How to have a scam in “Skilling India”
On August 15, 2014 from the rampart of the Red Fort, Prime Minister Narendra Modi had said: “Skilling is building a better India. If we have to move India towards development, then Skill Development should be our mission”. It is not that the need for skills in the country was not realised before. But it so happened that skill development and entrepreneurship efforts across the country were highly fragmented. There were more than 20 Ministries/Departments that ran more than 70 schemes for skill development in the country. However, there were gaps in the capacity and quality of training infrastructure as well as outputs. It may be noted here that as opposed to developed countries, where the percentage of skilled workforce is between 60 per cent and 90 per cent of the total workforce, India records a low 5 per cent of workforce (20-24 years) with formal vocational skills. There was thus a need for speedy reorganisation of the ecosystem of skill development and entrepreneurship promotion in the country to suit the needs of the industry and enable decent quality of life to its population. This development was to be such that skilling led to employability and employment, particularly for the youth in the rural areas so that they moved away from informal to formal labour markets that met global labour demands with higher remunerations. And it was against this background that Modi created a new Ministry of Skill Development and Entrepreneurship on November 10, 2014.
Where are we today? Are things working at the ground level to meet the target of training 350 million by penetrating deep in the rural heartland, which contributes to bulk of unskilled and informal wage earners? Are they now attracted and drawn to this Skill India initiative? Well, I do not have much data to suggest that the Modi government is anywhere near the goal of this mission.
It may be noted here that the principal catalyst for accomplishing this mission is supposed to be the National Skill Development Council (NSDC) that provides skill development and vocational training for the youth in various fields such as retail, electrical, accounting, hospitality, and IT related sectors. It provides funding to enterprises, companies and organisations that provide skill training. It also develops appropriate models to enhance, support and coordinate private sector initiatives. Then there is National Skill Development Fund (NSDF), contributed by various Government sources, and other donors/ contributors to enhance, stimulate and develop the skills of Indian youth by various sector specific programmes. The Fund meets its objectives through the NSDC.
The NSDC was formed (July 31, 2008) as a “not for profit” public company with limited liability under Section 25 of the Companies Act, 1956 with an equity capital of Rs 10 crore, of which 51 per cent (5.10 crore) and 49 per cent (4.90 crore) were subscribed by the private sector and Government of India respectively. It was conceived as a Public Private Partnership (PPP) in the skill development sector. NSDF was incorporated ( December 23, 2008) as a trust, under the Indian Trusts Act, 1882, by the Department of Economic Affairs (DEA), Ministry of Finance, to act as the recipient of funds from Government sources, bilateral/ multilateral and other agencies. NSDF received Rs 3,300.74 crore, as on March 31, 2015, from the government sources.
NSDF was to examine the Annual Work Plan of NSDC and sanction funds against the work plan. Since inception, NSDC had received funds of Rs 2,362.90 crore up to March 31 , 2015 from NSDF for execution of schemes and programmes for skill development. Government of India vide notification dated July 31, 2014 transferred the work of NSDF and NSDC from DEA to the Ministry of Skill Development, Entrepreneurship, Youth Affairs & Sports and subsequently to a newly created Ministry of Skill Development and Entrepreneurship (MSDE). However the NSDF and NSDC relationship has become deeply mired in conflict of interest as the Chair of the two organisations is the same person. It is also ironical that since NSDC has come under scathing scrutiny from the office of the Comptroller and Auditor General (CAG) Office, there has not been any rethink on bringing more accountability systems within the two organisations and surprisingly the Board leadership is still comprised by the same persons from the industry who sat over the empire over the last several years.
The CAG report has been dealt by the NSDC as nothing ever happened. It is said that the exiting of the CEO and COO from NSDC was only an eyewash to protect the senior industry leaders sitting on the Board and calling the shots on disbursements without meeting the necessary terms and conditions. The last NSDC CEO was handpicked from one industry association and there are still indications that the next CEO will yet again be hired from the industry associations. In this given situation it is hard to expect that any professional will find it easy to come and provide the leadership to run this institution with overwhelming territorial control of the industry. This situation is such that no individual will enjoy the freedom required to establish independence from industry vested interests. The insistence of the industry to have a person from the industry association is also to pre-empt and scuttle any attempt to review loans, equity and grant investments made over the years to various private sectors and see how the fiduciary controls were violated toward fixing the responsibility.
The CAG report points to the fact that the activities of NSDC of providing loans to entities were covered under the definition of Non-Banking Financial Company (NBFC). RBI is the regulator of NBFC sector in India. DEA persuaded the RBI to exempt NSDC from its regulation on the premise that this work was performed by NSDF. However, no regulatory oversight was provided by NSDF. This regulatory role was outsourced to a private agency in November 2014. Carrying out the task of micro-prudential regulation was an important regulatory function which inherently included enforcement mechanism. Appointment of a private agency for carrying out this regulatory task, on the lines of the one performed by RBI after taking it out of RBI’s domain, lacked justification. A private agency, IL&FS Trust Company Limited, was appointed (November 2014) to do micro prudential regulation of NSDC. It had an apparent conflict of interest, as it was part of a business group whose subsidiary company was sanctioned with funding of Rs.159 crore by NSDC in 2010-11 and disbursed Rs. 89.97 crore up to March 2015. Further, the appointment process was also irregular with restrictive pre-qualification criteria and infirmities in the bid evaluation process. The nation needs to know how all this was done and on whose behest.
One expected that after concrete evidence offered by the CAG report there was wisdom and courage to act against the Board leadership and to reduce the stranglehold of the industry on this institution. The CAG report observed “NSDF was created to act as a receptacle for financial contributions by Government/Government entities, multilateral and bilateral and private sector. However, since inception, NSDF received funds from Government sources only”. There was 99.78 per cent financial stake of the Government in NSDC with 49 per cent equity ownership. However, Government’s ownership rights were not commensurate with the Government’s financial contributions in NSDC. The CAG report further says “though the Government was the single largest shareholder in NSDC and was the sole contributor in NSDC’s finances, its role in decision-making had been limited due to minority representation on the board of directors of NSDC.” To again weaken the control of the government the status of NSDC was changed from a public limited company to a private limited company in 2011, which further weakened the governance mechanism of NSDC. The CAG report also says “the Cabinet approval and the trust deed of NSDF prescribed a supervisory role of NSDF over NSDC, but the detailed contours and modalities of exercising this role were not clearly defined. NSDF was ineffective in its supervisory role.” Further, there were several instances when NSDC also effectively denied the supervisory role to NSDF. The same person deliberately usurped the Chairman position of NSDF and NSDC and the government has been a mute spectator of this predicament.
Prime Minister Modi needs to deal with this situation surgically before it is too late. The industry-led board in current dispensation is rushing to hoist another industry association puppet as CEO to run this very important institution. This will completely destroy the very belief in the seriousness of Modi’s Skilled India initiative. It will be another case like defaulter Vijay Mallya leaving the country despite the knowledge of Banks and the Department of Banking. The blame in this case with NSDC will also come on the Modi Government that it did not act despite the severe criticism from the CAG.
By Prakash Nanda