The new year is traditionally a time to take stock of the past year and offer a vision for the coming one. This column will do that, but from a different angle, the missing middle. India is a highly stratified society, and economic inequality has been increasing. There is naturally and deservedly a lot of attention on the bottom rungs of society and the economy. Top policymakers, also naturally, focus on making India great again (MIGA, to coin a new acronym). Pushing for global champions for the Indian economy—firms that will compete successfully with multinational giants—is an aspect of MIGA.
In my last two columns, I suggested that the greatest gains will come from supporting the success of India’s middle of the pack in the size distribution of firms. These firms can potentially be successful global competitors, and will likely provide more employment and more balanced domestic competition than further success for India’s handful of giant business houses. For this to happen, India needs to improve connections to global production networks, improve financing conditions, and reduce some regulatory burdens. Each of these is a complex set of tasks, and will require sustained attention and careful policy design.
A key ingredient in spurring employment-friendly industrial growth is, of course, labour itself. Labour regulations are only part of the problem. Inadequate skilled labour is also a major constraint, and can lead to substitution of machines or more automated processes for workers. India’s education system reflects its society—highly stratified. There are some elite institutions, which feed India’s elite jobs, and a struggling primary and secondary education system, which does not impart basic education as it is supposed to, to those who are at the bottom rungs.
The middle is small, and it is also neglected. Here, I am referring to what is commonly called Vocation Education and Training (VET). VET is supposed to help students enter the workforce when a standard high school education is not enough, or a college education is out of reach. Much of VET is aimed at industry, but there are many service sector jobs as well that are served by VET. Someone with an understanding of automobile mechanics might work as a service technician, or they could diagnose manufacturing problems. Knowing food technology could lead to work in a processing plant, or a local business making meals for delivery. And so on.
The oldest part of India’s VET sector are Industrial Training Institutes (ITIs). They started in 1950, as a government monopoly. Recently, the private sector has been allowed in (with somewhat different nomenclature), and their numbers have grown rapidly. Over 15,000 institutes educate close to 2 million Indians a year. But their equipment and teacher standards are often inadequate, and the employability of their graduates remains low (well under 50%). ITIs take students with as little as an 8th standard education and aim to get them ready for the factory floor. The fact that India has still not got the model right, after seven decades, suggests a blind spot in policymaking and implementation.
A newer part of India’s VET sector are polytechnics (PTs) and similar institutes. These require a 10th standard education, and can even be a bridge to a college degree. PTs award diplomas and are comparable in some ways to community colleges in the US system. There are close to 4,000 PTs and they enroll about 1.5 million students. They provide a mix of theory and practical training. For the factory, they provide supervisors rather than shop-floor workers. Employers find their mix of theory and practical knowledge, and their willingness to be hands-on, a valuable component of what they need, since engineers with college degrees only want to be white collar workers.
Of course, the way status works in India, PT graduates often seek college degrees and upward mobility. Here, an underexplored avenue, especially for women PT graduates, is entrepreneurship. Too often, entrepreneurship is viewed as something that can be taught generically, without a skill base. As an add-on for PT graduates, entrepreneurship training may help tackle problems of low productivity in small firms, and low female labor force participation. Entrepreneurship has recently become a hot academic topic, but perhaps it needs to be grounded in specific technological and market trends.
Of course, India needs more large factories that will employ thousands of workers each. But it also needs small firms that will be productive and will grow, not to be giants, but to be successful in the long run. California has 30,000 manufacturing companies that employ 1.3 million workers. But 64% of them have fewer than 25 employees. The Bay Area Council Economic Institute, a policy think tank for northern California’s urban region and surrounding areas, has produced a report that assesses technology trends like additive manufacturing (3-D printing), sectoral opportunities such as biomedical manufacturing, and the changing skill requirements and adequacy of the existing training ecosystem. Scale is not always important, but the right skills are. Practical training matters in one of the most advanced economies in the world. There is a lesson there for India.
The author is Professor of economics, University of California, Santa Cruz