Education: India’s Sunrise Industry

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Education is ISI—India’s sunrise industry. A heady cocktail of young human resources, ambitious businessmen willing to invest in schools, colleges and universities and a new central government willing to forge partnerships with the private companies has brought the education sector to the forefront of the national agenda.

In politics, it is said that governments show their real intent within the first few months of assuming power.

One of the key promises made by the Bharatiya Janata Party in the run-up to the Lok Sabha elections in 2014 was to set up premier institutions for engineering, medical and business management in very state of the country, if voted to power. It was explicitly mentioned in the manifesto of the party that new branches of the Indian Institute of Technology, All India Institute of Medical Sciences and the Indian Institute of Management, better known by their acronyms, IITs, AIIMS and IIMs, will be established. Now, after assuming power, the ball has already been set rolling with the central government giving clearance for setting up new IITs and IIMs. The five new IITs will come up in Goa, Kerala, Andhra Pradesh, Jammu and Chhattisgarh. Five new IIMs are proposed to be set up in Punjab, Himachal Pradesh, Rajasthan, Bihar and Orissa. This is the central government’s first major multi-million dollar initiative after the polls and more is yet to come.

Given the magnitude of opportunities to make India a talent hub, the government has also announced plans for setting up of new central universities, Indian Institute of Science Education and Research, National Law Universities and Indian Institute of Information Technology in almost all states.

This presents a unique opportunity to entrepreneurs to invest in improving the quality of education in the country. Entrepreneurs are already showing a great degree of optimism about the future prospects of the Indian education system but they estimate that to cope with the burgeoning demand at least US$50 billion would be required to set up new institutions of higher education across the country over a 16-year period to 2030.

Even this estimate is conservative and is based on current projections but as demand for quality education increases and inflation is accounted for, the eventual investment requirements may turn out to be much higher.

There are plenty of investment opportunities in the education sector as India upgrades, modernizes and expands the system. A massive financial outlay is also required to give a financial push to the online learning system.

Private equity investors estimate that there will be a 25 per cent annual return on investments in the Indian educational sector. In the past, India has received around US$200 million a year in the form of private equity investment in the education sector. This number is set to grow manifold as more private education groups set up their schools in India.

International Finance Corp, Swiss Fund for Emerging Markets, HDFC India, UBS Fund of Funds and Bartelsmann have already tried and tested out the Indian education sector and would continue with their equity placements across the country.

Initiatives taken by the Asian Development Bank and CDC or formerly the Commonwealth Development Corp. of the United Kingdom would give investors more confidence in the Indian market, officials told FII-News.

Mumbai-based Kaizen Management Advisors will place US$75 million as equity investment in the Indian education sector between 2015 and 2019 out of the US$150 million it plans to raise by next year, the company’s founder and managing director Sandeep Aneja said. It has already invested approximately US$70 million in India’s education sector since 2012.

The Indian government has set itself a target of achieving 30 per cent Gross Enrolment Ratio, or GER in Higher Education by 2020, doubling it in the next 6 years from the present 15 per cent.

Following the launch of “Make in India” program in September 2014 by the Central Government, India now requires thousands of designers, carpenters, fitters, electricians, masons, fabricators and tailors among others as per the requirements of the several industries. This implies large scale development of skills, which is only possible through imparting technical education of the suitable types.

Some of the states have already started running their technical education institutes for developing such skills through a slew of Public Private Partnership (PPPs). Educationists have given a clarion call for more such PPPs and other similar investment models to infuse the massive amount of funds needed to make the program a success. Governments alone both at the center and states, cannot on their own meet the funding requirements and this has made partnership with the private sector, the need of the hour.

A degree in engineering is a cherished dream of millions of youngsters but unfortunately high quality education eludes them. Close to seven decades after independence, the country still has only 16 IITs. This is too small a number of high-tech engineering institutes for a land of 1.25 billion. For every 100 applicants, less than one manages to get admission in an IIT. Venkatraman Ramakrishnan, the winner of Nobel Prize for Chemistry in 2009, was once reported to have mentioned that he wasn’t successful in getting admission in the hallowed portals of IITs and premier Indian medical institutions. This is not a mere anecdote. It has serious implications. Moral of the story is that hundreds of thousands of talented individuals are being deprived of quality education because demand exceeds supply. As a consequence, they will end up being under-educated and under-employed. Based on the ratio between applicants and the number of seats available, it is easier to get admission in the Massachusetts Institute of Technology than an IIT or an IIM.

Only one out of approximately 150 applicants get admission into the elite IIMs compared with the ratio of 1:10 for Massachusetts Institute of Technology.

Government is seized of the matter and keen to address this anomaly in national education. It is also aware of the fact that this can only be done with a strong involvement of the private sector. The Ministry of Human Resource Development has set a stiff target for itself, to have 1,000 private universities offering qualifications which are capable of producing trained manpower to meet the needs of the services and industrial sector.

Currently, the country has 677 universities, of which 185 are private. There are 37,204 colleges offering higher education. Each university would require an investment of around Rs 50 crore in the plains while it would cost about Rs 100 crore, if the location is in the hilly regions, according to industry estimates. Creation of infrastructure in the hills is invariably costlier and as much as double of the amount needed in the plains.

“Private sector can help fulfill the ambition of India to become self-sufficient in the field of higher education,” says Priyanka Goyal, executive director at APG Shimla University.

“It is a very good opportunity to deploy the infrastructure, readied by the private sector universities and colleges, for the skill development that is needed to support the manufacturing sector,” said Ms Goyal.

Advantage India

“One of the advantages of India is its demography,” says Dr Rajan Saxena, vice-chancellor of NMIMS University.

India is the youngest nation with a median age of 26 years which means almost 250 million people who are in the age group of 15 to 24 years. “This gives an idea of the potential for growth in the higher education sector in India,” he pointed out. Demand for higher education in India is the largest in the world. In comparison, China’s demand for higher education at 225 million people is lower than India’s.

And these numbers are rising. India is expected to see a 13 per cent growth of population in the age group of 18 to 24 during 2005 to 2020 as against the world average growth of 4 per cent.

The enrolment of students in India has grown 12 times in the last four decades. India ranks second in the world in terms of enrolment of students in higher education. Private institutions account for 64 per cent of the total number of institutions which in turn have a 60 per cent share in enrolment of students in the country.

The growth in the number of professional courses offered in India has been the largest in recent years, with the Indian corporate sector participating in higher education in the last five years. Some of the noted examples are Wipro (Azim Premji University) HCL (Shiv Nadar University) and JK Group (JK Lakshmipat University, Jaipur). Many states in India have also enacted laws to enable setting up of private universities.

The central government has planned an investment of Rs 1.107 trillion in higher education between 2012 and 2017, 1.3 times higher than the expenditure in the previous five years. Government has also dismantled the Planning Commission, and by doing so, in one single stroke removed a large layer of bureaucracy, which was arguably delaying the implementation of various programs, including those related to education. The annual budgetary outlays of various ministries will now be calculated and assessed by the Department of Expenditure in the Ministry of Finance.

Responding to such strong demand for training in various technical fields, some private institutes are already on the go. K.L.S. Gogte Institute of Technology plans to procure the latest state-of-the-art gadgets and equipment as well as improve the qualifications and skills of the faculty, its Chairman Udaya N. Kalkundrikar told FII-News. “The focus will to be to develop practical, working and analytical skills of the student community and the faculty,” he said.

Educational institutions in the country have also responded to the Prime Minister’s call for skill development. “We have already started working on formulating and offering new courses that focus on practical and applied aspects of technical education,” he stressed.

The quality conscious middle class and nouveau riche are slowly shifting their preference towards private institutions, said Prof. Dr. K. Ramakrishna Reddy, Vice Chancellor of Sri Krishnadevaraya University in Anantapur, Andhra Pradesh. The increasing presence of private sector will to an extent reduce the outflow of students to other countries, he said.

“This trend has already begun and in the coming days we may also see a large influx of students from neighboring countries to India,” he added. Over the past 5 years, there has been a substantial growth in interest from candidates based overseas in pursuing management education related courses in India, he observed.

“As an ecosystem, business schools in India have made limited efforts in attracting these students though the regulatory framework already exists in giving them admission here,” he said. The top 50 business schools in India are well known overseas due to a highly successful internationally dispersed alumni body and India needs to capitalize on this popularity, said Dr Reddy.

The Open Doors report released by the Institute of International Education in conjunction with the State Department of the United States shows that in recent years, India jumped three spots in the rankings for most popular international destinations for American students to number 11. Preference for India as a destination for education grew 12 per cent between 2009-10 to 2010-11.

Similarly, data from the Graduate Management Admission Council, or GMAC shows that the number of foreign students undertaking management courses in India has increased by 17 per cent for the testing year 2011 and 51 per cent over the previous five years.

Premium on knowledge gathering

Indian society puts a premium on knowledge gathering. In a middle class household’s budget, allocation for education is the largest after food and groceries, says Dr Sandip Jha, Founder Chairman, Sandip Foundation at Nashik.

With its rapidly expanding middle class, India’s private expenditure on education is set to increase manifold. India’s public expenditure on education, which includes both the centre and the states has ranged between 3.26 per cent and 3.85 per cent of the GDP from 2004-05 till 2009-10. If India is to come at par with the developed economies in the education sector, this expenditure needs to increase substantially, he said.

While there has been large private investment in setting up educational institutions, there still remains a glaring mismatch in demand and supply, particularly when it comes to technical colleges of high quality, according to Dr Jha who runs the Sandip Institute of Engineering & Management.

It is not surprising that an industry chamber has recently estimated that 450,000 Indian students spent over US$13 billion each year in acquiring higher education overseas. Dr Jha said those who can afford to pay for higher education abroad, are taking the plunge but for most of the populace, it is beyond their budget.

To reduce the gap between demand and supply in school education, it has been proposed to set up 6,000 schools of secondary education between 2012 and 2017 at block level, affiliated to the Central Board of Secondary Education, as model schools to benchmark excellence. Of these, 2,500 will be set up under PPP, once again highlighting the importance of the private sector. Dr Jha sees a pivotal role for the private sector in skill development in the country.

The intention is to set up these schools in the backward regions and remote areas where good facilities for schooling do not exist, to ensure quality education is accessible to one and all. Last year government also set up a Credit Guarantee Fund, making it easier for students to obtain education loans.

In a nutshell, the following are the key focus areas for any national education program