Issue dated October 31, 2011

EMPLOYMENT
A Skilful Partnership
The public-private funding model boosts vocational training

Dibyajyoti Chatterjee


(BW Pic By Bivash Banerjee)
Eighteen-year-old Rahul Verma, a resident of east Delhi is the eldest of three siblings. His father
is a peon in a government organisation and Verma is desperately looking for a job. Although he
has studied up to Class 10, he doesnt have any vocational training. I have no option but to
work as a domestic help or as a labourer in some shop or the other, rues Verma.
He is not alone. There are many like him who have the basic education but not sufficient skills
to get jobs. And therein lies the paradox. The National Skill Development Corporations (NSDC)
a public-private partnership set up in 2008 to promote for-profit vocational institutes
analysis of the Indian labour market suggests that the country will need 244 million people
across sectors and job categories over the next 10 years. If that number sounds too high,
another report, by Kotak Securities, estimates that 11-13 million Indians will enter the work
force every year over the next 15 years. That translates into some 180 million jobs. However, it
does not mean all of these jobs will be easily filled. In the absence of requisite skills, a
considerable number of young people are likely to remain unemployed.
Consider this: at present there is a gap of about 12 million people in the grey- and blue-collared
segment in the organised sector alone. A booming economy has ensured that more jobs are
created in the manufacturing and services sectors, but there are not enough skilled people to
hire.
Currently, government institutes such as the industrial training institutes (ITIs) and other
initiatives of various ministries yield only half-a-million trained people every year as against a
demand of about 50 million people. The government has tied up with private firms to
modernise 1,396 of its 2,140 ITIs, and better management has led to higher enrollment, but it is
not enough.
To improve the situation, NSDC has identified 26 companies with which it will partner to
impart vocational skills. It aims to train 150 million skilled workers by 2022. That is still half of
what will be required but at least it is a start. NSDC will provide these companies funds to
create the necessary training infrastructure and has made a commitment of Rs 1,019.82 crore
for the project of which Rs 115.46 crore has already been disbursed. Private companies are
aiming to set up 4,000 more ITIs and mini-ITIs (where a limited number of courses will be
taught). According to Dilip Chenoy, managing director of NSDC, the objective behind these
partnerships is to create a pool of trained manpower and also enhance employability.
NSDC has worked out its 10-year business plan, with year-wise targets, money to be
sanctioned and disbursed to partners, and the number of students to be trained by partner
institutions. For instance, Pratham Education Foundation, a not-for-profit entity will train
approximately 64,000 people in the first year and 1.69 million people over a period of 10
years, for a funding of Rs 10.60 crore from the NSDC. The partnering companies are
responsible for student mobilisation, setting up of training centres and mini-ITIs across the
country, creating training manuals, and, finally placements.
The New Game Plan
And big money has already been earmarked. In 2008-09, the government gave Rs 1,000 crore,
and Rs 500 crore has been promised for 2011-12. The 13-member NSDC Board has approved
39 proposals for funding since April 2010. Of these, 33 are for training, and six are domain-
specific skill projects. As of now, 21 proposals have received NSDC funding.

Most firms have identified manufacturing and services sectors as key areas of growth and the
emphasis is clearly on creating blue-collar professionals. They aim to create talent pools from
small towns and rural hinterlands, hence most training institutes will come up in those
geographies. While companies invest large sums on on-the-job training for blue-and grey-
collared workers, they are beginning to realise that employing skilled workers saves both time
and money.
We will be setting up 100 mini-ITIs in the next 10 years of which 12 will be set up this year,
says R.C.M. Reddy, managing director and CEO, IL&FS Skill Development Corporation, a
subsidiary of IL&FS Education & Technology Services, and a partnering company of NSDC that
aims to train 8,000 to 10,000 people in the first year, and 2 million over 10 years. The
company plans to open these institutes in Tier-II and III cities such as Coimbatore, Rourkela,
Bhilwara, etc., and will tap existing local government infrastructure to save on real estate
cost.

The combined capacity of all ITIs in the country which are improved through private
companies is less than what the industry requires. The construction industry itself needs over
two million youth every year, adds Reddy. The company plans to spend Rs 250 crore on
these mini-ITIs; it will receive a Rs 114-crore loan from NSDC spread over 10 years.
Partnering with NSDC makes a lot of business sense for private companies.
Thriving Business
Consider this: vocational training is estimated to be a $20-billion annual opportunity with 475
million people in need of training by 2022, according to a Kotak Securities report. Sectors like
auto, building and construction, textile and organised retail, along with the growth in the
unorganised sector, will propel the demand for skilled labour, says Akhilesh Tilotia, author of
the report.

Vocational education is outside the regulatory framework, so profit-making business models
can easily be worked out. Manipal Groups IndiaSkills, Teamleases IIJT, Mumbai-based
Rustomjee Group and Educomp are a few prominent names in vocational training. This year,
NSDC plans to add 30-35 more partners. With the huge government expenditure lined up,
there are likely to be more takers.


"NSDC sees its role as that of
a social venture capitalist,"
says Dilip Chenoy, managing

director, NSDC
In the near future, we can expect these businesses to tap capital markets, but NSDCs Chenoy is
cautious. It is too premature to discuss NSDCs equity dilution plans at this stage, since the
joint ventures are still at a nascent stage. NSDCs equity in various partner companies is
currently capped at 27 per cent. In its own Rs 10-crore equity base, the government holds 49
per cent.

Most companies funded by NSDC are either start-ups or have a low equity base. What makes
this model unique is the way they are being funded. No venture capitalist or angel fund
would have given them such an assurance of funding. NSDC sees its role as that of a
development bank or a social venture capitalist, active in the skills space. Which is why we
are more receptive to putting money at comparatively patient terms, says Chenoy.

NSDC has four basic types of funding equity, convertible debt, loan, and viability gap
funding or grant. In case of equity or a convertible debt, NSDC takes a stake in the company.
Loans are provided at a benign rate. For instance, Noida-based GrasAcademy, which provides
job skills such as front office management, sales, customer interaction and customer support,
has been sanctioned a loan of Rs 62 crore spread over five years of which it has already
received Rs 9.5 crore. At 6 per cent interest per annum, it works out much cheaper than the
banking institutions, says Tahsin Zahid, director and CEO of GrasAcademy, which has plans
to start 250 training centres and 75 mini-ITIs in Uttar Pradesh, Uttarakhand and Punjab. We
have a mandate to train 1.3 million people in 10 years, says Zahid.

Delhi-based Empower Pragati Vocational and Staffing has received debt, which will be
converted into equity ensuring long-term flow of capital. It has an assured outlay of Rs 18.9
crore, of which Rs 18.5 crore is debt. NSDC has picked up 10 per cent equity in the company
and has the option of picking up another 16.6 per cent after three years at 75 per cent of the
market value. Since January 2011, we have opened 24 training centres in Delhi-NCR and 11
centres in the rest of the country. We will expand through the franchisee model and aim to
train two million people over the next 10 years, says Rajiv Sharma, Empower Pragatis
managing director.

Although things look rosy, challenges in delivery remain. And the biggest issue is student
mobilisation. The culture and the thought process of the society have to change towards
such skilled jobs. People consider blue-collars as failures in the mainstream, says Zahid.

IL&FSs Reddy says the emphasis has to begin right from schools. The skill development
industry has not received focus In India. Only 5 per cent of total school and college graduates
go for vocational training compared to other developed countries where it is 50 per cent.
Such a biased approach has led to low employability of youth and lack of skilled workers, he
says.

NSDC has planned pan-India communication campaigns to make people take pride in being a
skilled worker. It is engaging with advertising and communications professionals to come up
with a campaign that will focus on how a skilled workforce is critical for India and can
leverage its demographic advantage.

As more vocational training institutes open, hopefully youth such as Rahul will get trained, and
become a part of Indias growth story.