15/06/2015 8:12 AM IST | Updated 15/07/2016 8:25 AM IST

Why Human Capital Will Drive The Success Or Failure Of Make In India

People watch a display screen on the facade of the the Bombay Stock Exchange (BSE) building in Mumbai , India, Monday Feb. 17, 2014. India's Finance Minister P. Chidambaram has unveiled a conservative budget for the government’s remaining time in office through May in parliament. (AP Photo/Rafiq Maqbool)

The NDA government has completed a year and the media is abuzz with appraisals of its performance across parameters ranging from the economic and political to the social and legal. A particular focus of attention, both positive and negative, has been the Make in India campaign.

The fiscal deficit of India, as announced by the government for the financial year 2014-15, stands at Rs 5.68 lakh crore. According to the Labour Bureau's "Third Annual Employment & Unemployment Survey 2012-13", the unemployment rate among illiterate youth is lower than educated youth. The report on "Youth employment - unemployment scenario, 2012-13" based on a survey by the Labour Bureau in Chandigarh said that one out of every three persons in the age group 15 to 29 years who have completed at least their graduation is unemployed. These figures underscore the fact that the human capital demand from the industry is not matched by the supply from the education sector, leading to unemployment amongst educated youth. This deep-rooted problem of unemployment fosters a vicious circle of social problems. The Make in India mission is an attempt to address the issue, but its success will depend on how India matches the human capital demand.

"[T]he human capital demand from the industry is not matched by the supply from the education sector, leading to unemployment amongst educated youth."

The term "human capital" was coined by economist Theodore Schultz in the 1960s to reflect the value of our human capacities. Quantitative research during the 1950s and '60s revealed that aggregate growth in output had outpaced aggregate growth in the standard inputs of land, labour and capital, which economists attributed to the growth in formal education and enhanced skills. The term "human capital" was coined to refer to this stock of productive knowledge and skills in the workforce.

According to an Ernst &Young-FICCI report, by 2020, India will account for 28% of the world's workforce. However, an assessment test done by Wheebox-People Strong in association with CII states that, in the current scenario, of our five million graduates, only 34% are readily employable. Apparently, the maximum skill deficit will be in the manufacturing sector where the demand of skilled manpower is high. This fact should steer our attention to the fact that to enable Make in India to work, we need to play close attention to human capital since it will play a decisive role in the success of this initiative. There is a pressing need for some scrupulous decisions to overcome the skill deficit.

To illustrate the importance of human capital, let us look deeper at two critical sectors which are on the list in the Make in India project - the automobile and defence sectors.

car factory india

The automotive industry in India is among the largest in the world and one of the fastest growing globally. With over 17 million vehicles and growing at a cumulative rate of 12%, it's a $ 60b industry employing over eleven million people. The exports are a healthy 15-18% and growing impressively. The growth in this sector will afford huge employment opportunities. But with the development of technology, manufacturing units are becoming automated and this will create a demand for skilled manpower i.e. human capital over labourers. This is where the role of specialised vocational training will be imperative.

"[W]ith the development of technology, manufacturing units are becoming automated and this will create a demand for skilled manpower i.e. human capital over labourers."

As far as the defence sector goes, India is the world's largest importer of defense weapons with the amount resulting to almost 20% of the fiscal deficit. India imports 65% of its defence requirements with the imports being 40 times that of the exports. However, the foray of Indian corporate giants like Tata, Reliance and Adani into defense equipment manufacturing will aid in reducing the burden of the fiscal deficit. It will also drive employment. The workforce requirement also needs to be aligned to the fact that there are a lot of changing dynamics in the demographics of the country, but the underlined challenge will still be to maximise human capital in a heterogeneous country like India.

Make in India is a project which has to be driven by the support of the local human capital across respective states. With a track record of industrial relations in manufacturing in many regions not being healthy, this is one of the important aspects that investors will ponder upon before channeling their funds in India Inc. State-led policies also lead to region-specific growth. If we are talking about the growth of the nation, it should be inclusive and not focused in some regions only. Every region has its own niche of economic drivers, but some, especially East Indian states, do face a challenge when it comes to intrinsic economic growth. Such region-specific growth may also escalate inter-state migration, skewing the scenario even further. The recent amendments in the Factories Act, Industrial Dispute Act and the Contract Labour Act by the Government of Rajasthan are also a reflection of state-wise policies driving growth in specific regions.

The Skill India Mission is an initiative by the government to bolster human capital, and the National Skill Development Council (NSDC) will act as a catalyst to reduce the skill deficit. Also, the government is working on making some major amendments in labour laws to make functioning for corporates easier without hurting the interests of the workforce.

It will be interesting to witness how these intricate issues are addressed, given that, apart from technology, the success of Make in India hinges on human capital.

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