Friday, June 17, 2011

Blame Gandhi: Did the great pacifist kill India, Inc.?

To avert a disastrous impending labor shortage, India needs to train 500 million skilled workers by 2022.

By Jason Overdorf
GlobalPost - June 17, 2011

Editor's Note: The Shiva Rules is a year-long GlobalPost reporting series that examines India in the 21st century. In it, correspondents Jason Overdorf and Hanna Ingber Win will examine the sweeping economic, political and cultural changes that are transforming this nascent global power in surprising and sometimes inexplicable ways. To help uncover the complexities of India's uneven rise, The Shiva Rules uses as a loose reporting metaphor Shiva, the popular Hindu deity of destruction and rebirth.

NEW DELHI, India — Not too long ago, a scandal of sorts hit Indian newspapers.

Though millions of Indians remain unemployed or underemployed, the country's lagging brick-and-mortar industries had imported tens of thousands of Chinese workers — on business visas, no less — to build and operate power plants, steel mills and telecommunications towers.

"The Delhi airport was built by Chinese labor," said Dilip Chenoy, chief executive of India's National Skill Development Corporation, referring to the most prominent example of India's efforts to improve its dismal infrastructure.

But the uproar didn't last long for the simple reason that India can't afford to shut down.

Despite its huge working-age population, India faces a potentially debilitating shortage of skilled workers.

According to one emerging vocational education firm, only about 5 percent of India's 400-million strong labor force has received any formal training, compared with 70 percent in Germany and 95 percent in Korea. Importing skilled workers from China — on or off the books — is only the most dramatic manifestation of the problem.

Across the board, the shortage of skilled laborers has reduced productivity and cut into profits. Poaching workers from competitors has become a common practice that drives up wages, threatening to derail India's manufacturing revolution before it has even begun.

The wrong revolution

The crux of the problem is that India has never really industrialized.

India's service-related businesses account for more than half of GDP, while manufacturing contributes only 15 percent. And though China's economy is only four times larger than India's, its manufacturing sector is 50 times larger. Meanwhile, China has some 500,000 vocational training centers, compared with India's 10,000 obsolete Industrial Training Institutes.

Blame revolutionaries. Brutal Mao Zedong killed millions with his Great Leap Forward in China, but his drive for steel and obsession with collectivization arguably kickstarted the country's industrialization. China's ghastly Cultural Revolution terrorized intellectuals, but it also lionized laborers and solidified the building blocks of the nation.

Meanwhile, in India, there was Mohandas K. Gandhi, pacifist with a spinning wheel. Gandhi's insistence that his followers spin their own cloth as a protest against British imperialism laid the groundwork for decades of socialist policies.

While these policies provided the poor with jobs that saved them from starvation, they also discouraged technology and restricted companies from developing economies of scale. This more robust growth may have pulled India's masses out of poverty once and for all.

Gandhi's kinder, gentler revolution also left the caste system intact, assuring that there would be no prestige in physical labor for the rest of his century.

For decades India's industrial policies channeled Gandhi. Hundreds of products were reserved for small-scale companies to manufacture. Because these small-scale companies were too numerous to regulate, the policy effectively nurtured hundreds of thousands of sweatshops.

Thanks to India's ongoing economic reforms, many products — including some with a high growth potential, like apparel — are no longer reserved for small-scale industry. Still, many of the sweatshops persist.

Where large companies make money through economies of scale, sweatshops increase profit margins by paying low wages and cutting corners. And the Indian workers — and Indian industrialization drive — continue to pay the price.

That's because at the same time that India inadvertently created a breeding ground for sweatshops, it also passed strict labor laws that set minimum wages, mandate safety standards and make it very difficult to fire workers.

Sweatshops are only economically viable as long as they flout India's strict rules. But large companies can't fly under the radar and must comply. If they can't fire workers when the going gets tough, it doesn't make much sense to hire them in first place. What does make sense is contracting the work out to the very sweatshops that flout the rules.

The upshot is that only a handful of industries — like automobile and motorcycle manufacturing — have managed to attain economies of scale and begun to compete on the global stage.

More than 90 percent of India's work force is still employed in the so-called "unorganized sector," where neither safety standards nor minimum wage laws can be enforced. Where there is no money for boots and hardhats, there is surely none for technology or training.

"It varies a lot by sector, but we are seeing shortages anecdotally in several areas," said Ramya Venkataraman, head of the India education practice at the consulting firm McKinsey. "In some cases it [the skilled labor shortage] is constraining growth, and in some cases it is increasing the cost of doing business.

"At the current capacity, we'll be able to skill about 50 million people in 10 years," said Venkataraman, "versus the 500 million we need to train. So there's a severe shortage."

The opportunity in crisis

To avert disaster, India's normally ponderous policy makers have acted with speed and creativity.

Recognizing that the country needs to train 500 million skilled laborers by 2022 if its current economic growth is to continue, the government has mobilized private industry to solve its own impending crisis. A new corporation has emerged to identify and fund vocational education businesses, much like a development bank.

Economic planners may well have turned India's biggest headache into its most lucrative business opportunity — estimated at more than $20 billion.

Designed to help create large-scale, for-profit vocational training companies and funded with around $300 million in seed capital, India's National Skill Development Corporation (NSDC) has already lured companies like Global Talent Track, TeamLease Services and Manipal Education's IndiaSkills into the sector. The hook: NSDC offers low interest-rate loans and support in developing certification standards, providing financial aid for students and promoting vocational education.

Among the largest players, Centum Learning, an associate company of telecom billionaire Sunil Mittal's Bharti Group, has partnered with NSDC to form Centum Workskills India, a joint venture that aims to train 12 million people across 11 states by 2022. Similarly, Everonn Education has teamed up with NSDC to train another 15 million. And Infrastructure Leasing & Financial Services has inked a joint-venture deal with NSDC to build 100 skill development centers over the next five years.

In all, NSDC has so far approved $150 million in funding for 29 ventures that will train 40 million youth in diverse trades over the next 10 years. But this isn't by-the-numbers government work — with companies looking to get their front feet in the trough. And it's not charity work, either.

With 51 percent private sector funding and eight out of 12 of its board members representing private industry, NSDC offers better terms than commercial banks, but it takes a hefty 27 percent stake in exchange. It also demands that its partners guarantee job placement for 70 percent of their trainees.

Meanwhile, the big guns aren't getting into the business out of so-called "corporate social responsibility." They're in it to make money.

"It's not easy to monetize this space, so the motivation cannot be only revenue and profit," said Sanjeev Duggal, chief executive of Centum Learning Ltd. "But definitely our objective is by our fourth year to be crossing 500 crores [$110 million] in revenue."

The most needed job skills indicate how high the stakes are for India's economy.

According to estimates by ICRA Management Consulting Services, by 2020 India's construction industry will need 33 million more skilled crane operators, electricians, welders, masons and so on; the textiles and clothing industry will need 26 million loom and sewing machine operators; and the automobile and autoparts manufacturing industries will need 35 million machinists, mechanics, salesmen, etc.

In short, India's aspirations of boosting manufacturing output to 25 percent of GDP by 2025 — creating 100 million jobs and bringing hundreds of millions more people out of poverty in the process — may well hang in the balance.

"We have to build in skill-training capacity now," said NSDC's Chenoy. "We can't wait. In the next two to three years we have to put in place a skill-training capacity of at least 40 million people a year."

By connecting training programs more closely to employers, India hopes to ensure that courses are designed to meet industry's needs and to introduce an effective certification system so that employers recognize the value of a trained and certified welder, say, and are willing to pay more for him than for an someone who went through the informal apprentice system.

Changing the image of skilled labor

But those in the vocational education market say there are many more challenges to overcome, starting with convincing young people that a marketable skill can be more valuable than a college degree — at least when industry considers three out of four engineering graduates unemployable.

"Over the years vocational training has always been looked down upon and thought of something that's meant for losers," said IndiaSkills' chief executive Hari Menon, who expects his business to grow tenfold in its second year of operations. "Everybody chases a Bachelor's of Commerce or Bachelor's of Arts, however unemployable that makes them."

The trouble is that India can't afford to rely on supply and demand in the labor market to drive young people into vocational education — that would mean the full impact of the crisis had already hit. That's why NSDC plans to blanket the country with ads designed to put the pride back in blue collar work, said Chenoy.

But it will take more than slogans. The private sector needs to overhaul vocational education, starting with knocking down the artificial wall between academic degrees and skills certifications, said Neeti Sharma, an executive at TeamLease, India's largest staffing company. Currently, there are no community colleges in India, so there's no such thing as a vocational "degree." Moreover, once a student enters the vocational track there's virtually no way for him to get back into the university stream — and vice versa.

That's why TeamLease is working in Gujarat to set up the country's first vocational university. Similarly, Global Talent Track, which has partnered with multinational computer networking firm Cisco Systems Inc. and some 900 colleges across 15 states, recently tied up with the University of Kashmir to train degree students with the job skills that employers are looking for.

"In this country, traditionally, skills and education have always followed two different paths," said Global Talent Track chief executive Uma Ganesh.

Without question, skilled workers get paid more than unskilled ones, and vocational training can mean the difference between work in the unorganized sector — without benefits or job security — and a future with a growing national firm. But even though training firms say their graduates earn 10 to 50 percent more as a result of their training, recruiting isn't easy.

Employers pay more for skills, but so far they haven't started paying extra for workers with training certifications, and students are still reluctant to pay for training outside of "glamor programs" like computer programming and flight attendant schools.

Moreover, the companies and nonprofits that offer vocational education programs say that government-funded programs that are free for students are only partly effective: It helps them get students through the door, but doesn't ensure that they graduate. According to the head of one vocational program, the dropout rate for students on complete scholarships is as high as 70 to 80 percent. It falls to 10 to 20 percent among students paying all or part of the fee themselves.

"Today, the biggest challenge is that industry is not mandating certification," said IndiaSkills' Menon. "So the prospective learners feel that I can always walk into a company and get a job, and even if I'm certified it doesn't create any differential or positioning for me in industry when it comes to pay."

Even young people who are desperate for jobs don't necessarily understand the value of skills training, said Girish Singhania, who started Edubridge Learning to bring rural Indians into the modern job market in 2009.

Recruiters have to be equal parts salesman and social worker to get prospects to enroll. After enrollment, the company has to cajole them to stay on to graduate, encourage them to migrate and take a job at the end of the program, and then coach them on the importance of working hard once they're on a company's roster.

"The most important challenge we face is the mindset of the people living in these areas," Singhania said. "The mindset is just to accept things as they are and not try to change their careers."

To make India an industrial powerhouse, the mindset of the entire country will have to change.

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