Author: Menterra

New jobs created over the next five years will be largely in the informal sector. Therein lies the opportunity to skill the informal workforce, enhance their wages and enable their transition to better jobs and micro-entrepreneurship.

The Ministry of Skill Development and Entrepreneurship has projected a total human resource requirement of 103.4 million people between 2017 and 2022. Interestingly, a subset of industries is going to create a disproportionate number of these new jobs, with more than 85 million coming from the top ten sectors, one-third of these in construction alone.

One of the key engines of this growth will be the informal workforce; with three industries alone employing more than one million informal workers each per year for the next five years (see table below). Besides the obvious areas of growth like construction and retail, sectors like tourism and hospitality, furniture and furnishings, and warehousing and logistics will each add more than 500,000 informal workers every year.

The following table projects the informal workforce requirement through 2022.

With so many people entering the workforce over the next few years, we have an opportunity to either bring them into the formal economy, or enable a large number of them to have choices and leverage to command higher wages; and, if they choose, become micro-entrepreneurs.

One size does NOT fit all: Selecting the right model for the right industry

There have been many models over the years to match the demand for labour at varying skill levels, and the supply of employment opportunities. A recent industry report highlighted four potential business models that could help improve outcomes for workers:

1. Self-employment model: In this model, the skilling company offers training to students who in turn, graduate with the required experience to get a job or possibly start their own business. The company’s revenue comes from fee-paying students, or from a government or a nonprofit client. For example, NSDC has partnered with deAsra Foundation to develop and deliver entrepreneurship skills training.

2. Market linkage model: The market linkage model is one where self-employed workers are matched with open jobs resulting in enhanced wages for some, and new employment for others. In recent years, these marketplaces have become familiar to many of us; examples include Uber, UrbanClap, Betterplace, and so on.

Two important conditions are required for this model to be successful. First, a ‘virtuous cycle’ between supply of workers and demand is needed. In Uber’s case, a high number of drivers leads to more customers joining Uber, which in turn leads to more drivers, and so on. If either side becomes weak for an extended period of time, the other side will start dropping-off.

Second, a basic level of technology comfort is usually required for all users. Else, the marketplace will require infrastructure and resources to assist with the onboarding – for example, Bharat Matrimony and Babajob.

While these two models relate directly to opportunities in the informal sector, there are two more approaches that are increasingly being used to place people in informal jobs. These are the employer- and placement-led models—traditional skilling models that have mainly been used for formal jobs till date.

3. Employer-led model: In this model, training is offered to students for a skill required by a specific employer. These students may be new hires or current employees who are ‘upskilled’.

Maruti Suzuki, India’s largest car-maker is setting up 400 skill training and enhancement facilities, in partnership with its vendors, with vendor-partners investing in the set-up of these facilities. The company itself has not made substantial additions to its own staff in the recent past; however, through its production of 1.5 million cars annually, it estimates that it creates up to a million informal jobs downstream — in driver training, repairs, insurance, and so on. According to R C Bhargava, chairman, Maruti Suzuki, “Economists and policymakers seem to underestimate the contributions of the informal sector in creating employment”.

4. Placement-led model: Here, the skilling company has a number of employer-clients where trainees can be placed. Like the employer-led model, it is well-suited for growing industries with multiple players that all require a specialised skill. Ancillary health services company Virohan has a placement-led model where trainees pay to become X-ray technicians and get placed at hospitals that work with Virohan.

THERE IS A GROWING REALISATION THAT THE LINES BETWEEN FORMAL AND INFORMAL JOBS ARE BECOMING POROUS.

The employer- and placement-led models are increasingly being used in the informal sector as industry leaders are beginning to recognise the role played by the informal sector in driving their own productivity and output. There is a growing realisation that the lines between formal and informal jobs are becoming porous and therefore, a lack of skills in the informal sector—similar to a lack of skills in the formal sector—will have implications on larger, established companies as well.

Deciding which model works best: A framework for social entrepreneurs

For social entrepreneurs, it is critical to match the business model to the industry. In some cases, current industry dynamics may not allow for conversion of informal to formal workers, and entrepreneurs may want to focus their energies on a different sector. Some questions to ask yourself for each of these models include:

• What are industries in which the demand, visibility into open jobs, and increased income make self-employment a reasonable return on investment (ROI) for people currently headed for the informal workforce? How would fee financing work in this model?
• Do market dynamics on the demand side and profiles of the workers on the supply side make a market-linkage model possible?
• Which sectors require high capex and fixed costs for training and do they have sufficient margins to make an employer-led company viable?
• Is there a large enough network of accessible businesses for the placement-led model to work?

Matching industry to business model

To better understand how to match an industry to an appropriate business model, we’ve described two examples below.

Building, construction and real estate: market linkage and placement-led models

From the NSDC data presented earlier, construction is by far the largest employer of informal workers, with more than four million new jobs added each year. Yet, the overwhelming majority of construction jobs over the next five years will remain low-skill.

The profiles of most workers in the construction industry and relative commoditisation of their skills makes it difficult for a market linkage model without a major established player backing it. Therefore, instead of initially focusing on the large majority of low-skill jobs, we suggest applying the market-linkage model for the approximately 10 percent of construction jobs that are skilled jobs (and not completely commoditised). These may include electricians, plumbers, carpenters, bar-benders, masons, and welders—jobs for which there would be competition when placed on a marketplace.

However, market-linked models take time to get off the ground and require a pre-existing set of qualified workers. A placement-led model that first organises and builds a track record of placement might be a good first stage. Eventually, the graduates of that programme could migrate to an open marketplace.

Auto and auto components: employer- and placement-led models

The auto industry currently employs more than 19 million workers and expects to add another 2.2 million by 2022. With more than half the industry workforce in the informal sector, the auto and auto components industry is an opportunity to formalise over 200,000 employees each year over the next three to five years.

At present, automotive skilling is undertaken by the Automotive Skills Development Council (ASDC). Manufacturing companies also have centres of excellence for their workers, while auto component makers and auto dealers work with original equipment manufacturers (OEMs) to train workers. There are many characteristics that make an employer-led model interesting for entrepreneurs seeking to create an alternate and more efficient system:

• There is a higher degree of skilling required than in most other sectors.
• This sector represents an aspirational step from other manual sectors like construction.
• There is a relative lack of trainers today vis-à-vis the expected growth.
• Infrastructure cost is high and technology is changing fast.
• Companies want to outsource training to reduce costs and keep up with the latest trends.

In time, a placement-led model may also work. Currently there are challenges owing to lack of standardised curriculum, students’ inability to pay for such trainings, and rapid changes in technology, which make the capital investment tricky. However, student-financing options are becoming available from new companies, and we have seen the placement-led model work in other sectors with similar characteristics such as healthcare.

As the train-and-place model gets proven via employer-led programmes, and the industry views this as a critical channel for scale, we can expect viable placement-led models to emerge.

WE ARE ENTERING A TIME WHEN EFFECTIVE ENTREPRENEURIAL VENTURES CAN UPSKILL MILLIONS OF PEOPLE IN THE INFORMAL SECTOR.

We are entering a time when effective entrepreneurial ventures can upskill millions of people in the informal sector. By identifying pockets of opportunity in growing industries and marrying them to the right business models, the earning power of millions of workers in the informal sector can change significantly.

The net result will hopefully create a new segment of people that have the opportunity to build a career instead of spending their working lives looking for the next job.

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When Prime Minister Narendra Modi declared on April 28 that the grid had finally reached the last unelectrified village in India, he set off a wave of different reactions across the country. There was jubilation, of course, for this represented a major landmark in energy access for people of the country. There was scepticism – everyone knew someone who didn’t have power in their home or village. And lastly, there was confusion. Social entrepreneurs in the field of decentralized renewable energy, who built impactful businesses by bringing energy access to unelectrified communities, were left wondering what kind of future lay ahead of them.

FULL ENERGY ACCESS ACHIEVED?

No doubt there were loopholes in the government’s “100 percent electrification” claim. Thanks to an archaic definition, a majority of homes in a village could be off the grid and yet the village could be could be counted as electrified. S.N. Srinivas, CEO of CLEAN, an organization that represents energy access practitioners across India, points out that small hamlets that are omitted from the official census – and there are thousands of them – could be totally without electricity and yet not feature in the statistics. “We are still a long way from having 100 percent electrification at a household level,” he says.

But does this point to opportunities for renewable energy entrepreneurs in these off-grid pockets? The general consensus among practitioners seems to be: not really. The remaining unelectrified hamlets and homes are either extremely remote, or in some cases, lacking valid documentation to be viable from a business point of view. Moreover, under the government’s Saubhagya scheme, the focus has shifted to household-level electrification, with a target to have every house in India supplied with 24×7 electricity by March 31, 2019. There is talk of passing a Right to Electricity Act in Parliament, which would allow a household without grid access to sue the government.

Despite a quickly-shifting environment, energy access enterprises have found new ways to stay relevant. A closer look at Kolkata-based Onergy, an emerging player in India’s energy access landscape, throws light on how existing players have adapted to the changing scenario. Piyush and Vinay Jaju started Onergy in 2010, when official statistics showed that 34 percent of India’s villages were unelectrified. At the time, Onergy’s game plan was to sell solar home lighting systems at affordable prices (backed with financing options) to off-grid communities in eastern India. In 2014, 70 percent of Onergy’s sales came from home lighting systems. Cut to 2018, with zero unelectrified villages on official record – obviously this sales strategy has undergone a drastic shift.

“It’s not that the change came overnight,” says Piyush Jaju, “the trend has been quite clear for the past few years.”

Indeed, ever since Narendra Modi was voted into power in 2014, rural electrification shifted gears as it became a major developmental priority, as well as political plank, for the new government. With the number of off-grid villages shrinking by the year, companies like Onergy have had to overhaul their sales strategy on an annual basis.

“Today our product mix looks quite different. We remain committed to making a difference to the lives of the rural poor, but the impact happens in areas other than home lighting,” Jaju said.

Nearly 40 percent of Onergy’s sales in 2018 are expected to be in the form of solar water pumps, which allow even small farmers to access ground water and increase the productivity of their lands. To keep their business viable, Onergy has also made a major foray into rooftop solar systems in both urban and rural areas.

OBSTACLES TO OPPORTUNITY

The good news is that any change brings opportunity. Grid entry into villages can be a powerful catalyst – it spurs aspirations, creates new demand and paves the way for innovative services. Entrenched players – as well as start-ups that are willing to pivot their business – could actually benefit from the spread of the grid.

When the electricity grid triggers the growth of micro-enterprises in rural areas, but falls short of meeting the entire demand, it opens up a gap that renewable energy can very easily fill. SELCO, one of India’s oldest and most respected decentralized renewable energy players, has started looking at this opportunity very carefully.

“We expect that over the next five years, at least 50 percent of our sales will come from the rural livelihood segment,” says Sudipta Ghosh, assistant general manger at SELCO India. This is a big shift for a company that for the first 20-odd years of its existence earned most of its revenues from off-grid solar home lighting systems. The company has already sold several hundred solar-powered sewing machines and is seeing strong demand for solar backup from internet kiosks in rural areas. It is also doing pilot sales of refrigeration systems, furnace blowers, milking machines, roti rolling machines and rice huskers – in all cases, working with customized end-appliances that are highly energy efficient.

At Villgro, India’s oldest and largest incubator for social enterprises, we run a program to support rural renewable energy access companies working in low-income states of India (funded by GIZ, the German development agency). All the members of our latest cohort were born in the era of widespread grid access, and they see the grid as a collaborator rather than a competitor. Take the case of CoolCrop, a startup that provides farm-level cold storages in rural areas. Niraj Marathe, one of the co-founders, feels renewable energy is an integral part of their offering.

“Even with 100 percent grid penetration, rural power supply is always going to be erratic,” he says. “And without power the entire stock that is kept in our cold storage can get spoiled.” Solar panels supplied with their units supplement grid power and provide backup during outages, adding a whole new dimension of reliability to their product line.

DIVERSIFYING PRODUCTS

Similarly, Garv Toilets, which makes smart, eco-friendly public toilets, uses solar energy to run the pumps, fans, lights and remote monitoring systems in their units. This allows them to maintain the quality of user experience, no matter what the grid power situation is at the site.

Other members of Villgro’s cohort have started selling “derivatives” – not energy itself, but products or services that are enabled by it. Oorja, a Delhi-headquartered social enterprise, started off piloting residential mini-grids in unelectrified villages. But managers found this market fading very fast, so they shifted their focus to agriculture and allied activities in nearby farms.

Says co-founder Amit Saraogi: “We found a lot of smallholding farmers did not have their own water sources and were paying a lot for their irrigation needs from diesel pumps. We decided to install and operate community solar water pumps that work on a pay-per-use basis.” With this scheme, Oorja still remains a renewable energy player, but the product that they sell to the end-user is water, by the cubic meter.

In another sector, Bombay Bijlee, a Mumbai-based startup, also taps into the aspirations of rural India. They sell solar powered “infotainment” packages – where monthly instalments pay not just for a TV and satellite receiver, but also the solar panels that power them.

Only time will tell if the paths chosen by these entrepreneurs will lead to success and scale. But they can surely take inspiration from how the internet evolved. In the early days, internet service providers ruled the roost, but as net access become faster and more widespread, a bewildering array of other, much more profitable businesses sprung up that rode astride the internet’s growth. Perhaps a similar story is waiting to unfold in India’s energy access sector.

Ananth Aravamudan is Lead, Renewable Energy at Villgro.