Column : Making skilling viable is the key

Written by Seema Bansal | Arindam Bhattacharya | Updated: Nov 14 2011, 07:46am hrs
Was the worlds 7 billionth child born in India Recent headlines in most newspapers debated this question extensively. While it is impossible to say for sure, given Indias population and population growth rate, that is quite possible. This highlights the huge demographic dividend India can reap from its large young population, with 250mn to 400mn people joining the employment market between now and 2025 to fuel its growth. However, to become productive, they have to be trained to avoid large-scale unemployment, which underscores the huge challenge in reaping these benefits as Indias current capacity for vocational skilling is only about 4-5mn per annum against a requirement of 10 times that.

The government of India is fully cognisant of both the opportunity and challenge and has announced many vocational/skills related initiatives in recent years. The setting up of National Skill Development Corporation, PPP model for ITIs, development of the National Vocational Qualification framework, proposed integration of formal and vocation education by MHRD, and focus on skills in the recently approved National Manufacturing Policy are some of the major initiatives the government has launched or is about to launch.

Given the size of the opportunity and the schemes and incentives launched by the government, why doesnt one see training/skilling institutions mushrooming across the country Why does one not hear of large regional/national plays in this space While there are many business plans on paperboth funded and unfundedmost ventures are struggling to make the first few institutes sustainable and discovering a profitable and replicable model. Where is the catch

Let us consider the economics of this business and start with the revenues: a person looking for vocational skills is likely to be a 15-25 year old, lower to lower-middle class youth, with an educational background ranging from a school drop-out to a bachelors degree from a tier-3 institute. The youth is probably barely employable in his/her current state except in jobs that entail manual labour or very low levels of value addition. Post vocational skilling, employment as a shop floor worker, a construction worker, a retail shop or hospitality/tourism industry employee, a trained employee is likely to earn wages in the range of R5,000 to R15,000 per month depending upon the nature and the location of the work.

The youths desire to pay for this vocational training then is dependent on the difference he/she sees between the compensation potential before and after being trained. And therein lies the crux of the issue. Are organisations able to see any value difference at all between employing an untrained youth versus one who has received formal training in a vocational venture If yes, what is the quantum of the value difference and what compensation premium does it command This will depend upon matching the demand and supply at many levels: nature of skillswhat is required by the organisation and what is the person trained in; quality of skilling and perceived value addition, geographythe location of the vocational institution and the demand.

Addressing this challenge calls for a strong industry-trainer partnershipin helping ventures understand local demand, in identifying skills requirement and in curriculum design, faculty training and internship provisions. Even a very strong educationist, if devoid of strong linkages with potential employers, will find it difficult to offer a value-for-money proposition to its students. Today, this is a major weak link in the business model and many companies, in their individual capacities, do not see adequate payback from such a linkage compared to cost and control of doing it in-house. A clear case of conflict between individual objectives versus social benefits as with economies of scale and capability transfer over time, vocational institutions that can bring together corporate know-how and leverage government programmes and incentives to build scale and quality.

The other key issue on the revenue side is of facilitating affordability amongst potential students. There are various ways of ensuring thispart payment by employer, widespread availability of vocational education loans or vouchers/coupons by the government. These do not exist today.

Now lets consider the cost side of the argument: even with a robust demand model, the fee structures are such that they demand cost consciousness while delivering robust quality. Real estate, infrastructure and its maintenance and teaching facultys recruiting, training and compensation costs tend to be the highest costs for these institutions. Effective capacity utilisation on the infrastructure side, e.g. running multiple sessions in a day, shared premises, etc, are an imperative. For faculty management, local recruitment combined with more centralised hub-and-spoke models for training and curriculum development have the potential to reduce these costs.

One key element that cuts across the revenue and cost side is the curriculum design: treading the fine balance between creating something relevant and value-adding without making it too long or complex to make it uneconomical. Disturbingly, many institutions look to foreign partners for easy access to curriculum design. In addition, a foreign partnership is a great marketing tool. However, given the student backgrounds in India, their education levels, language constraints, computer literacy, etc, as well the needs of Indian corporatedegree of mechanisation, process complexity, etcforeign curricula may not be the best solution.

Considering the national significance of the issue, the governments role in the issue is worth consideration. Here moving away from an active player or a blanket subsidiser to an enablerthrough patient capital, increased tax breaks, student financing, assisting building of accreditation and quality control frameworks, and providing linkages between vocational and mainstream education can be powerful levers, roles which require more focus.

The stakes for India are high. The corporate need for a skilled force is critical. The opportunity for education entrepreneurs is large. Also, the agenda is quite clear for all three entities: educationalists, future employers and the government. All it requires is coordinated and concerted intervention from all. Not an easy ask. But when the prize is so big, the task rarely is easy!

Arindam Bhattacharya is managing director and Seema Bansal is principal, the Boston Consulting Group, India