Economic growth needs formal employment

But to increase this rate, more employers need to adopt apprenticeship (currently, 18,000 employers engage apprentices), especially from the SME sector that has low absorption rate.

By Sumit Kumar

India’s concern is generating formal employment. Our unemployment rate is around 6%, but over 90% of the employment is informal, leading to subsistence wage earning, impacting living standards. The reality of this gap became evident during this pandemic. As part of Covid-19 recovery plan, the government introduced the Atmanirbhar Bharat Rojgar Yojana (ABRY) to address job losses and boost formal employment. It also rationalised and simplified labour laws under four major codes. Under the New Education Policy, reforms like apprenticeship-embedded programmes were introduced to improve the learning curve. For decades, apprenticeships have been supporting formal employment, though the numbers are abysmal and the potential is underexplored. Apprenticeship could act like a catalyst to create formal employment and support the labour market.

The 2014 reforms and steps like the National Apprenticeship Promotion Scheme (NAPS) have improved the apprenticeship ecosystem. Today, apprenticeships are an important part of hiring strategy. It enables organisations to have real-time availability of talent, reduces quality cost and ensures better productivity. The rate of absorption of apprentices into employment ranges between 10% and 40%. Employers realise that talent creation through apprenticeships is a viable option than talent acquisition, which address talent crisis in labour market and related challenges like attrition, cost and productivity. The returns could be three times or more of the investments made in apprenticeships. However, there are less than 20,000 enterprises in India that engage its apprentices. During the pandemic, many industries explored apprenticeship to train local youth to overcome manpower crisis, but many more need to come forward. Data from the 6th Economic Census (2013-14) indicates that if India added 20 lakh apprentices every year instead of 2.5 lakh, 2 lakh people would already be in formal employment (considering 10% minimum absorption rate). Higher absorption rate would yield even better outcomes.

But to increase this rate, more employers need to adopt apprenticeship (currently, 18,000 employers engage apprentices), especially from the SME sector that has low absorption rate. To enable this, reforms are needed in the Apprentices Act; the NAPS also needs to be relooked at. Apprenticeship system has to be made simpler. The current system, divided between two ministries, makes it confusing and makes employers refrain for engaging. Universities need to be brought in as key stakeholders to enable degree apprenticeships under the NEP. The future should be a tripartite agreement between apprentices, employers and universities. The Third Party Agency (TPA) model, introduced in 2014, should be relooked at. More avenues should be added to SMEs to adopt apprenticeships. There are about 4 crore SMEs, and even if 50% of them engage with one apprentice, this would create huge formal and skilled talent pool in the industry. TPA should be allowed to enter into tripartite agreement with employer and apprentice. In Australia, about 25% of SMEs engage with apprenticeships through the GTO model (somewhat similar to TPA). The NAPS 2.0 should enable this, encouraging higher absorption rates. The current scheme offers 25% subsidy on stipend and 50% on basic training. This could be hiked for SMEs. The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) and tax breaks could be introduced and linked to apprentice absorption into employment, under the NAPS 2.0. As one size doesn’t fit all, benefits under the incentive scheme could vary depending on the size of the enterprise or on the basis of the outcome or employment offered.

India has immense untapped potential of apprenticeship training. The economic growth needs formal employment. The announcement of further reforms in the Apprentices Act in the Union Budget 2021-22 and the recent economic reforms are aimed at helping recover India from the pandemic downturn. We hope reforms lead to more avenues and takers for apprenticeships, leading to higher formal employment.

The author is vice-president, NETAP, TeamLease Skills University

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