In today’s Finshots, we dive into the government’s ambitious plan to offer internships to 1 crore young folks over the next five years and the roadblocks along the way.

The Story

The government is revving up to keep its employment promises from the Union Budget for FY25. And we’re saying this because it has already kickstarted discussions with 20 companies to offer internships to young Indians over the next five years. The grand plan is  to get 500 companies on board and skill up young India for the workforce.

It’s a promising start, especially considering India’s job market is a bit of a paradox. Remember, we wrote about this just a few days ago when the Budget was announced?

While the number of employed people has gone up by 3% over the past seven years, the unemployed crowd has grown by 12%. The main issue? Job creation hasn't kept pace with the rising number of job seekers.

And the reason behind this trend may be that about one in two college graduates isn't employable right away. So jumping straight into the workforce just isn’t an option for them. They need hands-on training, which is where the internships come in.

The plan is simple. Get 500 top companies on board and have each one hire about 4,000 interns every year for the next five years. These interns will earn ₹5,000 a month, plus a one-time allowance of ₹6,000 for other expenses.

And here’s the kicker. Companies only need to cover 10% of the stipend and training costs, using their CSR (Corporate Social Responsibility) funds. For the uninitiated, corporates under the Companies Act must spend 2% of their average net profits on voluntary contributions like education, health, a cleaner environment… you get the drift . So, this plan doesn’t demand extra spending from them. They’ll just need to redirect existing funds to skill up young folks through practical work.

This could mean we’ll have 1 crore young people ready to step into real jobs after five years.

But wait… that’s just how the vision looks on paper. The big question to ask here is ― Is it practically viable?

Well, it’s a bit tricky actually.

That’s because there’s no issue with every company taking in 4,000 interns a year. They’ve got the capacity and the cash for it. Research shows that if the top 500 companies on the BSE spent just 10% of their CSR budget on this program, they could afford to hire about 2.4 crore interns annually. So really, each company only needs to use less than 10% of their total capacity, and they could manage this without any extra financial support from the government. So, this financial incentive from the government isn’t really much of an incentive after all.

And this could mean that companies might not bother hiring new interns for a few practical reasons.

First off, not every company has the space or resources to bring on 4,000 extra people annually. You need enough floor space to fit them all and existing staff to spend time training these interns for at least the first couple of months.

Next, you have to keep in mind that this internship scheme isn’t for everyone. It’s aimed specifically at underprivileged individuals who might struggle to get hired elsewhere without government incentives. So, while it helps some, it’s not very inclusive. And many who could benefit from hands-on training might still miss out.

Then, there’s the issue of current hiring trends. The Economic Survey notes that India needs to create around 80 lakh jobs in the non-farm sector each year to absorb the rising workforce. While that might not seem daunting, given that we added 1.6 crore jobs annually between FY18 and FY22, economists suggest that India actually needs 1 crore formal sector jobs each year until 2030 to employ its growing unemployed population.

However, with companies currently slowing down on hiring or even laying off employees, it’s hard to imagine them taking in interns when they’re cutting skilled or experienced staff. In FY23, each of the top 500 BSE-listed companies had an average of 13,500 employees. Adding 4,000 interns annually is like increasing the workforce by 30% each year. Given the current sluggish hiring pace, this seems a bit far-fetched.

Also, there’s not much reason to believe this scheme will take off in the first few years. Right now, only 45% of graduates who apply for jobs meet industry standards. This means companies have to put in a lot of effort to get these folks job-ready. It’s a big bet.

Sure, the government is tackling this issue by skilling 20 lakh youth through various upskilling programs over the next five years, upgrading a thousand industrial training institutes (ITIs) and providing upskilling loans to about 25,000 people. But these numbers are tiny compared to the massive pool of interns the government wants companies to absorb. It would make a lot more sense to skill these folks first, then put them through internships and finally transition them into the real job market.

In fact, Germany has nailed this approach. After high school, students can apply for up to three-year internships with private companies. They then get in-class training in their chosen field at government-funded vocational schools. So, most students spend about 4 days a week at work and the rest in school. At the end of the program, they receive a certificate that qualifies them for real jobs. It’s all integrated with the education system.

But with India’s current plan, this coordination seems to be missing.

We've seen a similar issue with ITIs in the past. India has around 15,000 public and private ITIs. But for the last 15 years, they’ve been government-driven, financed and managed, with very little industry engagement.

Fixing this link could start with a digital infrastructure that connects prospective interns, companies looking to onboard them and educational institutions with internship requirements in their courses. This would simplify a lot of things initially.

And, of course, it would make a lot of sense to gradually fine-tune the internship scheme itself. For instance, instead of focusing only on the top 500 Indian companies who might not feel compelled or incentivised enough to onboard interns, the government could incentivise small and mid-sized companies, startups and businesses. These folks could really benefit from interns. Besides, spreading interns across a wider range of businesses would make it easier to provide better training. Interns would find it easier too since they wouldn’t have to travel to larger cities away from home, where most top companies are located. Or where the measly ₹5,000 stipend wouldn’t be enough to make ends meet.

But hey, that’s just our two cents. How it all pans out is something we’ll only have to wait and see. Until then…

Don't forget to share this story on WhatsApp, LinkedIn and X.

📢Finshots is also on WhatsApp Channels. Click here to follow us and get your daily financial fix in just 3 minutes.

🚨Term Life Insurance Prices are About to INCREASE!

A prominent insurer is set to raise their term insurance rates in the next few weeks. This means if you don’t secure a term plan now, your premiums could significantly go up!

Here’s why this matters: When you purchase a term life insurance policy, you pay a premium or a small fee each year to protect against financial risks. In the unfortunate event of your passing, the insurance company pays out a substantial sum to your family or loved ones.

The best part? By buying early, you can lock in your premiums, ensuring they're not affected by any future rate hikes.

If you've been considering a term plan, now is the perfect time to act. To assist you in the process, our advisory team at Ditto is here to help. Click on the link here to book a FREE call with our IRDAI-certified advisors.