India still produces plenty of engineers -- 400,000 a year. But a Nasscom study found only one in four engineering graduates was employable. The rest were deficient in the required technical skills, fluency in English or ability to work in a team or deliver basic oral presentations.
There are countless stories of how leading Indian companies are visiting engineering colleges in interior areas to add to their basket of employable graduates but are returning empty-handed.
Now, look at a couple of rungs lower in the job market pyramid. India's vocational training institutes are producing 6 million students every year. That's a minuscule number considering that an estimated 88.5 million people in the 15-29 age group need such training. And industry says less than half of the six million people who have received vocational training are in the employable category.
Result: Quite a few Indian companies have no option but to import people for even blue-collar jobs. Here are a couple of examples: DLF Laing-O'Rourke is planning to bring over 20,000 carpenters and electricians from West Asia for its projects in India. Reliance Industries is using 40,000 blue-collar workers from abroad for its Jamnagar project work.
Such a practice has still been more of an exception rather than the rule, but the situation may reverse in future. Consider, for example, the findings of The India Labour Report 2007, published last week by TeamLease Services, India's largest staffing company.
Back-of-the-envelope calculations using Census 2001 projections (for population figures in the future) reveal that at least another 400-odd million individuals in the country will be over 15 years old in the next 20 years. Assuming only about half (the current level) would be seeking employment and taking unemployability and sub-optimal employability levels of about 60 per cent (the current level is 63 per cent), it translates to training requirements of an additional 120 million in the next 20 years.
Taking the current backlog, an estimated 200 million people in the 15-29 age category would require additional skill-based training over the next 20 years.
That's an average 10 million people every year and a daunting enough number considering the current track record. But TeamLease says these are extremely conservative estimates, and should be seen as the bare minimum that the vocational training mechanism in India should seek to cover.
What would be the cost of such large-scale training? The training duration for individuals either unemployed or sub-optimally employed is for a period of two years, at the most.
For low infrastructure requirement-based training programmes, the costs can be as low as Rs 1,000 per person per month while for highly infrastructure-intensive training modules, the costs could go up significantly.
Though the exact amount of expenditure on training varies from trade to trade, an average figure of Rs 4,000 per person per month is a realistic assumption, TeamLease says. Thus, the total cost of training for the youth comes close to Rs 490,000 crore (Rs 4,00 billion) over a period of two years to train those who are unemployable or sub-optimally employable.
What about the new entrants? Every year around 10 million-plus individuals are entering the labour force. Of these, roughly half are expected to be sub-optimally employed (based on the current ratio) and an additional 7-8 per cent is likely to be unemployed in the initial years. Measured as a percentage of the labour force, this translates into another one million new entrants requiring training.
Totally, therefore, India has about 6 million people who would benefit from skill and vocational training every year (after the current backlog of 82.5 million is trained). Assuming similar employability profiles of the new entrants each year, the country's training bill would be around Rs 36,000 crore (Rs 360 billion) per annum. The calculation is simple.
TeamLease says since 82.5 million of the current employed or unemployed require Rs 490,000 crore for training and skill improvement, six million new entrants are likely to require Rs 36,000 crore.
Though the training bill is substantial, it does have a sound economic as well as social logic. Take the training bill of Rs 490,000 crore over two years for the current 82.5 million people.
TeamLease says spending that amount (10 per cent of GDP) will yield an extra income of Rs 136,000 crore (Rs 1,360 billion) annually, everything else remaining the same. Assuming a discount rate of 8 per cent, this translates to Rs 1,751,487 crore (Rs 17,514.87 billion) of additional income (about 61 per cent of GDP) generated over the lifetime of the current crop of employable/unemployed youth. That's a return of over 600 per cent on the investment.
This is still an underestimate because India will become more productive in the future and this will further raise the returns though the costs are one-time and front-loaded.