NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s note: This is the first post in a three-part series. The first two parts feature an interview with NSDC’s Dipra Mukhopadhyay (part two can be found here). The third part is an interview with one of the NSDC’s early investees.

The National Skill Development Corporation (NSDC) is a unique public-private partnership (PPP) in India. It was set up in 2009 with the mission to train 150 million Indians by 2022. It aims to achieve this by catalyzing the creation of large, high-quality for-profit vocational training institutions through joint ventures with the private sector. The NSDC has made funding commitments of approximately US$400 million toward 100 projects through the end of the 2012-13 fiscal year.

Dipra Mukhopadhyay is a member of the NSDC’s core investment team. He oversees the allocation of $250 million in new investments and the expansion of the NSDC’s portfolio. He has managed its investments in more than 15 ventures across multiple sectors since 2011. Some of these include Rural Shores Business Services (India’s largest rural BPO operator) and Madura Microfinance (one of the world’s most efficient microfinance entities), among others. Mukhopadhyay holds an MBA from the Indian School of Business, and a BS in business administration and finance from Bocconi University in Milan, Italy. In part one of this interview, he discussed the challenges and potential of the project. In part two, he talks about NSDC’s selection process, its focus areas and its efforts to maximize the effectiveness of vocational training in India’s poorest communities.

Sriram Gutta (SG): What was the basis for the NSDC’s target to skill 150 million Indians by 2022?

Dipra Mukhopadhyay (DM): It is estimated that by 2022, India will have a population of approximately 1.4 billion, out of which nearly 700 million people are expected to be in the working age group of 18-59 years. Considering various factors such as enrollment rates, capacity for training, and paying capacity, it is estimated that only 200 million people will be [college] graduates and above. It therefore becomes essential to provide quality skills training to 500 million people if we are to use this demographic dividend to our advantage.

Taking this into perspective, the government of India set a target to skill 500 million people by 2022. The 17 central government ministries will have a cumulative target to skill 350 million people, while the NSDC will take up the largest chunk to skill 150 million people by working exclusively with India’s private sector. The government believes that the private sector is a more efficient service provider and needs to play the most significant role in the skill development value chain.

SG: That’s an interesting point. Is that the reason the government created a separate body instead of working with existing ministries like the Ministry of Labour and Employment and the Ministry of Human Resource Development?

DM: India’s capacity for skills training currently stands at around 4.3 million people annually. Given the huge demand for skilled people across industries in India coupled with the need to skill 500 million in the next ten years, it calls for an immediate capacity expansion for skills training to the tune of eight to 10 times. The private sector has to lead from the front, and it needs to evolve innovative financing mechanisms to achieve this unprecedented scale. Hence the NSDC was set up to foster entrepreneurship in India’s vocational training sector, by engaging with the private sector to support large scale and sustainable enterprises for skill development through the public-private partnership model.

SG: In India, unfortunately, one associates government with slow and bureaucratic processes. As an organization partly funded by the government, have you found it challenging to attract private corporate interest?

DM: The NSDC’s management team consists of professionals with diverse experience across the private and development sectors. The team represents alumni from some of the leading management and social sciences institutions from around the world. Since our inception in 2009, the NSDC has supported more than 80 private sector enterprises that will cumulatively skill around 70 million people in the next ten years. India’s leading private sector firms such as Bharti Airtel, IL&FS, Future Group, Apollo Hospitals and TVS have set up large-scale skill development businesses in partnership with the NSDC. It must be mentioned that the unique PPP structure of the NSDC has allowed us to engage effectively with the private sector to create an inclusive ecosystem for skill development in India.

SG: The immediate focus of the private sector is the bottom line. How do you convince them to be part of public-private partnerships?

DM: There are two dimensions to this. One, there is a massive business opportunity in India’s vocational training sector today. We estimate that it is to the tune of $20 billion in the next 10 years, when you consider that annual capacity for skills training requires immediate augmentation to the tune of eight to 10 times, and the cost for training to be at least Rs 5000/person. Second, the NSDC provides entrepreneurs and established corporations with low-cost debt financing to set up large-scale skill development enterprises through the PPP mode. The NSDC funds up to 75 percent of the project costs, with the rest to be brought in by the private sector participant by way of equity, to ensure enough skin in the game from both sides. It’s actually a zero-sum game for profit-maximizing enterprises, as it allows them the flexibility to set up and expand their business without having to seek equity funding at the onset, which is always more expensive than the cost of debt.

SG: What have some of your other challenges been?

DM: I think the challenges confronting the NSDC and our partners are on three fronts. One is to attract the students to the classroom. By this I mean that vocational training is not viewed on the same pedestal by the youth as conventional degree programs such as a bachelor of arts or a bachelor of commerce. Today India has the largest number of degree-giving institutions in the world, somewhere in the region of 26,000. That indicates that we tend to go for degrees irrespective of whether it makes us employable or not. The challenge is to bring a paradigm shift in the perception of the youth for vocational training, and that’s going to be a gradual transformation. Until that happens, students will be unwilling to pay to get trained.

Secondly, for vocational training to become an object of aspiration, the industry must demonstrate the willingness to pay a premium for skilled people. That will require the training to be relevant to industry needs. The industry must also be confident of the assessment and certification systems of vocational training providers in the market. It will also require some regulations that will push the industry to hire only trained people.

Finally, the creation of an enabling environment is indispensible for this sector to achieve the desired scale that will allow 500 million people to be trained in the next 10 years. One needs to address the problem of the youth’s ability to pay for training. Today one does not have the option of taking on a loan to cover the cost of a vocational training program, in the same way that one can if he chooses to pursue a degree program. Access to financing is probably the biggest challenge facing the sector today.

In part two of this Q&A, we will learn more about the NSDC’s selection process, its focus areas and its efforts to maximize the effectiveness of vocational training in India’s poorest communities.