The looming shadow of a skill constraint

The government has finally given its nod to Indian Institutes of Management to go global and open their campuses outside the country, provided they increase their intake of students in India. This may put an end to the controversy over the autonomy of IIMs, but a number of issues raised in this debate about the status of higher education in the country remain?particularly about the demand for and supply of higher education facilities in the country. Disallowing IIMs to set up campuses would not have solved this problem. What is needed is a root and branch reform of the higher education system to enhance the supply of quality higher education services in the country.

For some time now, spokespersons for India have been claiming that the demographic dividend accruing through a rising share of the young in the country?s population confers a huge long-term economic advantage to the country. This argument is now being regularly used to woo foreign investors to India. Undeniably, India?s demographic profile does give it a ?potential? edge in the long run over other investment destinations, including China. But the growing availability of young Indians in the working age group does not automatically translate into an advantage.

This would be evident from the growth performance of states like Uttar Pradesh, Bihar, Jharkhand, Orissa, and Madhya Pradesh, with population growth rates higher than the national average. Their economic achievement remains poor and levels of poverty and illiteracy much higher than in southern or western states. These states do have a demographic advantage, but have failed to leverage it as they are unable to turn their large young populations into a talent pool that can attract investors to set up units in their state.

The fact is that India is fast running into a skill constraint. There is mounting evidence of shortage of trained youngsters. Our leading IT companies are now openly complaining that the shortage of skills is now beginning to affect their expansion plans. Some of these companies are now expanding in other parts of Asia, including China, to meet their skill requirements. Similar complaints are being voiced across the board in sectors experiencing high growth rates such as auto components, retailing, aviation, construction and project management and biotechnology, among others. Sectors on the verge of take-off such as textiles, leather manufacturing, electronic hardware and agribusiness are set to experience a similar shortage of human resources.

Today, India is on the cusp of becoming one of the biggest beneficiaries of globalisation, in which capital, labour and entrepreneurship moves swiftly across borders to seek competitive advantage. However, if we do not train our people fast enough by rapidly expanding our higher education system, these very set of factors can turn against us. A stagnant talent pool would increasingly drive capital and entrepreneurs out of India. As it is, in the face of shortage of quality educational institutions, our youngsters are increasingly being wooed to seek admissions in UK, Australia and Singapore.

Unlike us, these countries see education as an economic service that contributes to jobs and income growth. We are not only losing young people who are more likely to work in countries they train in, but also an opportunity to use demand for education as an opportunity to create new jobs and incomes. This, at a time when India has the potential for becoming an education hub for a large number of developing countries, particularly from Africa, who do not have the factors needed to create modern educational infrastructure.

Therefore, it is time that reform of the higher education system is given the highest priority. The government is aware of the problem, as evident from the creation of the Knowledge Commission. The need of the hour is rapid expansion of supply of quality education. Also, beyond the IITs and IIMs, less than a dozen other institutions can boast of quality that is truly world class. It is apparent that the current policy framework and regulatory mechanisms have outlived their purpose and are not serving the goals of both quality and quantity. First, the capacity of state-funded institutions to expand faster would have to be augmented by increasing their financial viability. Enhanced outlays would have to be supplemented by rational user charges. Second, it has to be recognised that the state alone cannot meet the requirements. The role of the private sector would have to be recognised and conditions created for a huge increase in private investments into higher education.

Today, private entry into higher education is permitted only in the form of charitable and non-profit organisations, regardless of the fact that dubious operators, to generate undisclosed benefits, are routinely misusing educational societies. Unfortunately, such misuse casts a shadow over a number of excellent institutions created by the private sector. We need a policy that would incentivise the flow of private investment into higher education. After all the government is providing incentives to make the private sector invest in food processing or textiles or infrastructure. There is no reason to treat higher education differently.

Such a policy should encourage a competitive market design so that private players are forced to focus on quality. Regulation should also ensure proper disclosures and adherence to norms of corporate governance. It is important that higher education is seen as a market-oriented activity where forces of supply are unleashed to meet demand. Thereafter, issues of quality and equity could be addressed through other mechanisms. For example, rather than force reservations for SC/ST students, the state could buy seats in quality institutions for deprived sections of society. This may be more cost-effective than funding poorly-run colleges.

The writer is an advisor to Ficci. These are his personal views