This document analyzes three interventions to address skill development challenges in Rajasthan: vocational training, apprenticeship programs, and providing credit support to small and medium enterprises (SMEs). It finds that vocational training has a cost-benefit ratio of 4 at a 5% discount rate, apprenticeship programs have a higher ratio of 4.5, and providing credit to SMEs has the highest ratio of 5.6. The document evaluates the costs and benefits of each intervention through calculations based on empirical studies and estimates their total costs, benefits, and cost-benefit ratios to determine the most effective approach.

1. Skill Development
Mansi Arora, Rajesh Chakrabarti and Kushal Prakash
Sunay Policy Advisory
Rajasthan Priorities conference, Jaipur June 8-10

2. Introduction
Analyzed
interventions
Conclusion
Structure of the presentation
Vocational Training
Apprenticeship
Providing credit
support to SMEs
Analyzed interventions

3. Introduction
High unemployment among
youth Companies facing difficulty in
recruiting
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%
 99%+ of Rajasthan’s labour force was projected to be completely
unskilled or only partially skilled by 2022 (NSDC, 2012)
 2% per annum can be
added to India’s per
capita GDP growth over
next 20 years from
demographic dividends
 Reaping higher benefits
from its expenditure on
skill development would
enable Rajasthan to
realize the gains

4. More about the current state
40 56
254
10
49
420
30
7
-166
Skilled Partially skilled Unskilled
Rajasthan Skills deficit by proficiency level, 2022 projections
Demand (lakhs) Supply (lakhs) Deficit (lakhs)
Source: NSDC Skill gap report 2012
NSDC in 2012 projected
that by 2022 Rajasthan
will:
• Have a shortage of 75% of
all skilled labour-force
required
• Still need more than 7
lakh semi-skilled workers
• 35% of state’s Labour
Force would be surplous
and unskilled

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. First analyzed solution
Vocational Training

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. Cost categories:
The total cost of VT is found to be Rs.45616 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. Benefits from vocational training
Benefit shown as
Net Present value (NPV) of lifetime benefits is
calculated
Benefit from VT is estimated to be
Rs.1.83 lakh annually for every
individual
Total income differential due
to VT from age 18 to 59
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
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 Rajasthan
No VT, adjusted for income growth and UE
VT, adjusted for income growth and UE

10. Total costs, total benefits and cost-benefit ratio
Discount rate
3% 5% 8%
Benefit
(1000 INR)
260 183 117
Cost
(1000 INR)
46 46 46
BCR 5.7 4 2.6

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
5.7
4
2.6
3.5
2.7
1.9
1.3
1 0.8
3% 5% 8%
BCR at different ages at different discount rates
18 25 35

12. Second analyzed solution
Apprenticeship

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 government)

14. Costs involved in Apprenticeship program
Cost categories
Total cost for one apprenticeship is estimated to be Rs.1.92 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. Benefits from apprenticeship program
Benefits shown as:
Net Present value (NPV) of lifetime
benefits is calculated at different
discount rates
The total benefit from each
apprenticeship per year is
Rs.8.7 lakh
Benefit to the trained individual
in the form of incremental mean
earnings till retirement
0
20000
40000
60000
80000
100000
120000
140000
160000
18 23 28 33 38 43 48 53 58
Wagepremium
Working age of the individual
Benefit (increase in wages) to the individual
with age

16. Total costs, total benefits and cost-benefit ratio
Discount rate
3% 5% 8%
Benefit (lakh
INR)
12.4 8.7 5.8
Cost (lakh INR) 1.9 1.9 1.9
BCR 6.5 4.5 3.0

17. Third analyzed solution
Support to SMEs

18. Description of SME support
Not a direct intervention on skill development
Increase in credit to SMEs  higher production
This led to a large acceleration in the rate of growth of sales and profits for firms
(Banerjee and Duflo, 2012)
Support to SMEs is provided through bank credits

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. 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. Total costs, total benefits and cost-benefit ratio
BCR of the intervention was found to be 5.56
Benefit from Rs.100
bank credit (INR)
Cost of Rs.100
bank credit (INR)
BCR
89 16 5.56

22. Conclusion
4.0 4.5
5.6
Vocational Training Apprenticeship Support to SMEs
B-C Ratio at 5% discount
Two direct interventions on skill training and one intervention on SME is
examined in this paper
Between VT and Apprenticeship
(interventions on skill training),
the latter yields a greater BCR
Giving credit support to SMEs
(an indirect interventions) yields
the highest BCR