Gulf between job seekers and employability widens

Boston Consulting says 40% current workforce illiterate, another 40% made up of school dropouts

An overwhelming majority of Indian companies says the availability of trained workers will be a significant constraint on business. Beginning on Monday, a two-part series looks at the reasons and what various stakeholders are doing to improve the situation

In the coming decade, 12.8 million people will enter the job market every year. However, if industry isn’t enthused by that number, there are reasons for that.

A mere two per cent of the workers are formally skilled, while about 93 per cent working in the unorganised sector are untouched by any kind of formal training, according to the IDFC India Infrastructure Report 2012. In comparison, 96 per cent of the workers in South Korea receive formal skills training. The number is 80 per cent in Japan, 75 per cent in Germany and 68 per cent in the UK.

That’s not all. According to a Boston Consulting Group report, 40 per cent of the current workforce is illiterate and another 40 per cent is accounted for by school dropouts. Those who are vocationally-trained, diploma holders, graduates, etc, comprise a mere 10 per cent of the overall workforce, while those who have completed 12 years of schooling comprise another 10 per cent.

“India has let its youth down on skills development. The public-private partnership (PPP) scheme of industrial training institutes (ITIs) has probably fallen apart, except where co-opted by industrial players,” says Amit Bhatia, founder and chief executive, Aspire Human Capital Management, an Indian social entrepreneurial firm inemployability education.

The future doesn’t look too bright either. The National Skill Development Council (NSDC), formed in 2009, plans to skill 500 million workers in the next decade. If that target has to be achieved, the year-on-year training capacity would have to rise to 40–50 million incrementally over the next 10 years. Given industry’s lukewarm involvement and the track record, that seems to be a tall order.

Consider this: At present, net enrolment in vocational courses in India is about 5.5 million a year, compared with 90 million in China and 11.3 million in the US.

“Industry has been lukewarm in skilling its own workforce, with the incidence of in-service skilling being one of the lowest in India. Moreover, industry has not moved briskly on collectively addressing the problem of course curriculum at educational institutions/vocational training centres not being in sync with its requirements,” says Dilip Chenoy, chief executive of NSDC.

One of the key challenges for skills development in the country is 17 ministries are engaged in this, leading to all-round confusion and turf wars. And, many of their skill development initiatives aren’t focused on what industry or employers want.

Most formal skills-related training happens through ITIs and industrial training centres. However, many ITIs have now been brought under the PPP mode, with the private partner responsible for the management of the institution. The goal is to bring all the 1,396 ITIs under the PPP mode. Through private sector participation, 400 of these ITIs are being transformed into centres of excellence.

Though many ITIs are now managed by the private sector, which has modified their course content, lack of scale means not many students benefit from this training. This is also an issue with several vocational training centres run in the private sector.

The poor quality of higher education muddies the water further, with rampant degree mills selling hopes but not delivering quality, leading to disappointment with the system.

One of the primary impediments to skills training is the question of who pays for this. While firms are not inclined to pay a placement fee for rightly skilled persons, in many cases, trainees are not excited by the remuneration offered. In others, people do not even join after a stint of free training.

A typical skill development module would cost Rs 8,000-9,000 for a 200-hour course. While in many cases, students are expected to pay the fee, in some, companies agree to pay part of it. Industry says it is important a student pay for the course, as he/she has to be serious about the training.

In addition, the negative perception on skill training also plays a part. “Parents would rather send their children to do a bachelor’s in arts than for vocational education and building skills. So, the problem is not only of social acceptance, but also lack of interest,” said Shankar S Mantha, Chairman, All India Council for Technical Education (AICTE).

As a result, enrolment in vocational courses does not take place, leading to a low number of skilled people emerging out of these institutions.

To fight perceptions, AICTE has decided to create a national vocational qualification framework — a methodology to build skills, with general academics creating a credit-based approach towards vocationalising higher education.

Social schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme have had led to rural folk staying away from skill development initiatives. By being assured of a certain amount every year, a number these people have now started feeling they no longer need to make the extra effort to get themselves skilled.

India’s biggest fund manager says worst over for flow

HDFC Asset Management says India may have seen the worst of outflows as rupee stabilizes and exports rise

Mumbai: Prashant Jain, chief investment officer at India’s biggest money manager, said the nation may have seen the worst of capital outflows as the rupee stabilizes and rising exports aid corporate earnings.

Overseas funds have bought a net $2.1 billion of domestic shares this month, the first monthly net inflows since May, after central bank governor Raghuram Rajan announced plans to boost the currency when he took charge on 4 September and the US Federal Reserve decided to maintain monetary stimulus. Inflows helped the rupee rebound 10% from a record low of 68.845 per dollar last month and the S&P BSE Sensex to jump 10% from its lowest level in a year on 21 August.

“The worst of the economic pressures are behind us, and in six months to a year from today we should be in a much better situation,” Jain, who manages $17 billion at HDFC Asset Management Co., said in an interview to Bloomberg TV India.

Jain is betting prospects of improving corporate earnings will lure foreign investors who withdrew $12.6 billion from local stocks and bonds in the last three months amid the weakest economic growth in a decade and a record current-account deficit. Standard and Poor’s said this month there is more than a one-in- three chance the nation will lose its investment-grade rating within two years, while Pacific Investment Management Co. sees a large chance of a cut in as little as 12 months.

India’s exports rose 13% in August from a year ago, the most since October 2001, and imports dropped 0.7%, government data showed 10 September. Shipments were aided by a currency that is still 13% weaker than its five-year average, and rising demand from developed nations.

Overseas demand

Growth in the US beat estimates in the second quarter, while the euro-area economy expanded 0.3% in the three months ended June from the previous quarter, exiting a record- long recession. The two regions took in 29% of India’s exports in June, commerce ministry data show.

“The current-account deficit may not worsen because the currency depreciation is making exports more competitive and imports more expensive,” said Jain.

India’s $1.8 trillion economy may grow 5.5% in the year to March 2014, versus 5% in the previous 12-month period, the weakest pace since 2003, according to central bank estimates.

PIMCO is more cautious amid concern there will be a sovereign downgrade, while HSBC Holdings Plcsees expansion slowing to 4% this fiscal year.

Credit agencies

“Although an outright credit default remains unlikely, the chance of a sovereign downgrade by one of the major credit agencies is large in the next 12-18 months,” Roland Mieth, senior vice president of emerging markets at PIMCO Asia Pte, a unit of the company that runs the world’s biggest bond fund, said in an interview in Singapore on 16 September. In the near term, we are more cautious on India.

Bank of America Corp. last month reduced its forecast for earnings per share for the 30 Sensex companies by 3.4% to Rs.1,260 for the year to March, joining brokerages from Goldman Sachs Group Inc.to Deutsche Bank AG that have cut their profit growth estimates for the biggest Indian companies.

The prospect of higher interest rates is adding to risks for lenders. The S&P BSE Bankex Index sank the most in four years intraday on 20 September after governor Rajan unexpectedly raised the repurchase rate in his first review to fight price pressures. The gauge slumped 25% from its all-time high on 16 May amid rising defaults and slowing loan growth.

‘Negative choices’

Rajan may add to the increase after specifying he will use consumer-price inflation as the main guide for monetary policy for the first time, seven of 10 analysts said in a Bloomberg survey. India’s consumer gauge rose 9.52% in August from a year earlier, the fastest pace in a basket of 17 Asia-Pacific economies tracked by Bloomberg.

“India is on our negative choices now,” Andrew Freris, chief investment adviser for Asia at BNP Paribas Wealth Management, said in an interview to Bloomberg TV India on 27 September. “The clear writing on the wall is that the Reserve Bank will increase interest rates to cap inflation and to support the exchange rate.”

Jain said he’s picking banks that get the bulk for their funds from the public over those that depend on deposits from companies, as a way to cut exposure to lenders with bad debts. Soured loans in the banking system rose to 3.92% of total lending as of 30 June, a five-year high, from 3.4% at the end of March, according to central bank data.

Retail loans

“The divide is greater between the corporate banks and the retail banks as the fear of non-performing assets on the retail side is not there,” Jain, 45, said.

Retail loans make up more than half of outstanding loans at HDFC Bank Ltd, according to data on the bank’s website. The lender, among the top 10 holdings of the Top 200 fund, has lost 10% this year. AtYes Bank Ltd such loans account for more than 17% of the lender’s total debt, filings show. The bank’s stock has slumped 31% in 2013.

Jain has added Axis Bank Ltd, IndusInd Bank Ltd as of 31 August, according to data compiled byBloomberg. “He’s also increased his holding of Wipro Ltd and ITC Ltd, data show.

“Profit growth will improve from here as about half the companies on the Sensex will directly benefit from a weaker currency, as do those with overseas operations such as Tata Motors Ltd, owner of Jaguar Land Rover,” said Jain. “Five of the best performers on the 30-stock gauge this year are companies that get at least 70% of their revenue abroad. Earnings will be better than the consensus,” he said.

Bharti Airtel

HDFC Top 200, India’s largest stock fund, last month added to its holdings in Reliance Industries Ltd, which accounts for 14% of the nation’s exports, Sesa Goa Ltd, which sells iron ore overseas, and Bharti Airtel Ltd, the mobile-phone company with operations in 17 African countries, data compiled byBloomberg show. The fund has beaten 81% of its peers over the past five years, the data show.

Lenders, among the biggest losers on the Sensex this year, accounted for 20% of the Top 200’s Rs.9,800 crore in assets on 31 August. Software companies, which get more than half their revenue from abroad, made up 17%, the data show.

“Foreigners have a good understanding of the prospects of this economy and how this country goes through its cycles,” Jain said. “We are optimistic.”

Tamil Nadu,Andhra Sitting on Bed of Diamonds

SITTING ON A FORTUNE

A vast area in southeast India 200,000 sq km could contain diamond-bearing rocks,says a report published in the August issue of Lithosphere

Is there a diamond field that runs in a wide swathe under the earths crust across Andhra Pradesh and Tamil Nadu There may well be,according to new research by geologists Subrata Das Sharma and Durbha Sai Ramesh of the National Geophysical Research Institute (NGRE) in Hyderabad.They have suggested that a vast area in southeast India 200,000 sq km could contain diamond-bearing rocks in a report published in the August issue of Lithosphere,the peer-reviewed journal of the Geological Society of America.While all this is very preliminary in nature,the findings could potentially bring cheer to the countrys diamond traders and exporters who otherwise have to depend on supplies of rough stones from Botswana,Namibia,South Africa,Russia,Canada and Australia.India,which has an.80,000-crore diamond industry,is the worlds biggest hub for the polishing of rough stones.Local availability will automatically lower the cost of production and increase the margins of diamond traders,many of whom say these have shrunk as rough prices have risen globally in the last six months by 5-10 %.Diamond mining isnt new to India and is said to have begun in the country in 4 AD along the Krishna river.Legend has it that the Kohinoor,once said to be the worlds biggest diamond,was mined near a rivulet in present-day Guntur district in Andhra Pradesh.Other famous diamonds such as the Great Moghul,the Regent and the Orloff have also been mined in India.Diamonds are an allotrope of carbon formed at high pressure and temperature.The layers of the earth where conditions are most favourable for their formation are referred to as diamond stability fields.These exist under the surface of the earth in the cratonic region at depths in excess of 150 km,Das Sharma told ET in an interview.As far as southeast India is concerned,there is a historical record of well-recognised kimberlite and lamproite emplacements in the eastern Dharwar (Karnataka) and Bastar (Chhattisgarh) cratons.Our findings could lead to increased diamond mining in the country,but this will depend on the interests of mining companies.Diamond mining could become viable once an appropriate mining strategy is worked out, Das Sharma told ET.To be sure,mining in general is a contentious issue in India.The Supreme Court has,for instance,banned iron ore mining for violating environmental regulations.Elsewhere,companies have had to abandon mining plans because of local objections

DIAMOND MINING IN INDIA 

In recent times,the hunt for diamonds kicked off in India with the introduction of the open exploration policy in 1991 that led to the entry of global giants such as De Beers and Rio Tinto.Rio Tinto is exploring the Bundelkhand craton in the Bunder district of Madhya Pradesh.De Beers is doing so in the districts of Raichur and Gulbarga in Karnataka.As these companies are already operating in India,it is therefore logical to expect that they would extend their operations to cover the newly delineated potential regions as well, Das Sharma said.The Bunder deposit is the first diamond discovery in India for over 40 years and is one of only four new mines likely to become functional globally in the next 10 years.Its also Rio Tintos most advanced diamond project worldwide.We are delighted with the progress of our Bunder project in Madhya Pradesh where we have now lodged mining lease applications.We believe that the Bunder project has the potential to be a world class mine producing up to two to three million carats per annum, said a Rio Tinto spokesperson.Other companies are less enthused by their experience.Vajra Diamond Mining Co had applied for prospecting licences and reconnaissance permits for a few areas in Madhya Pradesh and Andhra Pradesh but nothing has been granted to them in the last three years.We are sitting idle for almost two years, said Tarun Rutela,director of the company.We have neither got extension nor fresh prospecting licence.Government needs to speed up things as India can soon emerge as a diamond sourcing destination and can change the matrix of the trade. 

PRICE ADVANTAGE 

The prospect of more local sourcing has enthused Ashok Gajera,managing director of.2,000-crore Laxmi Diamond,a major supplier of polished diamonds to Europe and the US.If diamonds are mined in India then definitely Indian trade will be in an advantageous position, he said.At present,we have to depend on import of rough diamonds and there is extreme volatility in rough prices.Our margins are under pressure due to high rough prices and increasing labour cost.We are not being able to get higher price on polished diamonds from our international clients. Roughs constitute about 60-80 % of the total cost of production in the diamond trade,said Suresh Shah,convenor,diamond panel,Gem and Jewellery Export Promotion Council.If that is taken care of,then Indian exporters can clock higher profits.We hope that government should look into the report of NGRE and take steps accordingly to help the diamond trade, Shah said.Its too early to say whether diamonds are present in the area and whether the global giants will find the research persuasive enough.The factors that make an international company,such as De Beers or others,decide to explore in one region over another usually have much more to do with economic conditions than with geology itself, said Alan G Jones,head of geophysics,School of Cosmic Physics,Dublin Institute for Advanced Studies.Certainly what helps to attract companies to mine for diamonds in one region over others is as much geoscientific information as possible,and to that end the work of Dr Das Sharma will be a positive contribution. Jones said the Indian government needs to put in place incentives that will encourage companies to explore in India.

Fed move may have set stage for deeper correction

Upbeat bulls are celebrating the US Fed's decision not to cut back on its monthly bond purchases , thus keeping the pipeline of easy liquidity flowing smoothly. The Sensex closed at a 34-month high on Thursday after rallying nearly 700 points. Even the most skeptical of market experts agree that momentum could push up the market another 5-7 percent from these levels even though fundamentals do not warrant it.

There is no point talking about fundamentals when a strong gush of liquidity sweeps the market. Yet, the Fed move may have also unwittingly set the stage for a deeper correction, sometime in the next couple of months. That is because the inevitably of a reduction in bond purchases is evident. And so are the signs that the economy with its deep-rooted problems is not going to recover in a hurry.

At Friday's closing, the Sensex is now quoting above its level in August when the Fed first revealed its plan to cut back on the bond purchases. And this, when there has been no improvement worth mentioning, either at the macro or at the micro level. In short, the market may not be pricing in a liquidity shock (by way of lower bond purchases by Fed) at some point in the near future. India's vulnerability to a sudden flight of foreign capital was exposed in July and August, when massive outflows from the debt and equity markets added to the pressure on the currency.

Some analysts now point that the steeper than justified decline in the rupee was caused by panicky corporates trying to hedge their forex exposure through dollar purchases in the forward market. But a glance at the 3-6 month targets for the rupee, as estimated by brokerages broadly suggest that the current pull back above 62 may not be sustained. There is chatter about macro indicators pointing to a gradual recovery. But in most cases, the numbers look better when compared with their nadir in the recent past. Take the rupee for instance, it is now above 62 after having come close to hitting 69 to the dollar. But it is still a good 600 basis points below what it was less than four months back. And that is bad enough for corporates with forex loans at a time when earnings are already under pressure.

Narrowing trade deficit in July and August provided little relief because financing them was turning out to be a problem owing to the sudden flight of foreign capital. Gold imports have been suppressed, but anecdotal evidence suggests that demand has not really reduced; it has only shifted to 'unofficial channels', causing revenue loss to the government. Investors appear to have regained their appetite for banking shares, all the more after the latest Fed decision, which investors feel will lead to RBI reversing some of its liquidity tightening measures in July to protect the rupee. But costlier funds could be just one part of the problem. The bigger problem is the steadily growing pile of non-performing assets.

Even for some of the haloed private sector banks. It is not for nothing that the RBI suddenly decided to clamp down on the 80:20 scheme (pay 20 percent now and 80 percent on possession) being promoted by builders. Whispers are that one reputed private bank is already facing problems in a project in central Mumbai. In this particular scheme, HNIs had booked apartments under the 80:20 scheme, hoping to sell out at a profit by the time the project was completed. The project is almost complete, and the HNIs are unable to sell the flats as they had hoped to. And they have no intention of taking possession and paying the EMIs.

The banks, builder and the HNIs are now trying to work out a solution. And yes, the cost of funds too is an issue. SBI 's decision to hike its base, lending and deposit rates barely two days before the credit policy is baffling to say the least. What it suggests is that irrespective of what the Fed did (or did not do) on Wednesday or the RBI will do (or not do) on Friday, money is likely to remain expensive for a while. Or maybe SBI is trying to pre-empt efforts by the government to arm-twist it into lowering interest rates if the RBI chooses to take a dovish stance.

Marc Faber: I would rather Buy Indian Equities than the S&P 500

At a time when analysts are predicting a 23,000 or a 15,000 for Sensex, depending on what the policymakers do, Marc Faber says he prefers Indian equities to S&P 500.

"I would buy Indian equities than S&P 500," Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, told ET Now in an exclusive interview.

The Indian stock market has been on a rollercoaster ride since more than a fortnight. "This is because of the falling rupee," says Marc Faber.

Advising investors on gold, which has been hitting all-time highs largely given the weakness in the stock market, he said: "Gold isn't a very good investment option for a long period of time."

Assuaging fears over the QE tapering, which was partly responsible for a sharp reversal in the foreign flows back to developed markets, Faber said: "Don't expect any meaningful tapering of the QE. It is the US bond market that will rally substantially on Fed tapering."

Blaming India's political system for the present economic situation, he said: "India has pursued poor economic policies. Political system has mismanaged Indian economy for 50 years. I doubt India has the political will to face the music."

"You cannot blame the RBI for the economic situation," he said.

It Pays to Be Prepared During Uncertain Times

A smart financial plan that involves a contingency fund,an adequate insurance cover and a debt recast can help individuals tide over the crisis,says Preeti Kulkarni 

Doomsday preachers are enjoying their spot under the sun.These crystal gazers have been predicting the end of the India story for a while now.And it is driving regular individuals to despair as many of them are bracing for job losses,loan defaults and other financial disasters in the coming days.The possibility of loss of income has led to many investors withdrawing or freezing their investment plans.Then,there are others who have not scaled down their aspirations despite contraction of income,which indicates that they are relying on loans to fund their goals.This has the potential to result in disastrous consequences in future, says Sumeet Vaid,founder and CEO,Ffreedom Financial Planners.A well-prepared financial plan is the only antidote to this uncertainty and spectre of fear, he adds.It is very difficult to predict the future of an economy with certainty.However,what youcan do is to mitigate the adverse impact of an impending crisis on your financial health at least to a large extent.

A Contingency Fund 

Do you fear a financial emergency in future According to financial planners,the first thing you should do is to create a fund to deal with such emergencies.One must ensure that there is an emergency fund.If something goes awry,you can still pay your regular expenses without undermining your long-term financial goals, says Kapil Narang,chief operating officer at Ameriprise India,a financial planning firm.Most financial planners recommend setting aside funds equal to at least three to six months living expenses in a liquid fund or fixed deposits.You can keep the funds in a bank savings account,flexi-deposits,ultra short-term and shortterm funds.You should not invest in instruments where the money will get locked in like fixed maturity plans (FMPs) or tax-free bonds.Investing in equity mutual funds is also not suggested as it may not be possible to liquidate when required due to market conditions, says Suresh Sadagopan,certified financial planner,Ladder7 Financial Advisories.

Adequate Insurance 

Loss of income and withdrawal of group insurance cover are the first casualties of a layoff.So,if you are relying solely on the group cover provided by your employer for your and your familys medical needs,you should consider buying an individual cover immediately.For a family of four a couple in their early 40s with two kids the ideal health cover would be.5 lakh for each adult and.3 lakh for every child, says Sadagopan.Remember,financing any medical expense out of your savings or investment is not a smart thing to do when you are staring at an uncertain future.Similarly,you should also take a look at your life insurance cover.Is it enough to take care of the financial needs of your family when you are not around If not,you should try to get more insurance cover.Life insurance can be calculated by human life method,expense replacement method or need-based method.As a rough thumb rule,a 40-year-old should have a life cover of at least 10 times his gross annual income, says Sadagopan.You can buy a pure term insurance cover online for a small premium.A 30-year-old woman,who does not smoke,can buy a.1-crore term cover with a tenure of 20 years by paying an annual premium.6,000-8,000.Home loan protection plan (HLPP) is a necessity during tough times.If something were to happen to the earning member,the liability would be taken care by life insurance companies, says Rajiv Raj,cofounder and director of Creditvidya.com,a financial literacy and credit counseling firm.Before going for a HLPP,compare the premiums for a term cover and home loan protection plan.A term cover is cheaper and more comprehensive,but HLPP will come in handy for those cannot buy term plans due to the stringent medical tests prescribed by life insurers for these policies.

Managing Debt 

If your nightmares are mainly about losing the job,you should immediately assess your overall debt.Remember,you would run out of your savings in no time if you have to repay huge debt while you are looking for another job.Individuals have to closely monitor their monthly outflow and try to pay off loans with higher interest rate.Debt consolidation is another method of leveraging cheaper finance options such as top-up loans or home equity to pay off high-cost loans, says Rajiv Raj.If you find it difficult to service your loan because of salary cut or job loss,you should discuss it with your bank.It is advisable to ask your lenders for help before the loan becomes a non-performing asset (NPA).You can request the lenders for a reduction in the EMI amount,so that you dont default on the loan and let it affect your credit history, says Rajiv Raj.Lenders typically assess the situation and figure out weather you will be able to weather your financial crises and resume making payments on your loan.If they think you can,they will restructure the repayments.