Skilling programme: Industry must have skin in the game

The first budget of the third Narendra Modi government has proposed taking a prioritised approach in the fields of employment and skilling. The Union Budget 2024-25 has proposed five schemes with an outlay of ₹2 lakh crore to generate jobs for the youth over the next five years.

However, please note that most of the money to be spent on the schemes to promote formalization is under the EPFO, not actual new jobs. We are here focused on the skilling programmes of the budget, which require practically no spending from the government’s budget.

Skilling programme

The finance minister announced a new centrally sponsored scheme, for skilling in collaboration with the state governments and the industry. Twenty lakh youth will be skilled over a period of five years. One thousand Industrial Training Institutes will be upgraded in hub-and-spoke arrangements with outcome orientation. The course content and design will be aligned to the skill needs of the industry, and new courses will be introduced for emerging needs.

There is nothing new about this kind of effort. It has been tried before. There are over 2500 public sector ITI and another 12000 private ones. Upgrading 1000 of about 15000 is a drop in the ocean. More importantly, upgrading alone is not good enough. The foundational problem with India’s skill development programmes for 15 years has been that they have been driven, financed, and managed by the government. They have very little industry engagement. We wait to see what form industry engagement takes this time around. The erstwhile UPA government too had created the Industrial Management Committees across some reformed ITIs in the public sector, with little to show for it.

Skilling loans

The Model Skill Loan Scheme will be revised to facilitate loans up to Rs 7.5 lakh with a guarantee from a government-promoted fund. This measure is expected to help 25,000 students every year, according to the finance minister. This is merely a part of the effort to increase student loans. The finance minister announced it to help our youth who have not been eligible for any benefit under government schemes and policies. She also announced financial support for loans up to Rs 10 lakh for higher education in domestic institutions. The e-vouchers for this purpose will be given directly to one lakh students every year for annual interest subvention of 3 per cent of the loan amount.

The foundational problem with India’s skill development strategy, regardless of the regime and regardless of the five pillars that form that strategy, is that they are supply-driven, and not demand-driven. The countries, such as Germany, China, South Korea, and Singapore, which have run successful skill development programmes, have all focussed on demand-driven or industry-driven programmes. The industry also tends to finance most of that effort, as they are the ultimate beneficiaries of the outcome. The employers will have their skin in the game only when the skilling programmes will be driven and financed by them and designed to meet their demands. That is the only way to bring in real improvement, in both quantitative and qualitative terms.

(The writer is a Research Fellow at the IZA Institute of Labour Economics, Bonn, and a former Professor of Economics at the Centre for Labour, Jawaharlal Nehru University.)