Modi Races to Avoid Billion-Person Demographic Mess in India

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Idled Trucks
Trucks stand idle outside the Caravan Roadways Ltd. office in New Delhi. Photographer: Udit Kulshrestha/Bloomberg

Among India’s 1.2 billion people, Shailendra Gupta can’t find enough drivers for his fleet of trucks.

It’s not for a lack of applicants: Every day a few people come to him looking to operate one of the dozens of 12-wheelers that are collecting dust on a dilapidated road in northern Delhi. The problem is that nobody is qualified.

“Getting skilled truck drivers has become a nightmare,” said Gupta, director of Caravan Roadways Ltd., who estimates that 15 percent of his 500 trucks nationwide are idle. “You can’t take the risk of plying heavy commercial vehicles with unprofessional drivers.”

The skills shortage affects professions across India, from plumbers and cooks to engineers and airline technicians. About 5 percent of Indian workers have had formal skills training, compared with 96 percent in South Korea and 80 percent in Japan.

Prime Minister Narendra Modi is now racing to change that. He set up a new skills and entrepreneurship ministry shortly after taking office, and last week approved a policy to train 400 million workers by 2022 -- about eight times more on average per year than the previous government.

Without a quick turnaround, Modi risks squandering India’s biggest economic advantage: Its demographic dividend. His country now has more people under the age of 25 than the entire U.S. and Brazilian citizenry, and it’s forecast to surpass China as the world’s most populous nation by 2028.

Demographic Dividend

The average Indian will be 29 years old in 2020, compared with 40 in the U.S., 46 in Europe and 47 in Japan. In the next seven years, some 104 million people -- roughly the population of Philippines -- will join the workforce.

If those people have jobs, the whole world wins. If not, India loses its best chance to become an economic powerhouse.

“India has a large labor pool, but employability is a serious issue because appropriate skills aren’t there,” said Rajeev Malik, a senior economist at CLSA Singapore Ltd. Training is key to whether “the favorable demographic profile turns into a dividend or liability.”

Here’s Modi’s plan: Technology will help streamline standards and coordinate between 70 skills training programs now spread across 20 departments. Underutilized schools, colleges and post offices will become skilling centers. Former soldiers, bureaucrats and professionals will become trainers.

New “e-assessments” will test skills and biometrics will record attendance. Private sector bodies will help set standards. Closed-circuit television will ensure nobody cheats on tests. Every applicant will get a web-based “Skill Passport” to allow employers to verify credentials.

Skills Database

A new database will also be created to help match employers with skilled workers. Smartphones will provide links according to geographic areas. Funding will be given to private-sector companies to set up skilling centers. And companies will be asked to spend 2 percent of payroll costs on skills development.

“The new policy will lead to better norms, homogeneous rules and outcomes, and will need a strong monitoring process as well,” Sunil Arora, the ministry’s top bureaucrat, said in a written interview. “It will address key obstacles to skilling, including low aspirational value and lack of integration with formal education.”

Arora said private and state-run companies will help train school dropouts.

So, will it work?

If Modi’s predecessor is anything to go by, it won’t be easy. About a quarter of those who enrolled in skill development programs find employment, according to an initial study conducted in five states by the World Bank for the National Skill Development Agency, lawmakers were told in April.

$79 Billion

The cost will also be enormous. The Skills Ministry estimates that 5 trillion rupees ($79 billion) is needed to train a quarter of a billion people in five years, and it wants the private sector to help pay. Many are skeptical.

“The government’s effort to push skill development is clearly inadequate,” said Bikky Khosla, chief executive officer of and chairman of the e-commerce committee of the Associated Chambers of Commerce and Industry of India. “Implementation in the states is very poor.”

Alstom India Ltd., DCM Shriram Ltd. and JCB India Ltd. are among many private companies that have confirmed they offer in-house training programs for employees. About 58 percent of India employers find difficulty filling positions, compared with 38 percent globally, according to ManpowerGroup’s 2015 talent shortage survey.

Part of the reason is the poor state of India’s education system: Of the 600,000 engineers that graduate annually, less than one in five are employable, according to the National Employability Report 2014 from research company Aspiring Minds. Many younger Indians don’t want to work as plumbers or electricians. The problem is so acute that India needs to import crane operators from Peru.

Wasted Opportunity

Gupta, whose company transports cement and construction equipment, said many assistants who graduate to drivers can’t understand GPS or read basic signs. The government doesn’t have adequate training facilities and he can’t expand his fleet due to the skills shortage, Gupta added.

“We are always under pressure to pay monthly installments on bank loans and avoid penalties for delivery delays,” he said.

The demand for higher skilled labor is set to increase as India’s economy expands. Growth surpassed a slowing China in the last quarter, and Modi’s government says India has the potential to expand 10 percent a year, a prospect that fueled a 30 percent gain the country’s benchmark stock index in 2014.

Much depends on whether his administration can create high-quality manufacturing jobs through his flagship “Make in India” program, according to Mark Williams, chief Asia economist at Capital Economics Ltd. in London.

“If it can’t,” he said, “then the dividend would be wasted.”

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