Why skilling youth is vital to salvage demographic dividend

Could India fritter away its demographic dividend? Several factors have been identified in favour – chronic job crisis, household income crisis, fall in fertility rate (TFR) to below the replacement level since 2021 etc. The Economic Survey of 2023-24 points to another factor that must worry.

It says: “According to the Periodic Labour Force Survey (PLFS) 2022-23, only 4.4 per cent of the youth in the age cohort of 15-29 years have received formal vocational/technical training, while another 16.6 per cent received training through informal sources.”

That is, 21% youth in the workforce are formally and informally trained– which is abysmally low (more of it later). Informal training is categorised into “hereditary, self-learning, learning on the job and others”.

The current skill-level (2022-23) is an improvement over 2.4% formally trained youth (and 7.4% informally) in 2011-12 (NSSO’s “Status of Education and Vocational Training in India survey”) and 2.5% formally trained (and 4.6% informally) in 2017-18 (PLFS).

Notice, even the improvement over the past 11 years is abysmally low.

Incidentally, on August 30, 2024, Arvind Panagariya, chairman of the 16^th Finance Commission, wrote that one of the key reasons for low manufacturing contribution to Indian GDP is because 85% of workforce is in low-productive agriculture or enterprises with fewer than 10 workers (low-skill level).

For global perspective, here is what Sam Pitroda’s 2012 report, “eSkill Development” (the last official report) says about the skill levels of some developed economies: “The comparative data for developed economies is Korea (96%), Germany (75%), Japan (80%) and United Kingdom (68%).”

At that time, Pitroda’s report said, 2% of Indian youth had formal and 8% informal training – taking the total to 10%.

‘Rotten-tail kids’ and ‘Kangaroo tribe’

Things have changed dramatically since then (2012). South Korea and China, for example, face a unique problem: Overqualified youth forced into under-employment and/or unemployment.

The Bank of Korea’s 2019 study found, 30% South Korean youth were “overqualified”. Multiple accounts since then show, the situation continues, forcing such youth to live in their parents’ home, earning the sobriquet “Kangaroo tribe”.

China too has a similar problem.

Its overqualified youth are either under-employed or unemployed – called “Rotten-tail kids” in social media, drawing parallel to the millions of unfinished houses in China, called “rotten-tail buildings”.

Remember, China didn’t figure in Pitroda’s report of 2012, apparently because it wasn’t anywhere close to South Korea, Germany, Japan or the UK in skilling its youth then. Even the previous Arjun Sengupta report of 2009 (“Skill Formation and Employment Assurance in the Unorganised Sector”) didn’t mention it – while giving a global perspective, like Pitroda’s.

India’s case is very different in many ways.

Lip service to skilling

Firstly, the ILO-IHD’s “India Employment Report 2024”, which used Indian official data sources, says 82.9% of all unemployed in 2022 were youth and the share of educated unemployed (secondary and higher) was rising high – from 54.2% in 2000 to 65.7%.

This is because of chronic jobs crisis. Good quality and secure jobs are fast disappearing (PLFS reports); Indian government has not filled sanctioned posts in the entities it runs (the Congress says it is 3). For years, demand for quota in government jobs has been a rallying point for youth from socially and economically dominant groups, like Jats, Marathas and Patels.

Second, what happened to the ‘Skill India’ mission?

But before that, here is fact not taken note of. There is a significant dip in the overall skill level of youth in 2017-18 – from 2011-12.

While in 2017-18 the number of formally trained youth improved marginally to 2.5% (from 2.4% in 2011-12), there was a massive fall in informally trained youth to 4.6% from 7.4%. Why did that happen? No answer is available and need to be studied. Was it because the demonetisation of November 2016 and the GST of July 2017 wiped out millions of jobs and businesses in informal sector?

The abysmally low improvements over the past 11 years (leading to 2022-23) happened despite the ‘Skill India’ (PMKVY) mission-mode scheme. It was re-launched on July 15, 2015 to skill 400.2 million by 2022. Skilling scheme had formally begun with the setting up of National Skill Development Corporation (NSDC) in 2008 (the significance of which would be clear soon). 

Closer home, the FY25 budget of July 23, 2024 listed “Employment & skilling” as priority number 2 and promised many things: (i) “skilling” 2 million youth in five years (ii) upgradation of 1,000 it is (iii) “skill loan” up to ₹7.5 lakh to 25,000 students every year (iv) “education loans” up to 1 million students every year “for annual interest subvention of 3 per cent” and (v) internship (skill training) in “500 top companies to 1 crore (10 million) youth in 5 years” with the allocation of ₹93,000 crore for FY25.

For all such budget pronouncements, the ground realities are quite different.

1. Of the total capex outlay of ₹11.11 lakh crore (3.4% of GDP), Ministry of Skill Development and Entrepreneurship (MSDE) gets just ₹110.37 crore – 0.01% of the outlay.

2. A day after the budget announcement, Finance Minister Nirmala Sitharaman assured industry that the internship was “not compulsory” but a “nudge”. More than a month after the budget, on August 14, 2024, MoS for MSDE Jayant Chaudhary said, various ministries were working on the scheme. On August 22, 2024, the MCA said it would soon announce the “guidelines” for the internship scheme, following which a “portal” for facilitating internship would be activated. These announcements make it clear that the budget announcement was made without homework, consultations or thinking through. Imagine the budget allocation of ₹93,000 crore was made for just eight months (August 2024 to March 2025) and without basic homework.

3. The apprenticeship scheme of 2016 (“National Apprenticeship promotion Scheme (NAPS)”) has already failed. The ministry helming ‘Skill India’, the MSDE, listed “very low coverage of apprenticeship progremmes” as one of the 16 challenges in its annual report of 2022-23. Why ‘Skill India’ continues to fail

‘Skill India’ has failed to deliver right from the beginning. A few pointers to explain how:

4. In the MSDE’s list of 16 challenges (mentioned earlier), another key one is: “Lack of assured wage premium for skilled people”.

This is known for more than a decade. One ground report of July 19, 2015 (“Why Modi’s new Skill India mission will mean nothing for workers”) says industry didn’t view lack of skilled workforce as a major constraint nor willing to pay premium for skilled workers. In other words, industry may pay premium for white-collar professional jobs (engineering, IT, finance, accountancy, taxation etc.) but not blue-collar workers on shop floors.

Another report of 2023 flagged low placement levels (17.9%) of trained workers and said it could be due to the job crisis. The dashboard hasn’t been updated after December 9, 2023; the placement number is not available anymore and “ongoing training” icon displays “0” – as on August 23, 2024.

Dashboard data are unreliable in any case – as former chairman of National Statistical Commission (NSC) PC Mohanan recently wrote, these are based on “completely opaque metadata”. He also flagged “lack of auditing” of all official data. Has anyone heard of “social audit”, independent studies by experts/academics or inter-ministerial validations that the Planning Commission did as a routine to ensure robustness and explain mismatches/incongruities, if any, in the past decade?

5. The Sharada Prasad committee (“Review, Rationalize and Optimize the Functioning of Sector Skill Councils”) report of 2017 called ‘Skill India’ a complete waste of public money: “The unmistaken conclusion is that…an amount of ₹2,500 crore of public funds was spent to benefit the private sector without serving the twin purposes of meeting the exact skill needs of the industry and providing employment to youth at decent wages”. This report was made public on April 25, 2017 but is not available in public domain now.

6. The MSDE’s 2022-23 annual report (mentioned earlier) listed many other reasons for the failures, some of which are: “mismatch” between demand and supply, “narrow and often obsolete skill curricula”, “paucity of trainers”, “inconsistent outcomes and confusion” among the employers over assessment and certification systems etc.

The ‘Skill India’ scheme should have been recast long back for better outcomes.

But then, until economy creates enough jobs or needs (blue collar) skills, it would flounder.

Jobs growth: Informalisation rising or reducing?

Jobs are key to demographic dividend and redistribution of wealth – whether GDP growth is “gangbuster” or “modest”.

But jobs data doesn’t match ground realities – be it the PLFS (“paradoxical improvements” in headline numbers like WPR, FLFP and UR, amidst economic crisis) or RBI-KLEMS (statistical construct providing excuse for ‘business-as-usual’ approach).

Meanwhile, CEA V Anantha Nageswaran raised a new concern.

On August 5, 2024, while launching “The State of Rural Youth Employment Report 2024”, he said, among other things, India needed data on post-Covid gig economy to know if labour market had become “more informal rather than becoming more formal” – while also seeking to know if welfare schemes were discouraging youth from seeking jobs.

If the CEA is not sure and asking for data, there is no reason to believe otherwise (that formalisation is growing). Moreover, in normal times, one would expect the CEA to provide such data and dispel doubts (with all the FinMin machinery at his disposal), rather than wonder aloud in public.

If informalisation is growing, it means further setback to demographic dividend – lower wages and social security. As of 2022-23, 88.7% workers have no social security at all (PLFS of 2022-23).

To sum up, low skill levels of youth in workforce and chronic job crisis are not conducive to building “Viksit Bharat by 2047”. Nor can India claim to have the potential to become a $50 trillion economy by 2047 – as chairman of the 16^th Finance Commission Arvind Panagariya said on August 20, 2024 by pointing young demography and favourable geopolitical conditions.