Managerial Deficit Can Derail 'Make in India'
This will be music to the ears of the Indian government and its high visibility 'Make in India' programme. A slew of investments has been announced by global corporations including Foxconn's mammoth $5-billion investment plans in Maharashtra, GE and Alstom's $6-billion investment in locomotion manufacturing in Bihar, and General Motor's $1-billion investment plans, also in Maharashtra.
But to truly realise the potential of these announcements, India needs to rapidly develop its managerial talent. If India grows at 8 per cent for the next 10 years, GDP will double. With it will come an increase in jobs in manufacturing and services. Estimates vary from 30 million to 80 million new jobs. Many of these jobs will be low skilled, but assuming a 1:10 ratio between low-skilled jobs and managers, India will still need to groom three to eight million managers in the next 10 years. Talk to business leaders across sectors and they all bemoan the "talent shortage" or the "skill gap" in their business. This can cripple the 'Make in India' story, the job creation potential and India's ability to leverage its demographic dividend.
So what can India do? Here are four suggestions for policy makers to consider:
- Set up the equivalent of Singapore's Workforce Development Authority (WDA): Singapore's WDA was set up in 2003 and encourages training in specific sectors identified as key to the country's economic growth. One scheme of interest would be the Productivity Initiatives in Services & Manufacturing (PRISM). The programmes under PRISM are targeted primarily at managerial and supervisory-level staff to acquire knowhow to help their companies become more productive through management best practices such as Six Sigma, TQM, process reengineering, etc.
Another initiative of the WDA is funding for employer-based training. Under this scheme, companies are eligible to receive funding for in-house training and external training as well as absentee payroll support. Training programmes are approved by WDA based on the managerial skills needed by Singapore's economy, thereby matching skills with jobs.
The 'Make in India' programme has identified 25 sectors of focus. The government should map managerial competencies for each of these, identify gaps and encourage investment in training and development.
- Remove indirect taxation on professional education: When a company sponsors an employee for a short-term training programme, in addition to the tuition cost, it incurs a 14.5 per cent service tax cost. Individuals, too, incur this cost when they self-sponsor, and unlike companies, they can't even claim set-off. With such a huge emphasis on Make in India and Skill India, why are we increasing the cost of professional education?
In a recent conversation, the head of learning of an automotive manufacturer in North India talked about how they get faculty and consultants from Japan to delivery training programmes on TQM, Kaizen and operational excellence. But the process is not hassle free. The tax authorities levy a "reverse service tax" on the faculty teaching fee.
It is in the best interest of corporates if workforce training and skill upgradation is not made costlier by any form of taxation.
- Provide a 'Skills Future' type credit for continuing education: Another initiative by Singapore's WDA is 'Skills Future'. It works differently from other WDA schemes in that it is a direct tuition benefit transfer to the student. Any Singapore citizen above 25 years can take approved online and classroom courses and receive up to SGD 500 per year as a tuition subsidy. Employees will now be in charge of charting their own development paths to stay relevant and employable.
- Encourage companies to provide a Tuition Reimbursement Policy: Some of India's high growth companies offer tuition reimbursement policies, but many still don't. Those offering tuition assistance tend to be global companies like Adobe, Pfizer or CSC or larger Indian start-ups like Flipkart or InMobi. Policymakers should encourage companies to offer tuition assistance to their employees for job-related courses. Employers could get additional tax benefits on such spends.
In 2012, in a research paper titled Does Management Really Work?, faculty from Stanford, Harvard and London School of Economics showed that variation in managerial competence has a huge impact on economic growth, manufacturing and jobs. Their analysis found that variation in the quality of management accounts for nearly a quarter of the roughly 30 per cent productivity gap between the US and Europe. In a study of 28 plants in Tarapur, India, it was found that well-managed plants, on an average, cut defects by more than 50 per cent, reduced inventory by 20 per cent, and raised output by 10 per cent.
India is poised to be the shining beacon of growth in the world economy. The government has put in place a strong programmatic foundation with its 'Make in India' push. But the hard challenges of execution and job creation lie ahead of us. Let's aim to be manager-ready.
The writer is Executive Director of Emeritus Institute of Management
