India’s Huge Workforce Doesn’t Match Up to Its Hype
Digital Editor, CNBC Asia
Over the past two decades, India has turned its biggest liability — its huge population — into its biggest asset. What was seen as a problem eating into India’s growth is now being touted as its competitive edge.
The demographic advantage might lie with India, but quantity has compromised quality with the majority of its much-hyped pool of young workers largely unemployable, say experts.
Sample this. Half of its 1.2 billion people are under the age of 25, more than a million are added to its workforce every month and in the next 20 years, it will be home to 25 percent of the world’s new workers.
But employability rates vary from just 4 to 30 percent. That means a minimum of three to six months training is a must to make India’s college graduates into employable white-collar workers.
“Even though we are a billion people, the good guy is one in a billion. You have to kiss a hundred frogs before you find the prince,” says Dony Kuriakose, director of Delhi-based search firm, Edge Executive Search.
According to one estimate India produces 500,000 engineers every year when the market needs 250,000. So there should be plenty, however, because only one in five of them are employable, India actually has a shortfall of 150,000 engineers.
An Information Technology company setting up shop in India zeroed in on an area in the south of the country, where there was a concentration of 200 graduate colleges, hoping to have plenty of choice. The company found that only 10 percent of the students they interviewed were fit to be hired.
“We have been hiring every 5 minutes for the last 5 years, but (we hire) only 5 percent of the kids who come to us,” says Manish Sabharwal, who started Teamlease a staffing and training company six years ago. His company has been publishing an annual India labor report for the last five years.
The lack of quality workers is not restricted to one industry. High growth sectors like information technology, telecom, banking and healthcare face the quality crunch the most.
A firm called Aspiring Minds released India’s first employability study on technical graduates last year. The company subjected more than 40,000 engineering and computer science students in 12 Indian states to a standardized computer-based test to measure their employability.
Himanshu Aggarwal, the co-founder of Aspiring Minds says: “People were trying to solve the employability problem by throwing more training at it. We try and tell them what to train in and how to train.”
The test, which assesses language aptitude, domain skills and personality, broke another myth when it found that proficiency in English was lacking. India has an edge over other Asian countries when it comes to English, but ironically poor English is a strong reason why people lose out on jobs, according to Aggarwal.
The blame for producing a sub-standard workforce is put solely on India’s poor education infrastructure.
At one level the education system is heavily regulated, for example, the private sector cannot set up a university, and many argue it needs a good dose of competition. When it comes to private institutes offering management, engineering and other vocational courses, the legislation is ineffective and lax leading to entrepreneurial opportunism and poor quality.
“There are 15 top MBA institutes in the country. When you reach the second-tier colleges quality falls by 25 percent, it is lower by 30 percent when you go to the third tier and then you simply fall in to the valley,” says Kuriakose, who found that about 20 percent of students he interviewed at one of Delhi’s 130-odd B-grade MBA schools did not even know who the CEO of Pepsi was, nor the founder of Facebook.
The gaps in India’s education system, however, present a huge opportunity. According to Sabharwal, “the education, employability and employment industry is set to explode in the next 20 years. It is going to be a $50 billion industry, we just have to figure out how to do it.”
The big-wigs of India’s IT industry, Infosys and Tata Consultancy Services, which hire 30-40,000 people every year have full-time training programs lasting three to six months. According to Sabharwal, Infosys spends about $100 million every year on repairing its new hires and the training expenditure for most companies is between 1 and 5 percent of revenue.
But the lack of quality people to hire has not put a dampener on wages. Annual raises this year are expected to come in between 10-20 percent “But the value they bring is nothing,” says Kuriakose.
The lack of quality people who are still expensive to hire has forced many Indian companies to bypass local talent. The percentage of Indian staff in large domestic companies, which have business interests abroad, has fallen from 90 to 70 percent. And many foreign companies especially those running call centers and other outsourcing facilities are looking at the Philippines and Thailand as alternatives to India.
But for those looking to get a slice of the Indian market like retail companies there is no escape, they need to hire locally and have to face up to the people challenge. “They have to solve the human capital puzzle right here. They can’t go to China,” says Aggarwal.
According Riju Vashisht, Executive Vice President for People, Walmart India, which opened shop along with the joint venture Bharti Walmart in August 2007, “We are in the business of ‘making’ and not ‘buying’ talent. Only hiring for skill is a difficult piece to do.”
Bharti Walmart runs pre-employable training centers in partnership with governments where every month 125-odd students are made “fit” for the retail industry, with some of them being hired by Bharti Walmart.
Vashisht says “we are building a pipeline for the future.” According to her the retail sector in the country should hire three million youth by 2015.
There is a strange equation being played out between demand and supply in the Indian labor market - both are running ahead, separately, with no meeting planned.