Neeti Sharma Writes: Skills Gap Holding Back India’s Growth

India’s economic growth and rapid digitisation have led to an unprecedented demand for skilled workers across various sectors. However, the country’s formal workforce faces a significant skills gap.

This issue extends beyond the IT/ITeS [information technology/information technology-enabled services]sector and affects industries like BFSI [banking, financial services and insurance], FMCG [fast-moving consumer goods], ecommerce, manufacturing and automotive.

Confederation of Indian Industry (CII) estimates that the total workforce in the organised sector is at about 50mn and the shortfall at 15%.

The country is currently experiencing an alarming shortage of 150mn skilled workers, up from 138mn three years ago. A subset of this demand for skilled workers is for 30mn workers who have cutting edge digital skills—50% of the current workforce itself needs to get re-skilled.

Struggle to Fill Positions

The IT/ITeS sector has been the backbone of India’s economic growth. Many companies in the IT/ITeS industries have consistently announced plans to hire thousands of employees annually.

For instance, one large IT services company planned to hire 40,000 freshers in financial year 2023–24, while another targeted over 20,000 hires. However, despite the demand, these companies faced a shortage of adequately skilled candidates.

The skills gap in the IT/ITeS sector is multifaceted. While technical skills like programming, data analytics and cybersecurity are in high demand, there is also a need for soft skills such as communication, problem-solving and adaptability.

The rapid pace of technological advancement has outpaced the traditional education system, leaving many graduates underprepared for the evolving job market. For instance, despite India’s reputation for producing a large number of engineering graduates annually, only a small percentage of them possess the skills required by top IT companies.

Digital skills currently make up 33% of the total tech skillset, likely to grow to over 40% by financial year 2025. This indicates that nearly 40% of the skills required for tech roles will undergo significant changes.

The BFSI, FMCG and ecommerce sectors are significant employers in India, often hiring in high volumes for roles that require basic skills. The demand for entry-level positions has seen a substantial increase of 24% in 2024 compared to the previous year, even as the sector faces challenges related to high attrition rates.

In the BFSI sector, companies hire thousands each year for roles ranging from customer service to financial analysis. Similarly, FMCG giants and ecommerce firms recruit heavily for sales, logistics and customer support roles.

However, even in these sectors, there is a noticeable skills gap. It is expected that 50% of the skills needed in the BFSI industry by 2027 are still non-existent.

Niche Skills in Demand

Unlike the high-volume hiring seen in IT/ITeS and BFSI, the manufacturing and automotive industries tend to hire in lower volumes but require highly specialised skills.

In the manufacturing sector, companies require skilled workers in areas such as robotics, automation and precision engineering. Similarly, the automotive industry, which is undergoing a transformation with the rise of electric vehicles [EVs], demands expertise in battery technology, power electronics and vehicle design.

Many manufacturing jobs require specific technical skills often lacking in the available talent pool. There is a shortage of qualified candidates for specialised roles, such as engineering and machine operation. The skills gap in these sectors is particularly concerning because these industries rely on a highly specialised workforce to maintain competitiveness.

The AI Impact

The rapid advancement of technology is reshaping job roles across all sectors. Automation, artificial intelligence [AI] and digitalisation are not just creating new roles but also upgrading the requirements of some entry-level roles. This shift underscores the critical need for reskilling, upskilling and new skilling in the workforce. AI and automation will require 16.2mn workers in India to reskill and upskill while also creating 4.7mn new tech jobs.

In the IT/ITeS sector, roles like data scientists, AI specialists and cloud computing experts are in high demand. There is a prominent tech skill gap for IT technicians (38%), followed by professionals with data protection skills (33%) and security software developers (30%).

However, these are relatively new areas and there is a limited pool of professionals with the required expertise. Similarly, in the manufacturing sector, the adoption of Industry 4.0 technologies like IoT [internet of things] and advanced robotics requires workers to acquire new skills that are not traditionally part of the manufacturing curriculum.

Several reports and surveys highlight the extent of the skills gap in India’s formal workforce. According to a report by the World Economic Forum, by 2025, 50% of all employees will need reskilling due to the adoption of new technologies.

In the IT sector alone, there will be a shortage of 2mn skilled professionals by 2025, according to a report by IT trade body Nasscom.

In the BFSI sector, a Federation of Indian Chambers of Commerce & Industry (Ficci)-KPMG report indicates that while the sector is expected to create 1.6mn jobs by 2025, there is a significant gap in skills related to digital banking, cybersecurity and financial technologies. Similarly, the manufacturing sector is expected to face a shortfall of 1.3mn skilled workers by 2026, according to the Ministry of Skill Development and Entrepreneurship.

Fostering Partnerships

Addressing the skills gap in India’s formal workforce requires a multi-pronged approach.

Educational institutions must overhaul their curriculum to better align with industry needs. To address the skills gap, companies should collaborate with educational institutions to deliver specialised courses tailored to specific industry demands.

As technology continues to evolve, the demand for new skills will only increase, making reskilling and upskilling more critical than ever. By addressing this gap through collaboration between industry, academia and government, India can build a workforce that is not only capable of meeting current demands but also adaptable to future challenges.

The writer is CEO, TeamLease Digital