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Millions of Jobs in India
||By Dr. K. G. Karmakar, Ex-MD, NABARD|
Over the last decade India is witnessing a demographic revolution which is likely to impact the global economy, the demographic transition. There is now a large workforce available and few dependents thus reducing the dependency ratio (ratio of those under 15 and over 65 vs. those who are between 15 to 65) and giving rise to the ‘demographic dividend’. India will have about 63 per cent of its population in the working age group by 2022. During these periods globally and in countries like China, USA and other developed economies a period of higher economic growth from higher consumption and investment has been witnessed. Demographic transition seems to be correlated with growth with some reasons to believe that causality flows both ways with lower dependency ratios increases growth and higher growth reduces fertility and consequently dependency ratios. The demographic advantage in India is likely to continue till 2037. However, growth in per capita income is driven by growth in labour productivity (what the average worker produces), growth in working age population (fewer the people who are in the dependent age group in the population, greater the output), growth in the fraction of those who can work that actually look for work (labour force participation rate) and growth in those looking for work who actually find it (employment rate).
A study by McKinsey estimates that India could have a shortage of 13 million medium skilled workers by 2020. India currently has 340 million workers, half of them virtually with no schooling. In the 2000-10 decade India created 67 million non-farm jobs, which was enough to keep pace with labor force growth, but not sufficient for workers to move out of farm jobs. The number of farm workers remained steady at about 240 million. About 41% o f India’s job creation is in the low-skills construction sector. Over the next two decades India is poised to become the leading supplier of labor forces to the world market displacing China. India could have 27 million low skill workers who are likely to be trapped in low productivity and low income work. The result of slower evolution of India’s labour force is reflected in its growth and productivity records. India’s productivity record is half of China’s during 1990-2010. This was partly due to the slower transition out of agriculture. The sectoral engagement of the labour and work force over the years is given below:
Source: NSSO various rounds
The unemployment rate among youth (15–29 years) during 2009-10 is given below:
Source: NSSO 66th round
As per the 66th Round of NSS (2009–10) overall 10 per cent of the workforce in the age group of 15–59 years received some form of vocational training. The proportion of workers who received vocational training was the highest in the services sector (33 per cent), followed by manufacturing (31 per cent), agriculture (27 per cent), and non-manufacturing and allied activities (9 per cent). But the vast majority of workers received non-formal vocational training. The proportion of workers with non-formal vocational training was the highest in agriculture and it was primarily in the form of hereditary transfer of knowledge. In the non-agricultural sector, the non-formal vocational training was in the form of on-the-job learning. Dependence on non-formal vocational training to such an extent highlights the grossly inadequate system of vocational training that currently exists in the country. There is little difference between manufacturing and agriculture in the share of those with vocational training who only received non-formal training: 86 per cent in agriculture and 91.7 per cent in manufacturing.
Skills Development in the XII Five Year Plan
The cornerstone of the manufacturing policy for the Twelfth Plan is to create 10 million additional jobs in the manufacturing sector by focusing on labour-intensive manufacturing so that manufacturing becomes a genuine engine of employment growth in the country. If we focus on more productive and quality (organised and self employed) employment in the manufacturing and services sector, additional 50 million job opportunities can be created in the non-farm sector. But this will need a huge effort in the form of skill development aligned to the market needs. In particular, manufacturing, construction, trade, transport, hospitality and financial services are the promising sectors where skill development can lead to a faster growth in employment opportunities. During the Twelfth Five Year Plan (2012–17), 50 million non-farm employment opportunities are proposed to be created and at least an equivalent number of people would be provided skills certification. The existing annual training capacity in the country is 4.5 million. It needs to be more than doubled to achieve the target.
Magnitude of Skills Development
As per 66th NSSO round 2009–2010, 84 per cent of the total workforce was in the unorganised sector and 93 per cent in informal employment. The sector is heterogeneous which cuts across all economic activities in rural and urban areas. It contributes about 60 per cent of the GDP. The unorganised sector is dominated by workers in micro-enterprises, unpaid family members, casual labourers, home- based workers, migrant labourers, out of school youth and in need of skills, farmers and artisans in rural areas. These groups form a “bottom of skills” pyramid comprising low skills, poor productivity and low income. Over 90 per cent of India’s labour force is engaged in the non-formal sector and the most important challenge would be to reach out to this sector. An approach is needed to cater to the skilling needs of this very large section of workforce. There is a pertinent need to find a way out to train and retain millions of adults who have little or no education or job skills. India needs to add 34 million secondary school seats to reach 82 million school seats by 2016 and hire twice the number of secondary school teachers every year. Such goals cannot be met by conventional methods alone. Recasting the global labour force to align with future demand will require deep and wide innovations to improve the capacity, reach and delivery of educational and company training systems. This will require new ways of teaching, collaboration with industry to craft curricula to employer needs and new ways of building school and training teachers. The second major issue in skills development is mismatch between the demand and supply of skills. The problem has arisen due to the existing supply-driven skills delivery system. Presently the labour market is facing a strange situation, where on the one hand, an employer does not get manpower with requisite skills and on the other; millions of job seekers do not get employment. There is a need to involve industries’ needs in curriculum design to make it more relevant and also in assessment and certification.
Action Initiated – Skills Development Framework
The challenge is to address both quality and quantity issues in skills development and training so as to correct the mismatch between employers who do not get people with requisite skills and millions of job seekers who do not get employment. To realise this Coordinated Action on Skills Development was initiated in 2008 which provides for a three tier governance structure, namely Prime Minister’s Council on Skill Development (PMCSD later NCSD) as apex body for policy direction to be supported by National Skills Development Coordination Board (NSDCB) in Planning Commission for coordinating and synergising the efforts of the various central ministries that are involved in the skills development and National Skills Development Corporation (NSDC) for catalysing private sector efforts in the skills development. In the Budget 2008-09 speech Hon’ble Finance Minister announced setting up of NSDC with Government's equity of Rs.1,000 crore with an objective to launch “a world-class skills development program, in mission mode, that will address the challenge of imparting the skills required by a growing economy.” A National Policy on Skills Development was also formulated in 2009 which focuses on policy coherence and inclusivity. Recently the Government of India took the decision to create a central body called the National Skills Development Agency (NSDA) by subsuming three erstwhile bodies that includes NCSD, Advisor to PM Office, and the National Skills Development Coordination Board (NSDCB). Going forward NSDA will be the nodal agency for coordinating and harmonising the skills development efforts of the Government and Private sectors to achieve the skilling targets of the 12th Plan and beyond.
National Skills Development Corporation (NSDC)
NSDC has been set up as a not-for-profit company by the Ministry of Finance, under Section 25 of the Companies Act. It commenced with an equity base of Rs. 10 crore, of which the private sector holds 51%, while the Government of India controls 49%. NSDC aims to will facilitate or catalyse initiatives that can potentially have a multiplier effect as opposed to being an actual operator in this space. In doing so, it will strive to involve the industry (private sector) in all aspects of skill development. NSDC is striving to bring together all stakeholders, namely industry, training providers and the academia. NSDC has been catalysing the setting up of industry- led Sectoral Skills Councils (SSCs) for identified priority sectors. Till November 2013, 27 such SSCs have been approved. These SSCs are expected to lay down the National Occupational Standards for different levels of jobs in their respective sectors, formulate certification and accreditation norms, strive to create knowledge repository on current requirement of skills development in the industry, assess the supply of skilled workers, identify the demand and supply gap in each sector, and identify trends and future requirements. NSDC is in the process of putting in place a National Skills Qualification Framework which lays down different level of skills required by industry, which allows multiple points of entry and exit, which recognises prior learning and which allows for mobility across different levels, as well as between vocational and technical training on the one hand, and general education on the other.
NSDC Support Model
NSDC extends capital support through
- Equity (in very few cases)
- Grant (generally for J & K and Naxalite affected regions)
- Debt (in most of the cases. As policy NSDC prefers loan funding for not for profits.)
NSDC funding model may have a mix of maximum of 10% grant (however in recent times they are not extending grant support), 27% equity and rest as loan subject to NSDC funding not exceeding 85% in case of non-profit and 75% for-profit companies of the total cost of the project. Promoter contribution may also come in the form of revenue or capital grants. NSDC opines that all stakeholders, the Government both at Centre and States, the enterprise- public and private, and the direct beneficiary- the individual, would share the burden of mobilising financial or in-kind resources for skill development. The NSDC focus is on fostering private sector led efforts that will include both non-profit and for-profit initiatives with the goal of building models that are scalable. NSDC supports 75% of the project cost so that the implementing partner sees the programme as a business opportunity and brings the remaining 25% from other sources like industry, financial institutions etc. The Business model should be for 10 years, clearly detailing out a sustainable and viable business model for skill development of minimum of 50,000 people over 10 years. Loan period is for 10 years with moratorium period of 3 years and interest rate is 6% per annum simple interest.The soft loan is to be repaid by the agency by charging it from the trainee, from the future employer or any other innovative mechanism.
Model Loan Scheme for Vocational Course
For meeting the financial needs of individuals for undertaking the skill development course, the Indian Banks Association has come out with a Model Loan Scheme for vocational training. The loan amount ranges from Rs. 10,000 to Rs. 1.5 lakh for course durations from 3 months to more than one year. It’s a collateral free zero margin loan with moratorium period from 6 months to 12 months, after the completion of the course. Repayment period varies from up to 2 years to 7 years. Rate of interest charged by the banks is generally base rate plus 2%.
Credit Guarantee Fund Scheme for Skills Development
Government has also started Credit Guarantee Fund Scheme for Skills Development to cover the loans given under the Model Loan Scheme for vocational training. All collateral free new skill development loans up to ` 1.5 lakh extended by the Banks will be covered under the scheme. The Bank has to pay 0.25% of the loan as one time guarantee fee and not more than 1% as annual processing fee. The Fund provides cover up to 75% of the amount in default.
National Skill Certification and Rewards Scheme
In order to address to encourage youth to voluntarily enroll in institutions Government announced The National Skill Certification and Rewards Scheme (STAR) on 15 August 2013. Rs. 1000 crore was allocated to it in the previous budget and another ` 1000 crore have been allocated during the interim budget 2014-15. The scheme provides Rs.10,000/- per trainee as a reward after successful completion of the course. SSC acts as the assessment agencies and awards the certificates. It charges Rs. 1000/- as assessment fee which is to be paid by the candidate at the time of enrolment. The scheme aims to cover 10 lakh candidates in the first year.
The target to be achieved is to train 500 million people by 2020 out which 150 million are to be covered by NSDC. NSDC has a target of covering 3.3 million during 2014-15. The progress so far has been slow. They have trained 0.99 million by sanctioning 111 proposals. Out of these 6 lakh have been placed. The efforts of NSDC need to be supplemented in order to achieve the goal of skill development and resulting economic growth. The off take under the Model Loan scheme by banks has been poor. The scheme has not been given due coverage at the branch level. NSDC has tried out its implementation with Central Bank of India. However, the results have not been encouraging. The major reason cited is the apathy of Branch Managers at the field level. Under STAR scheme 296,717 candidates have been enrolled out of which assessment of 42,236 has been done. 36,150 have been paid the reward money. The reward money is to be paid directly in beneficiary account. The account has to be Adhaar enabled. In case the state is covered under National Population Registry (NPR), the NPR details are to be captured.
NSDC Loan Product
The slow progress under NSDC soft loan model can be attributed to the capital crunch faced by the implementing partners in raising 25% of their share. In a typical project to train 7,58,480 unskilled individuals the cost of the project works out to be Rs.14.53 crore. The debt support is 75% (`10.90 crore) by NSDC. The NGO has to contribute Rs. 3.63 crore. Most of the partner agencies are working with social objectives and are finding it difficult to contribute 25%. They are comfortable with 10% contribution and are left to raise remaining 15% of the project cost sayRs.2.2 crore. This works out to be Rs. 29 per participant. Considering that 150 million candidates are to be trained the gap works out to Rs. 435 crore. The gap may also be worked out from the current level of operations. There are around 111 firms partnering with NSDC. As debt is the preferred method of support by NSDC, it may be assumed that two third of the firms, say 75 have received debt support from NSDC. As worked out earlier, for a similar project each of the 75 agencies would require fund support to the tune of Rs. 2.2 crore. There exists a total fund demand of Rs.165 crore by such 75 agencies. Banks can offer a financial product to cater to this demand making it a business opportunity of Rs.165 crore. With the increase in demand of skilled labour force and related requirement of partners by NSDC this portfolio has high potential to grow in coming future.
Model Loan Scheme for Vocational Courses
The Model Loan scheme for vocational training even though supported by credit guarantee has very few takers. It needs to be popularised. It resembles the position of micro finance specially SHG bank linkage in its initial days. The scheme aims to make the training operations remunerative for the implementing partner. The positive financial benefits from cost-recovery through user fees need to be weighed against the potentially adverse effects on equity. Here the trade off is clear. Higher, realistic fees may exclude from training those who cannot afford to pay, while low fees may not contribute enough for the provider to recover costs. Negative impacts on access to training opportunities for the poor, minorities, rural populations, and other disadvantaged groups are likely to ensue. The objective to have a frame work in PPP mode is laudable. In the absence of awareness, peer pressure and demand for such certified trainees by the industry the scheme needs to be further supported.
This can be addressed by banks through a two pronged strategy:
National Skill Certification and Rewards Scheme
The STAR scheme has commenced operations in September 2013. The agencies have been allowed to take an auto debit authorisation of the reward money by the trainee as their training fee. Further, the agencies have to pay `1000/- as assessment fee from their own funds. Also, the reward money is credited in the beneficiary account after three months of completion of the programme. For a typical one month programme, the training agency is able to recover the assessment fee and the training cost after 4 months. The issue is further compounded by the fact that the only 80% candidates clear the assessment thus making them eligible for reward of Rs. 10000/-. They lack adequate liquidity to make the operations viable. In order to address the issue Revolving Fund Assistance may be extended to the NSDC partners to sustain these operations.
If India is to emerge as an economic giant in the near future with its demographic advantages, natural resources and huge market potentials, it will have to ensure a steady flow of excellent skills development, training upgrades, good quality scientists and engineers and outstanding managers to man the various industrial and service sector jobs that will emerge in a resilient economy. The Central and State Governments are taking various initiatives to ensure a highly-skilled and trained manpower availability but these efforts are inadequate and it is essential for the Central/State Governments to tie up with industrial and business bodies at various levels and major corporates and Chambers of Commerce, Industry and Trade and ensure that all training schemes are demand-oriented and meet industry certification standards. Employment generation schemes , bank finance, skills development, micro-entrepreneurial schemes need to be coordinated and implemented on a mission mode without any delay especially as the past 10 years of planned growth have led to Zero job growth in India.
Millions of jobs cannot be created in isolation by any Government and for this to happen, there must be perfect co-ordination among all stake-holders including the government, NGOs, corporates and the people. Another very important factor in industrial re-generation is to rein in the labour leaders and give a chance and let industries grow. The land resources necessary for industrial growth also has to be made available and fiscal concessions be made available for the growth of the industries/service sectors.
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