Where Did India's Skilled Labor Come From?

The surprising role of private education

One obvious prerequisite for the Bangalore boom was India's high-tech labor force. Most commentators credit India's technical prowess to socialist rulers who, in a bid to make the country an industrial power, "overinvested" in engineering and other professional colleges. Even as secondary school education languished, they built a slew of super-elite engineering colleges called IITs (Indian Institutes of Technology) and a network of regional engineering colleges to train workers for state-owned heavy industry companies.

But the government's "overinvestment" in education was not nearly enough to meet the massive demand among India's middle classes for professional degrees, their ticket to secure jobs even before the information technology boom. The biggest unmet demand, notes Economic Times correspondent Chidanand Rajghatta, was among upper-caste Hindus who were frozen out of most government colleges by admissions quotas that reserved up to 70 percent of their seats for lower castes and religious minorities.

In the 1960s and '70s, religious and philanthropic organizations picked up the slack by founding private engineering colleges of their own, often of substandard quality. But as the I.T. industry grew in the '90s, so did the number of private engineering colleges and polytechnics. Today, four out of five engineering students attend private colleges, even though those institutions charge five to 10 times more in tuition than government colleges. The private schools also demand an upfront entry or "capitation" fee equivalent to about $3,000 to $4,000—a small fortune for middle-class families. The quality of these schools still varies a great deal, notes Vijay Menon of Progeon, the Bangalore-based outsourcing arm of the I.T. company Infosys. "But many of them have built a brand name for themselves by the stellar performance of their graduates on the American GRE," he adds.

This market has thrived even though new colleges face high legal barriers to entry. For instance, private colleges are not allowed to confer degrees unless they can persuade the University Grants Commission, a government body, to grant them an affiliation with a government university. But government universities, without whose acquiescence the commission cannot act, have little incentive to let new, private entrants loosen their stranglehold.

Despite all these hurdles, Karnataka (along with a couple of other south Indian states) has always had a robust private sector in the higher education market that has been a trailblazer for the rest of the country. Now it has nearly twice as many private professional colleges as government ones.

The government's role in providing higher education has shrunk over the years because it simply did not have the money to keep subsidizing it. But this is a blessing in disguise, argues C.K. Prahlad, a professor of management at the University of Michigan. The I.T. boom has strained Bangalore's capacity to supply workers. So fierce is the competition for qualified employees that the average I.T. company in Bangalore loses about 70 percent of its trained work force every year to rival firms. The strong presence of private-sector technical schools gives I.T. companies a far better chance of addressing the worker shortage than of addressing the shortage of roads, power supply, and other public-sector infrastructure.

Furthermore, unlike government colleges, the private schools have a vested interest in delivering graduates with skills suited for the industry. "Otherwise," Prahlad notes, "they can't justify their hefty capitation fees."

General education in southern India has become much more job-relevant because private, autonomous colleges play a bigger role there than they do in the north, says Progeon's Menon. For instance, his wife, a professor of English literature, teaches at a college that offers bachelor's degrees not in English but in communications and English, a field with more direct relevance to the growing public affairs departments of large companies. Today the I.T. industry is working ever more closely with colleges to develop new programs, something that will ensure jobs for their graduates and reduce the training expenditures of companies.