Education

Investment Opportunity>>Education

Sector Overview

The Indian education system is divided into the core and non-core segments. The core group consists of primary, secondary and higher education, while the non-core segment focuses on segments such as pre-schools, vocational training and coaching institutes.

Studies and reports on the Indian education sector concur that there is immense scope for growth. According to an August 2010 PricewaterhouseCoopers (PwC) report, titled Emerging Opportunities for Private and Foreign Participants in Higher Education, the education sector in India is estimated to be around USD 25 billion. Another report, by Grant Thornton titled Education in India: Securing the Demographic Dividend, states that the vocational segment has emerged as a big market that is expected to grow rapidly to USD 3.6 billion by 2012, growing at a CAGR of 25%. According to estimates by HDFC Bank, private equity investment in education was USD 190 million in 2010. Further, these estimates suggest that investments in the kindergarten to class XII segment grew to USD 20 billion in 2011 and are further expected to grow to USD 33 billion in 2012.

The Indian education sector can broadly be classified as such:

  1. K-12 and HEI: The term K-12 stands for kindergarten plus 12 years of schooling. Children enter kindergarten at age 3 and after spending two years in kindergarten, continue on to 12 years of schooling before he/she is ready for higher education. The higher education institutes (HEIs) then take over providing undergraduate, graduate and vocational level university education.
  2. Public education and private education: The Government of India allocates a percentage of its annual budget to the education sector and operates educational institutes. More than 90% of the government’s spend on public education flows into K-12 level education. In addition to government-run public schools, private investment in the education sector is seen traditionally in the form of not-for-profit trusts that operate private educational institutes.
  3. Formal and non-formal education: The formal education system in India broadly comprises the K-12 and HEI level education, which falls under the purview of the Ministry of Human Resource Development (HRD). The non-formal education segment includes pre-schools (1.5-3 years), coaching classes, multimedia/IT to schools and colleges, vocational training and the books market.

According to the 2011 census, the total literacy rate in India is 74.04%. The female literacy rate is 65.46% and male literacy rate is 82.14%. India has 544 university-level institutions, which includes 261 state universities, 73 state private universities, 42 central universities, 130 deemed universities, 33 institutions of national importance and five institutions established under various state legislations, according to the HRD Annual Report 2010-11. India has 79 Centrally-funded institutions, which includes 15 Indian Institutes of Technology (IITs), 11 Indian Institutes of Management (IIMs) and 30 National Institutes of Technology (NITs), as per the report.

India needs 1.2 million more teachers under the Right to Education Campaign, according the m. Moreover, with 546 million people under 25 years of age, there is huge potential in India in the education sector that needs to be tapped. By 2020, to increase the percentage of students going for higher education from the present 12.4% to 30% in the country, India will need 800 more universities and another 35,000 colleges, according to the ministry. According to HRD estimates, India's education sector needs investment worth USD 150 billion in the next 10 years.

FDI inflows into the education sector during the period April 2000 to April 2011 stood at USD 410.40 million, according to the Department of Industrial Policy and Promotion (DIPP), which is a part of the Ministry of Commerce and Industry. DIPP is responsible for framing the country’s FDI policy.

Policy and Promotion

The government allows 100% FDI in the education sector. Many other measures have been taken by the government to promote growth of the education sector in India. For instance, the Central Universities Act was promulgated in January 2009 for conversion of three state universities into Central universities.

Further, the Government of India has set up a unique public-private partnership through setting up of the National Skill Development Corporation (NSDC) in 2008. Its objective is to contribute about 30% to the overall target of skilling and upskilling of 500 million persons in India by 2022, mainly by fostering private sector initiatives in skill development programmes and providing viability gap funding. Another noticeable move was the inception of the National Knowledge Commission (NKC) in 2005. It was set up as an advisory body to the Prime Minister of India, with the objective of transforming India into a knowledge society. NKC has submitted around 300 recommendations on 27 focus areas and the implementation of its recommendations is currently underway at the Central and state levels. These recommendations encompass reforming the education sector, upgrading research labs and formulating intellectual property legislation.

In the higher education sector, the Medical Council of India (MCI), a state body that regulates the medical education sector and registers doctors, has allowed hospital chains such as Fortis Healthcare, Max Healthcare and Apollo Hospitals to set up medical colleges.

To promote e-learning, the ministry has announced a scheme that will introduce Information, Communication and Technology (ICT) sector at the elementary school level. The scheme, which is likely to be on the lines of the ICT scheme for higher education, would focus on the development of e-content that can be used by students in primary and upper-primary classes.

Further, a bill in the Parliament has also been introduced in 2010 to open up the Indian education sector to foreign universities. Some of the other education-related bills introduced in the Parliament by the government are:

  • The National Accreditation Regulatory Authority for Higher Educational Institutions Bill 2010 postulates that every higher educational institution and every programme conducted by it should require accreditation in the manner provided in the proposed legislation.
  • The Educational Tribunals Bill 2010 provides for the establishment of the State Educational Tribunals and the National Education Tribunal. The National Education Tribunal would exercise power and authority over any dispute between a higher educational institution and statutory regulatory bodies.
  • Major Players

    The Indian education sector has players from both the public and private domains. Some of the successful private sector institutions include Manipal University, Amity University and the Indian School of Business (ISB). Schooling and higher education are not-for-profit ventures due to the requirements of being registered as a trust or society. However, an ‘operate and manage’ model is now legally accepted and enables a for-profit model in education. In such ventures, financial returns are attractive, with EBITDA levels of 30% plus and project IRRs ranging from 20% to 30%.

    Some examples of private players in the K-12 level are Dhirubhai Ambani International School, by Reliance Industries; Stonehill International School, by Embassy Group; Educomp Millennium Schools, by Knowledge Tree Infrastructure, a subsidiary of Ansal API; and Birla Shloka Edutech Ltd, by Yash Birla group and Educomp’s subsidiary, Edu Infra.

    For higher education, there is a proposed Vedanta University by Vedanta Resources Plc, spread across 6,000 acres with estimated investment of more than USD 3 billion in Orissa; a proposed multi-disciplinary University by HCL, spread across 300 acres at Noida, in Uttar Pradesh; ISB has announced plans for a second campus near Mohali, in Punjab; Microsoft India announced an investment of USD 20 million in the Indian education sector over the next five years; Reliance Industries (RIL) is planning to set up a full-fledged university and has identified around 800 acres on the outskirts of Vadodara in Gujarat for the proposed university project; and the Adani Group planning to establish an Institute of Infrastructure Management, a university, and an Adani Knowledge Centre.

    Private investors have been carefully monitoring and investing in the education sector realizing the great potential that the sector has to offer. Private equity investment in the education sector increased from USD 129 million in 2009 to USD 183 million in 2010. Some of the large deals include PremjiInvest's USD 43 million investment in Manipal Education and India Equity Partners' USD 37 million investment in IL&FS Education and Technology Services.

    Global education players are also showing keen interest in the Indian education sector. For instance, the Frankfurt School of Finance & Management has signed a Memorandum of Understanding (MoU) with the Bombay Stock Exchange giving students greater insights into global markets. The programmes start in the academic year 2012–13.

    Other foreign business schools proposing a big presence in India are the Fletcher School of Law & Diplomacy, Tufts University, US; INSEAD, the business school headquartered in Fontainebleau, Paris; University of the West of Scotland (UWS); Yale University; The University of Atlanta; Maastricht University (UM), based in The Netherlands; Georgian College, a leading college in Canada; and Schulich School of Business of York University in Toronto, Canada.

    Further, the Chicago-based Encyclopedia Britannica is launching more online learning and knowledge products in India. The Indian market, in which Encyclopedia Britannica has been present for 12 years, accounts for about 5% of the company’s global print sales.

    Sector Outlook

    According to the Grant Thornton report, Education in India: Securing the demographic dividend, primary and secondary education, or the K-12 sector, is expected to reach USD 50 billion in 2015. Consulting firm Technopak is also very bullish about the growth of the education sector and estimates that private education sector itself would grow to USD 70 billion by 2013 and USD 115 billion by 2018. Technopak sees enrollments in the K-12 level growing to 351 million, requiring an additional 34 million seats by 2018. Further, according to the report 40 Million by 2020: Preparing for a New Paradigm in Indian Higher Education by Ernst & Young, the higher education sector in India is expected to witness a growth of 18% per annum until 2020.

    The National Development Council has approved the setting up of 14 world-class universities for innovation across the 11th and 12th Plan periods on the public-private partnership model. The innovation universities are part of the HRD’s ‘brain gain’ policy to attract global talent. Further, the government has agreed to spend USD 675.90 million during the 11th Plan period for setting up 13 new Central universities and converting three existing state universities into Central universities.

    As per a report by research firm RNCOS, the annual student enrolments for higher education are expected to grow at a rate of nearly 8.7% per annum during 2010-11 to 2012-13 and will require huge investments for developing the infrastructure. The report states that steady economic growth will require larger numbers of engineers and management graduates, which mandates the educational infrastructural development to address demand.

    Useful Links