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Andhra Pradesh Priorities: Skills - Sunay Policy Advisory

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Andhra Pradesh Priorities: Skills - Sunay Policy Advisory

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Andhra Pradesh Priorities: Skills - Sunay Policy Advisory

  1. 1. Skill Development MansiArora,RajeshChakrabartiandKushalPrakash SunayPolicyAdvisory AndhraPradeshPrioritiesconference,VijayawadaJune17-21
  2. 2. Introduction Analyzed interventions Conclusion Structure of the presentation Vocational Training Apprenticeship Providing credit support to SMEs Analyzed interventions
  3. 3. Introduction High unemployment among youth Companies facing difficulty to recruit skilled workers Paradoxical situation in India Skill Training can provide solutions, BUT:  Only 2.3 percent of India’s workforce have avail formal skill training o The percentage in industrialized countries is between 60% & 96%  Between 2017 and 2022, 3.6 mn individuals are expected to join AP’s workforce. o Of this, 97% is projected to be completely unskilled or only partially skilled. 2% per annum can be added to India’s per capita GDP growth over next 20 years from demographic dividends
  4. 4. More about the current state 2.4 1.4 1 0.1 0.4 3.1 2.3 1 -2.1 Skilled Partially skilled Unskilled AP Skills deficit by proficiency level, 2017-22 projections Demand (million) Supply (million) Deficit (million) Source: NSDC Skill gap report 2012 By 2022, 58% of state’s Labour Force would be surplous and totally unskilled
  5. 5. Calculations Many calculations in this paper are based on data from the Employment Unemployment Survey (EUS) 2016 EUS was carried out by Labour Bureau, Ministry of Labour and Employment More about EUS data 1. The survey has been conducted in all States/UTs and covers all districts 2. It covers a sample of more than 1.5 lakh households and inquires 7.8 lakh members from both rural and urban areas 3. It collects details on the several parameters, including: a. Employment -unemployment situation in India, including youth and different social groups b. Education, Skill Development & Labour Force situation
  6. 6. First analyzed intervention Vocational Training
  7. 7. Description of Vocational Training Vocational training (VT) provides job-specific technical training, with hands- on instruction VT is provided by schemes of Directorate General of Training (DGT) Craftsmen Training Scheme (CTS) courses are run in ITIs for 6 months to 4 years Skill Development Initiative Scheme (SDIS) courses are provided by VTPs for 4 weeks to 6 months Analysis considers that VT courses are availed for an average of 1 year (observation from EUS data)
  8. 8. Cost categories: The total cost of VT is found to be Rs. 43,818 per year per individual Costs involved in implementing Vocational Training Cost to government in running the scheme Tuition fees paid by individuals Opportunity cost incurred by individuals in availing training
  9. 9. Benefits from vocational training Benefit shown as Net Present value (NPV) of lifetime benefits is calculated Benefit from VT is estimated to be Rs. 7.2 lakh for every individual Total income differential due to VT from age 18 to 59 0 100000 200000 300000 400000 500000 600000 700000 800000 900000 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 Average annual earnings across the life cycle of an individual in AP No VT, adjusted for income growth and ue VT, adjusted for income growth and ue
  10. 10. Total costs, total benefits and cost-benefit ratio Discount rate 3% 5% 8% Benefit (1000 INR) 1,252.8 716.4 326.2 Cost (1000 INR) 43.8 43.8 43.8 BCR 28.6 16.3 7.4
  11. 11. Sensitivity analysis Higher BCR can be realized if VT is undertaken at an early age Sensitivity analysis is done to further understand how the BCR changes with change in the age of the individual 28.6 16.3 7.4 23.5 15.4 8.6 12 9.1 6.3 3% 5% 8% BCR at different ages at different discount rates 18 25 35
  12. 12. Second analyzed intervention Apprenticeship
  13. 13. Description of Apprenticeship Training Apprenticeship training involves programs that combine vocational education with work-based learning Trainings are subject to externally imposed training standards, particularly for their workplace component  The intervention was a result of Apprentices Act (1961), amended again in 2014  Apprentices are paid stipends every month from the employers with a part of it reimbursed by the government Different categories of apprenticeship have different rates of stipend per month (set by govt)
  14. 14. Costs involved in Apprenticeship program Cost categories Total cost for one apprenticeship is estimated to be Rs. 1.86 lakh Cost to individual Foregone earnings as unskilled worker Cost to employer Apprentice salaries, supervision, training and administrative costs Cost to government Running the scheme & reimbursing part of costs incurred by the employers
  15. 15. Benefits from apprenticeship program Benefits shown as: Net Present value (NPV) of lifetime benefits is calculated at different discount rates At 5% NPV, total benefit from each apprenticeship is Rs. 13.4 lakh Benefit to the trained individual in the form of incremental mean earnings till retirement - 50,000 100,000 150,000 200,000 250,000 18 23 28 33 38 43 48 53 58 Wagepremium Working age of an individual Benefit (increase in wages) to the individual
  16. 16. Total costs, total benefits and cost-benefit ratio Discount rate 3% 5% 8% Benefit (lakh INR) 20.4 13.38 8.06 Cost (lakh INR) 1.86 1.86 1.86 BCR 11.0 7.2 4.3
  17. 17. Third analyzed intervention Support to SMEs
  18. 18. Description of SME support Support to SMEs is provided through bank credits Estimate of unmet credit demand for MSMEs in 2017: Rs.25 trillion Credit to MSMEs stood at Rs.16 trillion in 2017. It is expected to grow at 12-14 percent over the next 5 years  AP targets to create 200 MSME parks by 2023 with an investment of Rs.450 billion  AP’s investment on all MSME units in 2017 stood at just Rs.120 billion Increase in credit to SMEs  higher productionNot a direct intervention
  19. 19. Costs involved in supporting SMEs Cost categories The cost of credit equals Rs.16 for every Rs.100 lent to SMEs Cost of borrowing for banks Default rate Administrative costs
  20. 20. Benefits from supporting SMEs Benefit calculation is based on a study by Banerjee and Duflo (2012) The study estimates profit by finding: The profit before interest payment was hence found to be Rs.89 for every Rs.100 of bank credit Elasticity of sales against bank credit Elasticity of sales against cost of borrowing
  21. 21. Total costs, total benefits and cost-benefit ratio BCR of the intervention was found to be 5.6 Benefit from Rs.100 bank credit (INR) Cost of Rs.100 bank credit (INR) BCR 89 16 5.6
  22. 22. Conclusion Two direct interventions on skill training and one intervention on MSME is examined in this paper 16.3 7.2 5.6 Vocational Training Apprenticeship Support to SMEs B-C ratio at 5% discount Between VT and Apprenticeship (interventions on skill training), VT yields a greater BCR Giving credit support to SMEs (an indirect interventions) yields the lowest BCR

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