India’s broken education system threatens its superpower dreams

India’s young people need jobs, but relatively few get training to work on a production line; the Renault Nissan automotive plant in Chennai. (Bloomberg)
India’s young people need jobs, but relatively few get training to work on a production line; the Renault Nissan automotive plant in Chennai. (Bloomberg)

Summary

Creating a competent manufacturing workforce is India’s biggest challenge as it repositions its economy from software and IT toward production.

India kicked off the world’s biggest election in human history on Friday. Prime Minister Narendra Modi is favored, but whoever wins has a big challenge ahead: India urgently needs jobs for its millions of young people, but its education system often produces the wrong kind of graduates.

If that can’t be remedied, India’s ambition to become a second “world’s factory floor" to rival China could unravel before it properly begins.

There are some lessons to be learned from India’s software and outsourcing boom of the 2000s. India’s famed information technology sector did a stellar job training students in software engineering and allied fields by working with universities to craft courses. It currently employs more than 5 million workers, according to government estimates.

But that is a woefully small number compared with the size of the labor force: India churns out around 10 million postsecondary graduates a year, according to Morgan Stanley.

Moreover, as India increasingly reorients its economy toward manufacturing—with investments from Apple suppliers such as Foxconn and, potentially, from Tesla—those grads won’t necessarily be the kind of workers it needs. Only 3.8% of India’s total workforce had undergone formal vocational training as of mid-2023, according to government data.

India scores decently well on basic metrics such as literacy: Around 96% of young people can read and write, according to figures from data provider CEIC, and around three-quarters of the labor force has had some high school education, according to Morgan Stanley.

But digging deeper into the figures, especially for postsecondary education, raises concerns. The 2023 India Skills Report, compiled by online testing firm Wheebox in partnership with the Confederation of Indian Industry and others, showed only a modest improvement in “employability" among young graduates—increasing to 50.3% in 2022 from 46.2% in the previous year. 

Wheebox’s test measures basic skill-sets such as numeracy and English competency, among others. Only 28% and 34% of polytechnic and industrial institute grads, respectively, were employable in 2023, according to Morgan Stanley. That bodes ill for India’s ambitions to become a manufacturing heavyweight, unless it changes quickly.

Generous agricultural subsidies also artificially inflate demand for farm laborers. In other words, many educated graduates don’t have the skills they need, while many young workers with less education have strong incentives to stay in the countryside. Nearly 83% of jobless Indians are youth, according to the India Employment Report 2024 by the International Labour Organisation.

Improving paltry budgetary allocations to education and skill development and creating better tie-ups with industry to impart up-to-date vocational training would help. India’s central government currently spends below 3% of gross domestic product on education.

And while the Indian government has taken steps to rope in the private sector, skills training remains largely government-driven. That dependence adversely affects the number and quality of trained candidates, according to the National Skill Development Corp set up by the Ministry of Finance.

India doesn’t have forever to solve these problems: Factory automation is becoming ever more sophisticated, and India’s own fertility rate is already heading down, which will eventually start chipping away at its demographic dividend.

China is already getting old before many of its people are rich, even after one of the most spectacular economic booms in history. India still has plenty of work to do to avoid the same fate.

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