One of the most important recent concerns has been the level and quality of employment, particularly among our educated youth.
While we are the fastest growing large economy, we have struggled to find quality work for engineers and management students graduating even from our elite institutes. The number of seats in top-ranking engineering colleges is just about one lakh, while it's about 10,000 in management schools. To make it worse, the wages have been stagnant for a vast majority of graduates in these and many other disciplines.
The reported lack of jobs is to be seen along with a reduction in the number of seats being offered.
The number of seats (AICTE registered) being offered for engineering studies (UG, PG and Diploma) has declined from the peak of 31.83 lakh during 2014-15 to 23.69 lakh in 2022-23. It is only recently that these colleges have started adding capacity, but that too only marginally. The increased capacity is largely driven by TN, AP and Telangana.
Similarly, the seats in management schools too have fallen from their peak 4.56 lakh in 2014-15 to 4.21 lakh in 2022-23. The aggregate enrollment levels too are far lower than their peaks.
In a recent conversation with a young neighbour who has come back from the US and is trying to develop technology-based products for the Indian market, I realised that our challenge is even more complex than the newspaper reports are suggesting.
He mentioned that the Indian MSME business customers are struggling to find customers and scale up and, therefore, are not able to pay a fair price for his products and services. He is now doing projects for US clients so that he can pay wages for his team.
While we were discussing the problem of demand for his customers, we discovered that the white-collar wages are not stagnant but are possibly falling for many young professionals. He mentioned that he had an offer of a monthly wage of Rs. 26,000 during 2006 from one of the leading IT firms in India but decided to go to the US for work. It is worse now as a cousin of his had received a lower offer from another leading IT firm just recently.
Why are we struggling to create engineering and management jobs?
We can classify the reasons for slow growth into structural and cyclical factors.
The most important structural factor is the lack of growth in manufacturing. While the services sector has been growing faster than manufacturing, it has largely been in low-complexity services that do not need deep engineering or management skills.
The manufacturing sector has struggled to grow due to lack of demand and an increased dependence on imports from China and other middle-income and advanced economies.
On the other hand, the service-sector firms are either solving last-mile delivery problems (e-commerce and logistics businesses) or offering basic services, i.e., exam-preparation services (EdTech), low-value transaction-processing services (FinTech), etc. In most cases, if not all, the business model has been to scale up by burning capital through deep discounting, with limited investment in building capability to innovate or serve. As a result, these sectors don’t really need higher-order engineering and management capability.
Among the cyclical factors, the principal one is the post-pandemic slowdown in global IT and consulting services recruitment, the sectors that were absorbing engineering as well as management talent, at scale, for the last 20 years. At the same time, the Indian construction sector too has been a growth laggard for nearly a decade.
An increased use of AI in IT and consulting services and higher mechanisation in construction services is likely to further drive down the demand for engineering as well as management jobs during the coming decade.
What should our engineering and management schools do?
Given that the policy support for generation of quality employment is limited, and that the Indian industry is choosing to invest in less complex manufacturing and services business, the engineering and management schools must work far more closely with the Indian industry to align their education programmes to specific capability requirements.
One of the most important changes that we need to make is to move away from offering knowledge-transfer programmes to capability-building programmes. For example, it is not sufficient to help students learn finance; they must be able to apply financial knowledge in different business situations. An engineering programme must focus on helping students learn to manage people and operations, along with solving engineering problems.
Is cost making education a financial decision for households and businesses?
We also need to look at the cost of education at private as well as public sector colleges, particularly at leading management schools. Higher cost of education implies higher wages for graduating students. We must, therefore, ask the following questions:
Does a one-year programme that costs about Rs. 50 lakhs at a private business school or a two-year programme that costs Rs. 25 lakhs at an IIM create sufficient value for businesses other than consulting, finance and information technology? How many businesses can afford to pay Rs. 30 lakhs for a student with limited experience and generic knowledge?
In the long run, if we do want to build a high value-adding economy that provides our youth an opportunity to aspire for higher standard of living, the Indian business as well as our higher education system will need to invest in building capability for producing complex products, services and solutions. Else, we will see a secular decline in demand for engineering as well as management education.
If we don't fix this problem on priority, we run the risk of being a low value-adding economy, where our youth will not be able to aspire for anything significantly better than low quality engineering and management jobs, that too in low value-adding sectors.
