Even after seven decades, blind spots remain in policy making in relevant areas
The New Year is traditionally an opportunity to take stock of the past year and offer a vision for the next. This column will do that, but from a different angle, with the middle missing. India is a highly stratified society and economic inequalities have increased. There is naturally and rightly a lot of attention on the lower echelons of society and the economy. Key policy makers, naturally, too, are focused on making India great again (MIGA, to coax a new acronym). Lobbying for global champions of India’s economy – companies that will successfully compete with multinational giants – is one aspect of MIGA.
In my last two columns, I suggested that the biggest gains would come from supporting India’s success in the middle of the pack in the size distribution of companies. These companies have the potential to be successful global competitors and will likely provide more jobs and more balanced domestic competition than additional success for India’s handful of giant business houses. For this to happen, India needs to improve connections to global production networks, improve financing conditions and reduce some regulatory burdens. Each is a complex set of tasks, and will require careful attention and careful policy design.
A key ingredient in stimulating employment-friendly industrial growth is, of course, work itself. Labor regulations are only part of the problem. Lack of skilled labor is also a major constraint and can lead to the substitution of machines or more automated processes for workers. India’s education system mirrors its society – highly stratified. There are elite institutions, which fuel India’s elite jobs, and a struggling primary and secondary education system, which does not deliver basic education as it is supposed to, to those who are at the lower levels.
The middle is small, and it is also neglected. Here I am referring to what is commonly referred to as vocational education and training (VET). VET is supposed to help students enter the workforce when a standard high school diploma is not enough or a university degree is out of reach. Much of VET is destined for industry, but there are also many jobs in the service sector that are served by VET. Someone who understands auto mechanics may work as a service technician or diagnose manufacturing problems. Knowing about food technology could lead to working in a processing plant or a local business preparing meals for delivery. Etc.
The oldest part of the VET sector in India are the Industrial Training Institutes (ITIs). They started in 1950 as a state monopoly. Recently, the private sector has been allowed in (with a somewhat different nomenclature), and their numbers have grown rapidly. Over 15,000 institutes educate nearly 2 million Indians per year. But their equipment and the level of their teachers are often insufficient, and the employability of their graduates remains low (well below 50%). The ITIs welcome students with only a standard 8th grade training and aim to prepare them for the factory. The fact that India still does not have the right model, after seven decades, suggests a blind spot in policy development and implementation.
A more recent part of the VET sector in India are the Polytechnics (PT) and similar institutes. These require a standard 10th education and can even be a bridge to a college degree. PTs grant degrees and are comparable in some ways to community colleges in the US system. There are almost 4,000 PTs and they educate about 1.5 million students. They offer a mix of theoretical and practical training. For the factory, they provide supervisors rather than shop workers. Employers find their mix of theoretical and practical knowledge, and their willingness to be practical, a valuable part of what they need, as engineers with university degrees only want to be white collar workers.
Of course, considering how the statute works in India, PT graduates are often looking for college degrees and upward mobility. Here, an under-explored avenue, especially for female PT graduates, is entrepreneurship. Too often entrepreneurship is seen as something that can be taught generically, without a skill base. As a supplement for PT graduates, entrepreneurship training can help address issues of low productivity in small businesses and low female participation rates. Entrepreneurship has recently become a hot academic topic, but it may need to be rooted in specific tech and market trends.
Of course, India needs more big factories that will each employ thousands of workers. But it also needs small businesses that will be productive and grow, not to be giants, but to be successful in the long run. California has 30,000 manufacturing companies employing 1.3 million workers. But 64% of them have less than 25 employees. The Bay Area Council Economic Institute, a policy think tank for the northern California urban region and surrounding area, produced a report that assesses technology trends such as additive manufacturing (3D printing), industry opportunities such as as biomedical manufacturing and changing skills needs. and the adequacy of the existing training ecosystem. Scale isn’t always important, but the right skills are. Hands-on training is important in one of the world’s most advanced economies. There is a lesson for India here.
The author is professor of economics, University of California, Santa Cruz
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