report on indian education system final

20 CONTENTS : needs to be changed

Contents Page No. Introduction 3 Education in India Indian Education Sector Overview 4 Structure of Indian Education System 5 Key Drivers of Indian Education System 6

CONTENTS

Indian Education System Structure, Drivers, Challenges and Remedies Indian Education Sector is by far the largest capitalized space in India with over $30bn of government spends and a large network of ~1m schools and 18,000 higher education institutes. Yet, the public education system is ‘insufficient’ and ‘inefficient’, leading education-hungry and affluent Indians to spend $50bn on private education. India seems an ideal market for investment in education because of its young population and an economy focused on services which makes education a key factor, illustrated by Indian presence in sectors like software, generic pharmaceuticals, and other areas that require high level of education

A

Sucheta Jha E-mail : [email protected]

Mobile : +91- 9818349139

October, 2010

mailto:[email protected]

Contents Page No.

Introduction: Education in India 3

Indian Education Sector: An Overview 5

Structure of Indian Education System 6

Key Drivers of Indian Education System 9

Critical Challenges of Indian Education System 13

Remedies to Critical Challenges of Indian Education System 16

Key Success Factors for Private Education in India 18

Appendix 19

3 Indian Education System

“Over-regulated and under-governed” best describes the largest sector in India – Education. With about 450mn out of India’s 1.2bn population falling in the 5-24 year age group, the potential for the education sector is enormous. Despite regulatory and scalability issues, private players believe “innovative business models” would provide scale and opportunity for players. Due to huge gap in quality of teaching, infrastructure K-12 and pre-school, segments offer the best bets for private players. Govt. spending on education to double in 11th Five-Year Plan Currently, government spending (both central and state governments) accounts for US$30bn out of the US$75bn spent on education annually. The government plans to double spending on education during the 11th Five-Year Plan (2007-12) to improve education system in India but considering the significant number who struggle to receive basic elementary schooling, or are deprived of it altogether, private participation is seen as the only way of narrowing the gap. Significant share of private education market regulated Education in India is regulated at both central and state government levels. As a result, regulations often differ from state to state. Under current regulations, only not-for-profit trusts and societies registered under Societies Registration Act can operate private schools. High investor interest in ‘education revolution’ Despite being fraught with regulatory restrictions, private investors are flocking to play a part in the “education revolution”. Further, in order to expand to different markets to cover more target population, capture higher market share in terms of revenue in both private education market and government spending on education, Valuations to improve Companies such as Educomp Solutions, Everonn Systems and NIIT are market leaders in their field. With these companies building scalable business models, which will lead to reduce the valuation gap between domestic players and international peers.

Introduction: Education in India

Demographic Indicators

Population ~1,200 Millions

Population Growth Rate 1.54%

Life Expectancy ~69 Years

Literacy Rate ~68%

Urban Population ~30%

Population BPL ~37%

Age Structure 0-14- 31.1%

15-64- 63.6% 65 & over- 5.3%

Economic Indicators

GDP $1.25 Trillion

GDP Growth Rate ~8.8%

Per Capita Income $1031

Inflation- Long Term 7-8%

Gini Index 36.8

Unemployment ~11%

Schools ~1 Million


US$75bn opportunity The Indian education sector, estimated at US$75bn, offers enormous opportunities for private players. Despite regulatory constraints, the acute shortage of trained teachers and quality schools combined with cash-strapped governments would open the doors for corporates to capitalize on this opportunity.

Indian Education Sector (IES) – an interesting class

Source- IDFC-SSKI Research; *GER – General enrollment ratio


Fact sheet:

Large population

provides huge

opportunity

India’s target population is expected to reach ~486mn (34% of its total

population) by 2025E while that of China and US would be 24% and

26% respectively

Government spend

on education to

increase manifold

The 11th five year plan targets to increase education from its present

level of 3.5% to 5% of GDP by the end of the 11th plan. The Planning

Commission to set aside 19.7% of the total plan resources for

education –$48,800 mn, a five fold increase from $9,700mn in the 10th

five year plan.

Indian Middle class’s

increase in education

spending

Total spending by the middle class is expected to increase from 18% in

2005 to a 59% in 2025. Education will be among the biggest

beneficiaries of the same

Increased Role of

Private Sector

Private sector has a role in providing digital content and technology,

setting up pre-schools and K-12 schools, undertaking large ICT projects,

vocational training and electronic learning

Current Status of Education in India

Indian Education Sector : An Overview

Government spends (Centre + state) on education: $30bn; at 3.7% of GDP, comparable to global average; 0.82% as capital expenditure, 80% on teachers’ salaries; >90% spend on K12 (kindergarten to 12th grade). Centre’s budgetary allocation up 6x in 11th Plan period.

Private spend on education: $50 bn, 5% of average HH income (12% in USA, 15% in China). CAGR of 8.6% vs 3.2% in consumption; 8% CAGR overFY08-20E (growing fastest globally)

Network: ~1m schools, of which 75,000 (7%) are private – 40% of enrolled population attends private schools; 18,000 higher education institutes (HEIs) (largest globally)

Regulatory framework: K12 and HEIs required to be run as not-for-profit institutes set up under a Trust/ Society; also, though 100% FDI allowed through automatic route, no rules/ regulations in place for foreign universities to be recognized under UGC (University Grants Commission)


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Structure Of Indian Education Sector


The ISB approach – Using the strength of brand and quality As long as industry quarters perceive the products to be of superior quality, the HEI can do without cumbersome affiliations and regulations. For example, ISB (Indian School of Business, Hyderabad) is a venerated name in the industry corridors despite it not being affiliated to any regulatory board. The diploma offered by ISB holds as much (arguably more) value as any UGC-accredited certification. But importantly, this status requires maintenance of world-class quality and strong industry support.