase the use of ICTs in training programmes.

All of these suggestions are valid in the Indian context as well. Over to policy-makers.

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