PM-SETU stumbles on first step as MSDE scheme to upgrade ITIs struggles to find industry partners

MSDE PM SETU: Just one scheme claims 50% of the budget allocated to the ministry of skill development and entrepreneurship (MSDE) and yet, progress on it has been slow. The PM-SETU – Pradhan Mantri Skilling and Employability Transformation through Upgraded Industrial Training Institutes – was implemented nearly a year ago, a restructured and rechristened version of an older scheme with much the same goals.

PM-SETU is aimed at upgrading 1,000 ITIs in a hub-and-spoke model, with the participation of central, state governments and industry partners. But it’s already struggling to get the third set on board. Of the 33 states to identify ITI clusters, only 19 have issued “expression of interest” documents to on-board the anchor industry partners (AIP), the first step towards implementation of the scheme.

It is only after on-boarding AIPs can a Special Purpose Vehicle be set up. As per the terms of the scheme, the SPV must be a Section 8 company – a non-profit – which will manage the upgraded ITI. However, several state officials told Academia360 that getting the industry on-board has not been easy.

While the scheme’s implementation drags, the ITIs – an important backbone of vocational training, rural education and employment – are seeing enrolment fall, getting their affiliation struck off for lack of students, redundant technologies and poor placements.

It is not the first time the government has attempted to upgrade ITIs. In 2008, it launched the “Upgradation of 1,396 Government ITIs through Public Private Partnership” project. A decade later, in 2018, it launched another – “Upgradation of Existing Government ITIs into Model ITIs” – which ended in March, 2024.

A government statement from January this year said, “19 of 35 ITIs fully upgraded as Model ITIs and Rs. 192.65 crore utilised (out of Rs. 238.08 crore)”. To put into perspective what an appalling performance this is, the total number of ITIs in the country stands at 14,682, of which 3,345 are government and 11,337 private.

PM SETU Budget: Rs 60,000 crore for 5 years

PM-SETU is co-financed by the World Bank and the Asian Development Bank (ADB). The total outlay of the scheme is a substantial Rs. 60,000 crore – Rs. 30,000 crore from centre, Rs. 20,000 crore from state and Rs.10,000 crore from industry – over five years. ADB and World Bank loans will cover up to 50% of the central share.

The scheme was announced with the 2024-25 budget with an allocation of Rs.1,000 crore. The cabinet approved the scheme on May 7, 2025 and the “ITI Upgradation scheme” was renamed PM SETU. The cabinet had approved 25 hub-and-spoke ITI clusters for initial pilot rollout for the current financial year.

In 2025-26 the allocation stood at Rs.3,000 crore and in 2026-27 it is at Rs.6,140.50 crore. Due to delays, the scheme saw its outlay cut drastically due to implementation delay.

The other component of the scheme is establishing a centre of excellence in the five National Skill Training Institutes (NSTIs).

ITI Upgrade Scheme: Onus on states

The onus of full implementation of the scheme is on states and the first step is to have an industry-led Special Purpose Vehicle to be the coordinating body for the cluster. The SPV will have representation from the central and state governments (or union territory administration) and the anchor industry partner (AIP) which will hold 51% of the shares.

The SPV, which bypasses the usual governance structures of departments and cells, can be formed only once the state government has an industry partner on board.

Here’s how an SPV must be set up:

• Expression of Interest (EOI): For seeking suggestions, inputs from industry stakeholders on structuring the SPV

• Request for Proposal (RFP): For actual selection of industry partners, based on outcomes of the consultation through the EOI. This will be “competitive”. If the state or UT has already discussed the issue with industry, they can skip the EOI process and go straight to RFP

• Submission of Proposals: Industry partner(s) submit the “strategic investment plan” (SIP) in response to the RFP

• Evaluation, Approval of SIP: The state and national steering committees (SSC and NSC) review the plan with the latter approving it

• Formation of SPV: With approvals in place, the AIP can form the SPV

ITI Scheme: 4 states close to implementing

As per responses to questions raised in parliament and submissions to the parliamentary standing committee, 19 states have issued EOIs.

“Clusters have already been identified in 32 states and UTs, with 26 of them constituting state steering committees and 22 creating dedicated state budget heads to anchor implementation. Momentum has also been built on industry engagement, as 19 states and UTs have floated expressions of interest (EOI) for anchor industry partners (AIP) and four have progressed further to issue requests for proposal (RFP),” the government said.

The four with RFPs are naturally closest to having their special purpose vehicles. These are Karnataka, Andhra Pradesh, Telangana and Tamil Nadu. Meghalaya, West Bengal and Bihar are yet to identify their clusters. Gujarat has the largest number of clusters at 10, followed by Uttar Pradhan and Rajasthan at eight each.

The project is far behind schedule. The Directorate of General and Training (DGT), which regulates ITIs, had told the parliamentary panel, “We are expecting that by the end of the year (2025-26) practically, maybe two or three SPVs will be formed. But we will have momentum at the beginning of the next financial year.”

PM SETU’s industry-partner bottleneck

Finding industry partners willing to take on ITIs is proving to be the main hurdle.

The ministry itself told the parliamentary standing committee on skill development and entrepreneurship, headed by BJP MP Basavaraj Bommai, about the difficulty in on-boarding industry partners. With public sector units, the process is entangled in bureaucracy.

“Our first priority has been to get the private sector onboard. We have been talking to the PSUs, but PSUs have their own constraints about coming into SPVs, which we have found out. We have had meetings with a number of defence PSUs. We have had conversations with power sector PSUs. They feel that forming an SPV will require approval from DIPAM. So, for them, we have to find another route, which we are also trying to explore,” it had stated.

It had added funding was not a problem with the private sector but it lacked the expertise to manage ITIs.

“Now, with the PSUs, we may have to have a tripartite SPV, bringing in one other partner. We are exploring that, because they have pointed out some difficulties in actually getting into an SPV structure. That is the functional issue,” it added.

State officials told Academia360 that the response has not been very encouraging.

Another official from Rajasthan stressed, “Unlike the other times when industry participation in schemes to upgrade ITIs was mostly voluntary, this time there is money involved. That could be another reason [for the tepid response].” He meant the 10% funding the industry partner is expected to put up.

An expert working in this field highlighted a solution.

Harshil Sharma, labour economist with a PhD in skill development, said,“One important point is, are we having the right conversation with the right industry or the right clusters? Rather than having a sweeping policy for all, can we think about a cluster model? Say, an automobile industry cluster in Pune or the apparel industry in Chennai. If we talk about certain industries that are actually recruiting these ITI students, it can resolve their recruitment. But why would other industries which are not benefiting from ITIs be interested?”

PM-SETU will also have another "structural and implementation risk” in finding an anchor industry in rural areas, he said. He is director, government relations at Indus Action.

Even the World Bank’s Environment and Social Systems Assessment report on the scheme notes the possibility of social risks such as “exclusion of vulnerable groups from program benefits, accessing ITIs and subsequent employment opportunities”. “These include women, Scheduled Tribes, Scheduled Castes and Persons with Disabilities, risk of unfair labour practices in the civil works as well as management of trainers and other administrative staff in ITIs and NSTIs. Risks arising out of inadequate grievance redressal mechanisms,” the report says.

Sharma adds, “It is a great problem to solve but will PM SETU be able to solve it? I have my reservations. There are also social and financial barriers around the ITIs, which the government tries to solve every time, be it around social stigma, cultural bias around vocational training, gender biases and financial hurdles. Inclusivity concerns remain. The objectives of PM-SETU mention this but there is no specific intervention plan on how the money would be distributed around it.”

ITI: Falling enrolment

The government recently said that between 2014 and 2025, the number of ITIs increased from 9,977 to over 14,682, with 4,605 new ones.

However, as government data in the table below shows, lakhs of seats go vacant each year, their number only growing.

ITIs: Total counts and vacant seats

Source: NCVT MIS DASHBOARD

While private players have dominated this space and a significantly higher vacancy rate, it is the government ITIs which are losing seats.

Source: Parliament reply –05/02/2025

“ITI systems in the last few decades have gone towards the private rather than the public ones. It started around 2012-2013. What has been the performance of these private ITI in terms of quality or are they just there to take advantage of the schemes and subsidies? That is something which needs to be looked into. Be it quality assurances, accreditation or any way the government has stated, private ITIs are failing,” said Sharma.

However, as of March 19, 2026, MSDE said, 614 ITIs have been disaffiliated for having 100% vacant seats in the academic years between 2022 and 2024. A large number of those are private.

“It is important we provide ITIs with all the necessary and up-to-date facilities required for their training. If you go to Singapore their technical institutes are like five star hotels and look at the institutes here,” said Manoj Kumar, retired IAS officer who led training and technical education in Delhi from 2014 to 2018. The other problem he highlighted was the negligible industry collaboration.

“What we are trying to teach now is not relevant in the industry. Machine TLC are outdated or non-functioning. Industry connect is important. Whatever you are teaching needs to be updated, curriculum needs to be updated and the institutes need to work in close collaboration with the industry,” explained Kumar. “In Singapore again during the vacation their teachers go and work in the industry, what stops our teachers from doing so? Here there is no institutional mechanism for Crafts Instructors to engage with the industry.”