Indian higher education in disarray

It's hard to believe, but according to McKinsey, Indian call centres may soon run out of employable graduates for their burgeoning call centre industry. Bloomberg columnist Andy Mukherjee warns that substandard higher education may thwart India's call-center dream:

To maintain its global share of 65 percent in information technology and 46 percent in business-process outsourcing, the country will need 2.3 million professionals by 2010. According to McKinsey's calculations, India may face a deficit of as many as 500,000 workers. As much as 70 percent of the shortage will crop up in call centers and other back-office businesses, where proficiency in English is the No. 1 prerequisite for landing a job.

People within the Indian outsourcing industry are aware of the problem: A number of executives cite high employee attrition and galloping wages as signs that the labor market for undergraduates in India is getting tighter.

It isn't obvious why that should be so. In a country where millions of educated young people are unemployed, why do call centers feel compelled to give pay raises of 10 percent to 15 percent a year? Why don't they boot out the highly paid workers and grab the eager aspirants?

And why do they offer their employees free dance lessons on top of a $4,000 annual wage -- worth $36,000 when adjusted for purchasing power in the local currency -- when they can't pass on the increase in costs to the U.S. bank or the European insurance company that is paying for the call centers' services?

The answers may have a lot to do with India's education system. A labor shortage is bound to surface unless India's colleges can produce more employable graduates.

McKinsey makes just that point. Currently, only about "10- 15 percent of general college graduates are suitable for employment'' in the outsourcing industry, it says.

What do do?

There are two ways to ease the crunch. First, increase college enrollment. Second, improve the effectiveness of the three-year university programs so that more graduates are suitable for call-center jobs. The solutions are related.

About 8 million students in India begin their undergraduate studies each year. That means only about seven out of 100 youths aged 17 to 23 seek higher education. In most developed countries, the ratio is at least 50 percent.

Poverty, a big part of the reason for student drop outs, is by no means the only explanation. There's also a huge incentive problem. "The net value addition at college in India has become so low, that it actually makes sense for an 18-year-old to say: `Instead of hanging out in the canteen I'd rather start working,''' Rashmi Bansal, who edits JAM, a Mumbai-based youth magazine, writes on her personal Web site.

Mukherjee then discusses the well known problems of affilated colleges:

The globally renowned Indian Institutes of Technology and Indian Institutes of Management are islands of excellence; they produce India's technological and managerial elite. The foot soldiers of India's knowledge economy are produced in lesser institutions, the so-called affiliated colleges.

That's where the bottlenecks are emerging. Educators such as V. C. Kulandaiswamy, a former university vice-chancellor, have identified the affiliated-college system as the scourge of higher education in India.

A typical Indian university has scores of -- sometimes several hundred -- related colleges. The university administers examinations and distributes degrees. Other than that, "the entire higher education in India takes place only in the ill-equipped, understaffed, affiliated colleges'' that produce 89 percent of India's undergraduates, Kulandaiswamy wrote in May in India's Hindu newspaper.

Large, single-campus universities that have economies of scale must replace the affiliated colleges, most of which don't even have decent libraries. Regardless of whether they want to become scientists or customer-service agents, all university students in India should be able to pick up the minimum English language skills required for call-center employment. That doesn't happen now.

UPDATE: Brad DeLong has linked here. See his post for additional commentary.

Comments

[Ajay Shah]

My column in Business Standard today was about this --

http://ajayshahblog.blogspot.com/2005/12/will-bpo-hit-staffing-crisis.html

[Michael Cain]

This is an interesting contrast to the more usual article one sees that asserts that the fact that India graduates more engineering students than the US is the death knell for high-tech in the US, but does not consider that quality as well as quantity matters.

[Claus Vistesen]

This is an interesting topic because with such a large population you should not have expected shortages on the supply side ...

The Economist points to the same issue in their latest article on India and outsourcing/offshoring - (subscription only)

http://www.economist.com/business/displaystory.cfm?story_id=5300960&no_na_tran=1

"Yet the supply of talent may be the biggest constraint on the Indian industry's growth. On these latest projections, the number of people working in IT and business-process exports in India will increase from about 700,000 now to 2.3m by 2010. But on today's estimates only 1.05m suitably qualified people will graduate from college between now and then, so there will be a shortfall of nearly 500,000, with business-processing the worst affected."

Could this stop India's growth or is it a structural problem which is easily sovled ... ?

[Movie Guy]

Nice post.

[Ken Houghton]

I hate to be obvious, but:

Currently, only about "10- 15 percent of general college graduates are suitable for employment'' in the outsourcing industry, it says

How can 85-90% of college graduates be "unsuitable" for the outsourcing industry? And, presuming (reasonably, if not accurately) that they are suited for something else, would not those areas be identifiable as growth industries for the Indian economy--and therefore something to target, while the lower-value call centers are outsourced to Malawi and Zimbabwe?