MSME | Skilling needs a demand-driven approach

Representative image: Reuters

The economy is ramping up again after the COVID-19 second wave, but there has been rampant job loss over the past 16 months. Of the millions of jobs gone, most are among the urban informal workers. Some workers might find new opportunities as economic recovery progresses, but for the majority, the task will be formidable.

The key question is whether job seekers have the opportunities to skill themselves for the new-age jobs shaped by increased digitisation, demand for resilient supply chains and portfolio shuffling by companies. If this is the alarming situation for experienced workers, the times are not very encouraging for young graduates either. They all would need to develop specific 'formal' skills to get job-ready. We are also at a point when the National Policy for Skill Development and Entrepreneurship 2015 is set for a revamp. While much has been achieved in skilling, the changing employment landscape calls for a fresh approach.

So far, India’s skilling policy has followed a top-down approach. The government has been acutely aware that just 4.69 percent of our workforce is formally skilled (MSDE Annual Report 2015-16). Over decades our governments invested in about 15,000 Industrial Training Institutes (ITIs) across India to meet the demand for skilled labour. But these ITIs have failed to catch up with the changing requirement of skills.

Since 2008, there have been a series of initiatives such as the National Skill Development Corporation, sector skill councils, Skill India, the National Council for Vocational Education and Training, the Pradhan Mantri Kaushal Vikas Yojana, etc. These initiatives have certainly moved the envelope, however, given the complexity of the existing problem, the outcome has been subpar.

All these initiatives have been 'supply side' with the government either setting up the skill institutes or funding them. They require excessive reliance on State apparatuses like district level development committees that lack the capacity to drive these initiatives given their other developmental priorities.

It is time for a change, to look at the problem from the demand side and focus on MSMEs, especially the informal ones. The MSMEs employ the bulk of non-farm labour in India, around 110 million. Unlike large companies, the MSMEs do not have the resources or ability to attract skilled talent and find it very difficult to handle the capability development of the existing staff and new recruits.

According to a World Bank report (January 2017), about 60 percent of these firms are informal, employing an estimated 77.7 million people. The majority of these businesses operate with 2-5 employees each, and are neither skilled, nor are they covered under social security. The importance of formally skilling this huge labour force is obvious.

The report goes on to state that more than 63 percent of entrepreneurs are keenly looking for formally skilled employees to enhance productivity. The entrepreneur intuitively gets what the analysis shows, i.e., for every 10 percent increase in skilled labour, profitability increases by 4 percent. There is also an incentive for employees to acquire formal skills, as skilled employees earn about 2.5 times more than unskilled employees. Formal skilling also makes paramount sense when looked at through a gender lens. On an average, the unskilled woman is paid only 60 percent of what the unskilled man is paid, however, this pay gap reduces to 5 percent if they are skilled.

All of this makes a strong case for adopting a new ‘demand-driven’ approach through ‘Skill Vouchers’ — a concept that has been discussed by policymakers but not implemented yet. Vouchers given to employees are exchanged for formal training from an institute of the employee’s choice. The institutes can then redeem these vouchers with the relevant government agencies. Vouchers could be used in government or private institutions, with ratings from candidates as well as corporates to ensure that user feedback will drive traffic to the well-performing institutions. This will create an environment of competition that will propel innovation.

Skill vouchers have been used successfully abroad, and some pilot campaigns such as the Vikalp Skill Vouchers programme in Maharashtra initiated by the Centre for Civil Society have had excellent results. The voucher scheme has been taken ahead in some countries in the form of 'Individual Training Accounts’ (ITA). An individual’s training needs are captured, and progress tracked over time while adding periodic skill vouchers to the account. It is time that the government runs a large nationwide pilot of digital skill vouchers to demonstrate the feasibility and then scale it up, eventually maturing into ITAs.

The new policy towards skilling must ensure rapid response to evolving work conditions. This is possible when the support by the State follows an approach that is demand-driven, and allows for flexibility.

Sumita Kale is with the Indicus Centre for Financial Inclusion and Prashant Girbane is Director General, Mahratta Chamber of Commerce, Industries and Agriculture.

Views are personal and do not represent the stand of this publication.