Union Budget 2020
Every year, we bring the rundown of the Union Budget from the lens of the startup ecosystem through a mix of pre and post budget coverage showcasing the expectations and impact on the ecosystem.
Quality education, adequate skillsets and availability of employment opportunity are the pillars of sustainable development in any economy. A deficiency in any of these is bound to hamper the overall health of the economic indicators. In the Union Budget 2020, the government allocated INR 99.3K Cr ($13.7 Bn) to the education sector along with INR 3K Cr ($415 Mn) dedicated to skill development.
The funds allocation to the education sector in this budget was 5% higher than the INR 94.8K Cr allocated in the last budget. And there’s a good reason to back the education sector with more funds in the Union Budget 2020, given the woeful state of the tech sector in this parameter.
Throughout Indian history, education has been an important aspect of Indian society. But the skill assessment of modern India does not look at par with its global competitors. For instance, in the field of information technology, an assessment done by Aspiring Minds in 2019 highlighted that only a mere 3.84% of engineers are employable in software-related jobs at startups or tech companies.
Skill deficiency in the IT sector which accounted for 7.7% to the total Indian GDP in 2016 raises alarming concerns about the overall productivity and quality of the tech workforce.
But beyond these basic needs of better education and skilling programmes, the availability of formal employment is also a pressing issue in the Indian economy — even among those who have the requisite skillset.
Over the past decade, despite numerous efforts by consecutive governments, the penetration of formal employment has still been inadequate. For example, the Economic Survey 2017-18 highlighted that the agriculture sector in India employs more than 50% of the total workforce in India, contributing around 17%-18% to the country’s GDP.
In addition to the lower incidence of employment in the formal sector, even for employment in the public sector, the entrance exams are not streamlined. Primarily among the examinations for non-gazetted government jobs, millions of aspirants compete for a few spots in the public sector. They are required to go through numerous entrance examinations which makes the process relatively hectic for them compared to other examinations.
In order to overcome this obstacle, the Union Budget 2020 has proposed the establishment of a National Recruitment Agency which would streamline the process of entrance examinations for public sector jobs, at least in the non-gazetted functions.
Increasing The Higher Education Base
Beyond the higher education woes, even primary school education remains backwards in India.
According to the Annual Status of Education Report (ASER), the percentage of fifth-standard students able to solve basic arithmetic division problems in private and government schools has declined from 47% to 40% and from 34% to 23% respectively between 2008 and 2018. Meanwhile, the percentage fall in government schools has been wider at 11% compared to 7% in private schools.
The state of education in Indian schools is such that grades are prioritised over skill development. The impact of this is vividly evident on the overall performance of school students across various skillsets such as quantitative tests, reading comprehension, practical application of theories etc. More about this can be found in an upcoming report by DataLabs on the Indian edtech opportunity.CHECK OUT DATALABS BY INC42
In order to provide quality education to underprivileged students, Sitharaman’s Union Budget 2020 proposed degree-level online education programme with full-fledged courses. This might have been a great step if opened up to all deemed or recognised universities. The fact that only institutions in the top 100 in the National Institutional Ranking framework will be invited to offer such programmes makes it less effective and limits the reach to a large extent. Many of these universities already would have a large reach in the nearby regions, the effort should have been to attract institutions in less developed towns and cities.
Addressing Skill Deficiency
The information technology and business process management (IT-BPM) sector in India stood at $177 Bn in 2019, 6.1% surge in market size compared to the previous year. This industry is projected to be worth $350 Bn by the end of 2025, growing at a compounded annual growth rate (CAGR) of 12%.
Clearly, this is a major economic contributor but despite numerous developments on the business front, the skillset of Indian engineers which is crucial for constant innovation in this industry is depleting.
A study on Indian engineers by Aspiring Minds in 2019 concluded that 38% of the IT job applicants that year were unable to write a single line of compilable code — compared to other 10% such cases in China and just 4% in the US.
Apart from this, the new age IT skills are also deficient among Indian engineers. As per DataLabs by Inc42 analysis, the average trainable-employable gap between new-age IT skills (data science, Hadoop, MongoDB and more) was 7.4%.
In order to counter the skill-deficiency issue, the government launched the “Skill India Mission” in 2015 to train over 40 Cr Indians in different skills by 2022, but the operational implementation of the programme is still questionable.
What About The Tech Sector?
Overall, the skill set of the Indian population doesn’t look in a very healthy state. The fact that startups are relatively ahead of others in terms of using tech-enabled learning, they can play a significant role in improving the skillset of India’s employable population.
But due to the skewed demand for test preparation and online certification, the capital inflow into skill development focussed startups is relatively lower. Between 2014 to 2019, out of the total $1.8 Bn in total funding raised by edtech startup, skill development startups had a share of mere 4% compared to test preparations 78% and online certifications 10%.
Sitharaman focussed on non-tech sectors for skill development. “A huge employment opportunity exists for India’s youth in construction, operation and maintenance of infrastructure. National Skill Development Agency will give special thrust to infrastructure-focused skill development opportunities.”
The large-scale infrastructure projects will rope in young engineers, management graduates and economists at the preparation stage, the finance minister added. But that’s not likely to boost the tech economy in any significant way.
In fact, unlike the previous budget in July 2019, Sitharaman did not focus on skill development for the tech ecosystem. Last year, a lot of the focus was on building up deeptech skills to expand the talent pool for tech startups and companies. But there were no similar announcements this year.
Will Budget 2020 Show The Way Forward?
The formal Indian economy shows a different picture when you look at the state of employment generation in the country. According to a study by IndiaSpend on the 2011-12 data release by National Sample Survey Office (NSSO), out of approximately 61 Mn jobs created after post-liberalisation of the economy in 1991, a whopping 92% were informal jobs.
In recent times, the employment creation has hit a rock bottom. As per CMIE (Center for Monitoring Indian Economy) estimates, The unemployment rate in the quarter ending December 2019 was 7.5%. The CMIE report also highlighted that the unemployment rate in the urban youth, especially the educated segment, was very high. While youngsters in the age group of 20-24 years reported an unemployment rate of 37%, graduates among them reported a much higher unemployment rate of over 60%.
Going by the Creative Destruction theory also known as Schumpeter’s gale, which fundamentally implies that deliberate dismantling of established processes is necessary in order to make way for improved methods of production. If the current traditional industries such as manufacturing, automobiles etc are unable to create adequate numbers of employment the government should look into encouraging establishment in new-age markets such as ecommerce, shared economy etc.
The government has proposed to start a programme whereby urban local bodies across the country would provide internship opportunities to fresh engineers for a period up to one year. This might give freshers enough work experience and a window for urban local bodies to build further skills among these engineers.
The fact that startups are spearheading the advent of a new economy in the country and offering wider opportunities for public-private partnership will boost the overall business done by startups domestically. The ground-level impact of enabling entrepreneurship across various districts of India can be best ascertained from the highlight in the Economic Survey 2019-2020 — 10% increase in new firm creation per district-year yields a 1.8% increase in GDDP (Gross Domestic District Product).
With Inputs From Nikhil Subramaniam
Editor’s note: Dollar to rupee exchange rate: 72.15 (as per Reserve Bank of India, average for Q3 2018-19)