Low Availability of Talent Could Hinder India’s Progress in The Outsourcing Sector

chillibreeze writer —Shahida Kathwala

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In a 2005 McKinsey Quarterly survey, Indian executives listed low availability of talent as the single largest constraint for future growth of their companies in India. The root cause for the shortage of skilled manpower is the poor quality of higher education in the country. Of the 2.5 million university graduates that India produces every year, human resource managers at multinationals consider only 10 to 25 percent as employable. The only exceptions are the Indian Institutes of Technology (IIT) and the Indian Institutes of Management (IIM). However, these world classworld-class institutes enroll less than 1% of the total student population.

The situation is especially grave for the Information Technology (IT) and BPO (Business Process Outsourcing) sector which currently employs around 695,000 people. IT body Nasscom (National Association of Software and Service Companies) predicts that given the current growth, the demand supply gap will increase to 206,000 by 2009. The lack of skilled labor has already resulted in a rapid increase in salary for Indian professionals and the country is in danger of loosing its low-cost advantage. To retain India’s advantage in the long-term it has, therefore, become imperative to undertake broad-based policy reforms to improve the quality of higher education in the country.

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Challenges for Higher Education

Under the Indian constitution, higher education is primarily a state funded activity. A Mmajority of the 330 universities and 17,000 colleges are funded by the government and student fees are highly subsidized. However, since the 1990s (when the Indian economy was liberalized,) given other development needs, most of the states have substantially reduced expenditure on higher education. The insufficient available funds have been utilized to subsidize fees with investment in other critical resources such as libraries, laboratories, computers and classrooms being axed. The financial crunch has affected the quality of education so adversely that it has become the biggest restrain for India’s future growth strategy.

Proposal for Reforms

If India wants to maintain its lead in the knowledge-based economy and effectively fight off competition from countries in Eastern Europe and South East Asia, particularly China and the Philippines, it needs to adopt a well-defined strategy towards education. The government should:

i) Mobilize financial resources from non-governmental sources to alleviate resource crunch. Subsidy on fees should be ended and the onus of payment should be shifted to the students. However, to facilitate financing, government and banks should provide soft loans to students and corporations should constitute scholarships, grants and endowment. The government should also eliminate research restrictions on foreign scholars and graduate students. Educational exchange will produce tangible monetary benefits for Indian universities and students and improve India’s relations with other countries.

ii) Encourage greater differentiation among institutes of higher education. The government should identify a few top institutes such as the Indian Institute of Science (IISc) and the Indian Institute of Information Technology (IIIT). Subsequently, through the resources mobilized in step one it should provide sustained funding to develop them into world-class research universities. This will attract renowned faculty, lead to knowledge creation and develop top-quality graduates. Taking a step further, the government should also allow private universities to set up campuses in the country.

iii) Actively support increased public-private partnership. For instance, Nasscom has set up “Techno-Business Skills Development” Centers in collaboration with University Grants Commission (UGC), the organization whichthat provides grants to various universities in India. These centers will enable students to work on live projects of IT companies and get hands-on training to improve their chances of employment. This is a good start but more such partnerships are required across other promising sectors such as clinical research, hospitality, retail and manufacturing.

To step up the value chain from BPO to KPO — knowledge process outsourcing — where Western companies outsource legal work, biotechnology research, financial analysis and market research, India must follow this three-pronged strategy, to produce the required number of graduates with the desired depth and quality of skills; otherwise India risks losing its enviable lead in the sunshine sector.

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—About our writer:

Shahida says, "I am a business researcher by profession and I write case studies for b-schools and articles for various websites. I live in the beautiful city of lakes, Udaipur. My free time is spent reading, hanging out with friends and traveling around. Recently read books: "Wuthering Heights" and "Only Love"…amazing stories about the twists and turns in life!."

Low Availability of Talent Could Hinder India’s Progress in The Outsourcing Sector

Challenges for Higher Education

Proposal for Reforms

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