governance, political economy, institutional development and economic regulation

Posts tagged ‘FICCI’

Skills Development: putting the cart before the horse?

Jobs

(photo credit: the hindu.com)

It is curious that we learn nothing from experience. The World Bank, sundry bilateral and multilateral donors spent 10% of their funds during the 1990’s on developing generalized skills (also known loosely as capacity development) in developing countries before junking the program, because results were difficult to attribute to inputs and “value for money” difficult to assess.

The lessons drawn from international experience are: First, that skills development is best integrated into the system of education and not treated as an end-of-pipe intervention. Second, end-of-the-pipe skills development has to be linked to the jobs available and, from a “value for money” perspective, is best done on-the-job.

The UPA government, in its typically muddled manner, whilst looking for ways to explain away poor growth, picked on “skills deficit” in India as a key constraint for growth. Industry immediately applauded the initiative, sensing that public resources were likely to be spent on a task, they should rightly be doing themselves.

Putting skills before jobs is a strange priority for a country which exports skills, across the value chain and which could export more, if only there were no visa constraints imposed by developed markets, where these skills are in demand.

Why would skilled Indians seek to work overseas if there were sufficient opportunities at home? The fact is that there are none. Today you can hire a skilled carpenter or a plumber for Rs 800 (US$ 13) per day in any of the Indian Metros. You can get a computer literate, office assistant for as little as Rs 10,000 (US$ 160) per month. Graduates, without permanent jobs, subsist on temporary employment at Rs 7000 per month. The entry level monthly salary for engineers is Rs 20,000 (US$320).

The problem is not a skills deficit. The problem is the lack of jobs. We generate only 10% of the 10 million jobs we should create incrementally every year in addition to employment at 163 million in the informal and 32 million in the formal sector. The Union Government should concentrate on enhancing growth with jobs. The downstream activity of skills development should be integrated into our education system and is best left to the private sector for short-term end of the pipe solutions. It is a task the private sector has managed very well thus far.

The IT sector explosion of the 1990s did not happen because there was already a large pool of jobless IT specialists sitting around in India, waiting for jobs. It happened because savvy IT entrepreneurs spotted a business opportunity to provide back-end services. They leveraged the low wage expectations in India to grow an export oriented service industry. Licensing liberalization for satellite links helped create the necessary telecommunication channels. The IT industry initially employed scores of specialists who incubated raw skills and trained them on-the-job.

When Suzuki (Maruti) started operations in India, in the 1990s, it did exactly the same, to create the technical skills needed to change over from the 1940s automobile technology peddled till then by the Birlas (Ambassador) and the Walchand group (Premier Padmini). Licensing liberalization in automobile manufacture created competition for the two incumbents from SUZUKI-MARUTI, which in turn upgraded and re-skilled Indian technicians to meet the needs of a modern automobile plant. The rest is history.

Only industry and business know the skills they need and how best to shape them to enhance value-on-the-job. Government intervention to finance such initiatives or (horror of horrors) plan for where, what and when training is to happen, can only be an unmitigated disaster and a complete waste of money.

Industry will argue that skill development is a public good; that individual companies have no incentive to train employees because they can get poached by others. This is nothing but griping. Skill development is what industry association like CII, FICCI, ASSOCHAM and their regional offshoots should be doing using pooled industry resources. This is their natural role just as much as lobbying for industry.

The gold standard in skill development is the apprenticeship system in Germany. Next time the PM transits through Frankfurt, he should take time out, after meeting Ms., Merkel, to review the difference between what we are planning to do and what Germany does. It is not for nothing that German engineering skills are the best.

We don’t need a separate Union Ministry for Skills Development or for Entrepreneurship. The Ministry of Human Resource Development or even the Ministry of Labour and Employment, are the natural homes for this function.

The Peter Principle operates strongly in public institutions. Work expands to fit the resources available. Often, the result is unnecessary, heavy handed, inefficient, intrusive regulation, of the kind the University Grants Commission demonstrated recently, with respect to the Delhi University and the IITs.  More ministries means more problems.

What we need to fix, is the system of education. Skills come in an extended value chain ranging from basic life skills, needed by everyone to be a productive part of society, to the highly specialized skills needed to land on Mars. Skills need to be integrated seamlessly into our system of education. Skills must not be developed piece meal. Doing so is expensive and has a very high failure rate.

We need to do away with the “paper chase” for degrees which has resulted in a proliferation of tertiary education institutions run more like “businesses” than schools. We need to focus far less on academic knowledge and significantly more on experience and practical learning.

Most “educated” Indians do not keep a set of home tools. The reason is they do not know how to use them. The average “educated” Indian cannot fix a broken chair; repair a blown fuse; darn underwear; knit a cap; polish shoes; iron clothes or clean the toilet to leave it sparkling. The only skills we value are the ones which involve sitting on an office table and barking orders at inferiors.

Our education system assumes that every child who joins primary school is going to be a top flight scientist. This leaves learning room only for the obviously brilliant students and immediately sidelines those who are late starters and even those who have limited ambitions in academics. This is the least inclusive and the least effective way to teach kids to explore and develop their individual comparative advantage. It also does very little for encouraging “innovation” which is the key to growth.

Public resources are scarce. They should be used to leverage private resources for creating jobs and enhancing growth. Focusing on skills, well before we have a strategy for creating productive, skilled jobs is putting the cart before the horse.

Land Bill: political gains, future losses.

The Land Bill 2013 is backward looking and shortsighted. Coming  119 years after the predecessor legislation in 1894, it fails on four counts.

First, it does nothing to assure citizens that it shall rein in wilfull and unnecessary acquisition of property by the State, as has been happening in the past.  Consider that there are many Public Sector Undertakings which own land far in excess of their needs, as do the “new age” power plants which have been given coal mining licenses. The Bill actually skirts around the issue of “when and how much” is it justifiable for the State to acquire property. It focuses only on the process and amount of compensation to be paid in the event of acquisition.  It is curious therefore that it is being lambasted by industry as anti-industrialisation, not because of the higher amounts they may have to pay for land, but on account of the anticipated delays and increased bureaucracy now proposed in the process. The Bill proposes to artifically enhance the price paid for acquisition to give the disposed a fair compensation and possibly also act as deterrent to “deep pockets” from acquiring and holding large tracts land. The deterrent is over estimated. Land ownership has an average ROR of above 25% per annum which will continue to attract investments on account of its scarcity value. The provisions for enhanced acquisition price are populist and are likely to be ineffective in ensuring that only minimum volumes are acquired. The only way the volume of acquisition can be rationalized is by severely restricting the definition of public purpose to the needs of Defence and Security. The Right to Property is an essential part of empowering the ordinary citizen versus the State, which is ignored by the Bill.  Opposition should have come from the BJP and other rightist parties but “industry wallahs” typically like an interventionist State (like China or Vietnam) if it intervenes on their behalf. it is election time and all are wary of upsetting either the “poor”, “industry” and “real estate” wallahs. The pro-poor “lobby” essentially has a “left leaning” mindspace. For them, owning property is equivalent to being an oppressive, extractive, arrack swigging, landlord cum money lender.  This is a politically attractive stereotype, which all parties publicly bow to, never mind that atleast 90% of the population owns land and property. Why not use the Bill to define this Fundamental Right better and proscribe the powers of the State? We are losing a historical opportunity.

Second, the Bill displays an unerring faith in the bureaucracy and its ability to protect the rights of the poor, manage a complicated acquisition, participation, resettlement and rehabilitation process efficiently, despite all the evidence to the contrary.  Citizens today want a simplification of administrative procedures, not additional miles of red tape. The more the red tape, the more time it takes to get things done and higher the transaction cost, for getting files moving. The Policracy must rise above its class interest and declog administrative processes, not add ever more onerous procedures. Current estimates for completion of the new land acquisition process is a full five years! Only a policracy with a faith (or a vested interest) in an “interventionist” bureaucracy could impose this on citizens.

Third, the Bill shows the medieval mindset of the “policracy” under which industrial and infrastructure development and service delivery were a preserve of the government or of public sector undertakings. Hence land acquisition for private educational institutions, private hospitals and private hotels are all excluded from the definition of “public purpose”. The very same institutions if owned by the government or a PSU would be eligible. This approach runs completely contrary to everything the government has said about the criticality of private investment in infrastructure and service delivery. It confers on government the near unique ability to aggregate land in industrial volumes and then to use this leverage to enter into Public Private Partnerships with industry. The opportunity for extracting “rents” is obvious with the well known downstream consequences of fraud and corruption.  Medievalism is also evident in the requirement that there should be no change in ownership, post acquisition of the property, without the approval of government. Presumably, this is to discourage businessmen, who are “fast track approval getters”, from becoming middle men, in the real estate game. However this is a very restrictive condition for the genuine, medium level, private investor. An investor wants “full” ownership over what she has bought. This includes the right to transfer when considered appropriate. Having to go back to the government, cap in hand, just perpetuates the “license permit raj”. Once the Socio Economic Assessment and the Expert Group are satisfied with the “public purpose” and reasonableness of the project, it hardly matters who the owner is.  Despite all the high sounding support for the private sector, and the bon homie with government in CII and FICCI events, businessmen continue to have the stereotyped image of exploitative, manipulative, stingy but high living, low thinking, self seekers. This Bill reinforces that image. 

Lastly, the Bill is well intentioned in recognizing that the alienation of land can result in hardships for a larger group than just the owners. These are those whose livelihoods were dependent on the land continuing to be used for the purpose it was, till the time of acquisition. Whilst unquestionably appropriate, from the equity perspective, the problem here is the implementability of the proposal. The low ability to identify those eligible, with the robustness required, in the absence of records of informal labour  and the potential for flagrant misuse and cost inflation are obvious deterrents to efficiency and effectiveness in implementability. Are we creating an unenforceable entitlement here for workers, which may actually dissuade farmers from using labour as in the case of industry?

It is tragic that a well intentioned Bill is turned ineffective and counterproductive because of the timing of its introduction. This is a part of the pro-poor pre election bonanza that no party can afford to distance itself from. It is consequently ill intentioned, disruptively regressive and anti-poor by being pro-bureaucracy, anti-efficiency, anti-investment and anti growth.

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