Ajay Shah: Will BPO hit a staffing crisis?

One of the key reasons why India is doing well today is the revolution in services exports, where white-collar staff in India are plugged into globalisation, thanks to improvements in telecom. Today, there are probably a million people working in export-oriented IT and IT-enabled services, giving exports of roughly $15 billion, for an average rate of roughly $15,000 per man-year.

But this sector is experiencing acute problems with recruitment. Employers find that an Indian college education generally induces unacceptable skills, so there is a large mass of unemployable jobseekers, coupled with a shortage of skilled people. Will high growth rates continue to come about, or will India's growth in this area get choked owing to the tiny output of a few good universities?

In this article, I argue that India will be able to grow from 1 million to 10 million workers in BPO; from $15 billion in revenues to $150 billion a year. But the rot in the universities hurts at two levels. First, India will be unable to walk up the value chain, to reach higher pricepoints than $15,000 per man-year. Second, we are likely to experience acute pain, two moves ahead, when the needs of the global economy change, and a large mass of uneducated Indian white-collar technicians are unable to learn new skills.

In the 1980s, 150 people graduated every year from all IITs (put together) with a degree in computer science. There were few universities or colleges which even had computers. At that time, nobody thought that a million people would work in an export-oriented sector by 2005. It was felt that India could have a fantastic, high-revenue software exports sector which would employ a few thousand people.

Ideally, universities should see the changes in the country, and respond to them by building new departments, recruiting new kinds of people, and undertaking new activities. But universities in India are stifled by the heavy hand of the state. They are unable to create or close down departments or programmes. They fail to pay the wages required to recruit good researchers, who get offers from universities worldwide. They lack the carrot and stick required to incentivise faculty members to work.

What happened in the following years? The traditional universities were, largely speaking, sunk in socialism and unresponsive to the needs of the country. But a new breed of training centres sprang up, in response to the high prices being paid in the labour market. These ranged from NIIT/Aptech in the private sector, to private engineering colleges.

The derogatory term "teaching shops" is applied to these purveyors of vocational education, and justly so. Students are taught job-specific skills, without a deeper understanding of why things work and how they can be done differently. But there was big demand for such lowbrow technicians. In addition, there was an enormous churning in the labour market. Many people who did not have a degree in computer science shifted into the IT-related sector in mid-career.

It was a great display of flexibility on the part of the Indian labour market. Can this story now repeat itself and get scaled up? In order to think of low billing rates like $15,000 per year, I like to focus on the high schools. India has a good educational system, by world standards, at the high school level, in the form of the CBSE or ICSE examinations, which ensure foundations of English, science and mathematics.

There has been a huge expansion of private schools turning out 12th standard kids who can do algebra and calculus. As a rough estimate, roughly 200,000 students attempt the IIT entrance test every year""these are the really excellent minds by world standards. There are probably 2 million students coming out of 12th standard every year with acceptable skills in English, science and mathematics""who are good when compared with high schools elsewhere in the world.

A cohort leaves the 12th standard, every year, and lands at dismal colleges. Some go to pointless colleges, and then pick up job-specific skills at a teaching shop. Others go to an "engineering college" and pick up job-specific skills. The BPOs are starting to recruit 12th standard students and have them learn on the job, thus dispensing with the wasted years in college altogether.

Through these processes, big numbers of headcounts appear to be quite feasible. There seems to be enough of high-quality 12th-standard education in India, so that low-skill BPOs can go from 1 million to 10 million workers in 10 years. This corresponds to a 26 per cent growth rate of employment, and probably a 30 per cent growth rate of revenue, over a ten-year horizon.

Such growth in the BPO sector would have spectacular implications for India's growth. India can get from $15 billion a year to $150 billion a year even though the universities are languishing in socialism.

The damage we suffer owing to dysfunctional higher education lies in two parts. First, we will find it difficult to walk up the value chain, from $15,000/man-year to $30,000/man-year. In finance, tens of thousands of high-skill analytical jobs can easily move to India, provided the workers can be found. But there is an absence of college graduates who have a first-principles understanding of microeconomics and probability. We have an abundance of technicians who can turn a wrench, but not people who understand which wrench must be used in what situation, and why.

The second kind of damage that we are suffering, owing to unreformed higher education, lies in building up a large stock of technicians in the labour force who will find it difficult to adapt to the changing world. In the blue-collar world, a technician who could work a lathe lost his job when the world shifted to computer numerically controlled (CNC) lathes. In similar fashion, over the long term, there is a certainty that the evolving world economy will throw today's call centre workers out of job.

Higher education gives an understanding of first principles, and the ability to learn new skills. In the years to come, India will be stuck with millions of middle-aged, prosperous, bewildered technicians who are unable to grow their knowledge, who are unable to respond when the needs of the labour market change. Avoiding these two predicaments requires putting millions of people through world-class universities.