6. Skills and Active Labour Market Policies

The development of skills and the implementation of active labour market policies (ALMPs) are critical for addressing India's employment challenges. This chapter examines the current context of skills development, the evolution of training programs, the challenges faced, and the role of job search assistance in improving labour market outcomes.

India's skills development landscape is characterized by a large informal sector, limited formal training, and a growing need for new skills driven by technological change. The chapter reviews the policy framework, institutional mechanisms, and the effectiveness of various interventions.

The current skills development context in India is shaped by several factors:

• Large informal sector: The vast majority of workers acquire skills informally through family occupations and on-the-job learning. Only 2.4% of the workforce aged 15-29 had received formal vocational training as of 2022.
• Technological change: The rapid pace of technological change, particularly in the services sector, has increased the demand for high- and medium-skilled workers. The robotization rate in India is still very low, accounting for only 0.8% of global robots.
• Demographic advantage: India's large young population presents both an opportunity and a challenge. The country needs to skill its youth rapidly to capitalize on the demographic dividend.
• Regional variation: Skills development outcomes vary significantly across states, with southern and western states generally performing better than eastern and northern states.

India's skills training and development ecosystem has evolved significantly over the years, with various initiatives and institutional frameworks:

• Skill India Mission (2015): Launched with the aim to train over 400 million people in different skills by 2022. Key components include the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), the National Skill Development Corporation (NSDC), and the Sector Skills Councils (SSCs).
• Apprenticeship training: The Apprentices Act 1961 was amended in 2014 to make it more flexible and inclusive. However, the number of apprentices remains a small fraction of the potential.
• Vocational education in schools: The National Skill Qualification Framework (NSQF) was introduced to integrate vocational education into the formal schooling system. Progress has been slow due to limited infrastructure and trained teachers.
• Industrial Training Institutes (ITIs): ITIs remain the backbone of vocational training in India, but they face challenges of outdated curricula, poor quality, and limited industry linkages.
• Private sector participation: The NSDC has promoted private sector-led training through funding and partnerships, but the quality and outcomes of private training vary widely.

Despite the policy attention and investments, skills development in India faces several persistent challenges:

• Quality deficit: Many training programs are outdated and do not reflect current industry requirements. The curriculum is often not aligned with emerging technologies and market demands.
• Low coverage: The reach of formal training programs is limited. Only a small fraction of the workforce, particularly in the informal sector, has access to quality training.
• Industry disconnect: There is a significant gap between the skills taught in training institutions and the skills required by employers. Industry participation in curriculum design and training delivery remains limited.
• Informal training dominance: Hereditary and on-the-job training remain the primary modes of skill acquisition, particularly in traditional occupations and small-scale enterprises. These informal methods often perpetuate low productivity and limited mobility.
• Gender and social barriers: Women and marginalized groups face additional barriers in accessing training, including limited mobility, safety concerns, and social norms that restrict their participation in certain occupations.
• Financing constraints: Many training programs are underfunded, and the cost of quality training is often prohibitive for poor households. The return on investment in training is also uncertain, discouraging private investment.

Entrepreneurship development has been promoted as a strategy for job creation and economic growth. Key initiatives include:

• Start-up India: Launched in 2016 to promote entrepreneurship and support start-ups through tax exemptions, funding, and simplified regulations. The initiative has led to a significant increase in the number of recognized start-ups.
• Mudra loans: The Pradhan Mantri Mudra Yojana provides loans to small entrepreneurs and micro-enterprises. While the scheme has reached a large number of borrowers, the impact on employment generation and enterprise sustainability is mixed.
• Self-Help Groups (SHGs): SHGs, particularly for women, have been promoted as a mechanism for micro-enterprise development and financial inclusion. The SHG movement has expanded significantly, but the economic viability of many SHG-led enterprises remains a concern.
• Challenges: Entrepreneurship in India faces challenges of limited access to credit, inadequate infrastructure, complex regulations, and limited market access. The failure rate of new enterprises is high, and many entrepreneurs remain in low-productivity, survivalist activities.

Active labour market policies include job search assistance programmes that help workers find suitable employment. These programmes are particularly important for youth and the unemployed.

• Employment exchanges: The traditional employment exchange system has been modernized through the National Career Service (NCS) portal, which provides online job matching and career guidance services. However, the reach and effectiveness of these services remain limited.
• Placement-linked training: Some training programmes, such as PMKVY, include placement assistance as a component. However, the quality of placements and the retention of trained workers in jobs are often poor.
• Career guidance: Career guidance and counselling services are limited, particularly in rural areas and for disadvantaged groups. The ILO School-to-Work Transition Survey found that many young people lack adequate information about labour market opportunities and career pathways.
• Digital platforms: The growth of digital platforms and the gig economy has created new channels for job search and matching. However, these platforms often serve a narrow segment of the workforce and may not provide stable, quality employment.

Skills development and active labour market policies are essential for addressing India's employment challenges, but significant gaps remain. The training system is fragmented, underfunded, and poorly aligned with industry needs. The reach of formal training is limited, and the quality of many programmes is poor.

Key recommendations:

• Reform the vocational training system to be more relevant, accessible, and aligned with industry needs.
• Strengthen apprenticeship programmes and promote industry participation in training design and delivery.
• Expand the coverage of quality training, particularly for women, rural youth, and marginalized groups.
• Improve the coordination between education institutions, employers, and government agencies.
• Invest in digital skills and emerging technologies to prepare the workforce for the future of work.
• Strengthen job search assistance and career guidance services, particularly for youth and the unemployed.