Skill India as herculean challenges, Galgotian blunders

A once-in-a-lifetime opportunity requires a herculean effort. India’s demographic dividend, that ends by 2040, is one such opportunity. Several European Union countries and China have successfully financed skill systems. In these countries, approximately 50% of secondary-level students are enrolled in vocational education streams. In India that share is 1.3%, reflective of an educational system that neglected school education till 1990, and vocational education till 2006.

However, in 2020, India’s National Education Policy (NEP) said: “By 2025, 50% learners will be exposed to vocational education.” “Exposed” still reveals an attitudinal problem among policy designers. Vocational education in most countries is around 2% of the education budget. For China and Germany it is 11%. India has no data that is publicly available due to fragmented training schemes in Ministries. India’s strategy rests on Budget announcements which falter year-on-year. A scheme that was celebrated last year is forgotten the next year. Consider the internship scheme announced in Budget FY2026: only 5% of the allocated funds were spent and its design proved ineffective.

CAG reports, issues raised

The herculean task of making India “the skill capital of the world” is inconsistent with “Galgotian” blunders. Issues of financing skills are crucial. The Comptroller and Auditor General of India (CAG) in 2025 audited the flagship Skill India scheme, Pradhan Mantri Kaushal Vikas Yojana (PMKVY)-2015-22. Ten years ago, it had similarly looked at compliance and oversight issues of skill institutions.

Both reports raise issues of financial impropriety. In 2015, the CAG dealt with financial reporting delays and unclear accountability of disbursed funds. In 2025, the report mentions that 94.5% of bank accounts were invalid and approximately 41% of trainees in short-term training achieved placement.

How have we evolved from 2015 through 2025? When the short-term skill ecosystem was started, the vision was to create a vibrant public-private market for skills. Over the past decade, however, the focus on quantity through short-term training has yielded limited results. Since the CAG’s direct concern is fund use, we list three ideas for it.

Imagine a scenario where no operational funding was provided by the PMKVY. What if the amount upward of ₹10,000 crore spent annually was extended as skill loans to students? This would have led to more choices for students, improved the quality of institutions as they competed for enrolment, and promoted demand-driven skill development, benefiting students as they are from economically weaker backgrounds. A model similar to that for educational loans could have been followed. The worst case would be non-performing assets, which we have ways to handle. It is not too late. We can do so now and use skill loans better. There is already a policy framework in place. Priority needs to shift: part of PMKVY funding could be through skill loans. Of course, design work is needed to roll this out, but it is doable. It needs a product-market that has banks and non-banking financial companies on board. It is worth questioning why the National Skill Development Corporation began as a non-banking finance company, later became a funder for training partners, and now primarily implements government schemes.

Using skill vouchers

Use of skill vouchers is another trainee-based skills financing idea, more so for distribution of public funds. It allows flexibility for policymakers and a choice for students. There is no better way to implement the NEP priority of lifelong learning.

Since vouchers follow the trainee rather than the institution, it incentivises delivery and outcomes. It creates a competitive market. Vouchers can also be good tools to provide upskilling for Artificial Intelligence (AI)-led transition, providing targeted skills in AI, digital and green skills. They can be used for needed segments such as enhancing women workforce participation or provide foreign language learning for global labour markets.

Purchasing power in the hands of learners will drive quality and accountability and be a driver of a demand-based skills market. Singapore and Croatia have implemented them well. It will also encourage school leavers to pursue vocational courses instead of defaulting to degrees, which often inflate tertiary enrolment.

The idea of skill levies

Skill levies on organised industries, used in more than 90-plus countries, is another fundamental idea. A well-designed skills levy can sustainably finance skills. In 2017, we had designed and recommended a Reimbursable Industry Contribution (RIC) to the Government of India for the Twelfth Five Year plan. At that time there were 62-plus countries doing it; now, 90-plus have adopted it, for good reasons.

Across Latin America, in Germany, Singapore, South Africa and South Korea, such models have been used to ensure industry ownership of skills and to create stable funding insulated from political and budgetary cycles. Linking contributions to firm size and payroll and then returning them to the industry when training has happened makes employers in-charge of skill development.

Today, skills programmes are supply-driven and government-financed.

Employer engagement in today’s system is inadequate. We can move from an employer-engaged to an employer-owned system through the RIC reform. It is tested world-wide and there is a small demographic window for this policy choice.

Finally, real time skills demand must feed into policy. Understanding this trajectory needs transparent rules. A mandate for online job boards to share data in a form that safeguards their business interest but also provides aggregate understanding to the government is needed. Data mining and AI modelling can help. Periodic/one-off skill gap studies (as has been the norm) cannot achieve this goal. The data shared can be made public in the National Career Service (NCS) portal. India’s goal to construct a labour market information system has not materialised. This may be the only workable way for skills planning.

Enough strategic errors have been made. By 2040, the demographic dividend will end. It is time for a course correction — we know we can. We hope, we will.

Santosh Mehrotra is a former professor at Jawaharlal Nehru University, and Research Fellow, IZA Institute of Labour Economics. A. Singh is a computer engineer, has a Masters in Business Administration from the Indian School of Business (ISB), Hyderabad, and is a skills practitioner

Published – March 02, 2026 12:08 am IST