Top Investment Sector In Fast Growing Economy Of India - Indian Education Sector
Posted: Tuesday, December 21, 2010
by Dakhsh Jain
Winfromus.com
Earlier we discussed about the other two important top Indian Economy sectors to invest in 2011 after the great bull run in stock prices we have seen in 2009-2010. The sectors we talked about there is Indian Automobile Industry and Agriculture in India. If you haven't read it yet, read it first then come back reading about Indian Education Sector.
Education In India
While the Education sector remains one of the top growing business sector in India, it also provides tremendous investment opportunity in India being enjoying the "priority status" in the world's second fastest growing Economy Of India.
The Indian Economy is estimated to grow to GDP rate of 9.5% by the year 2013-2014. In 2009-2010 Indian Economy has been steadily growing at 8.5% growth rate.
Indian Education Sector is by far the largest capitalized space in India with $30bn of government spend (3.7% of GDP; at global average), and a large network of ~1m schools and 18,000 higher education institutes. Indian Government constant efforts to make India a knowledge-based economy will keep boosting the sector overall by allocating higher budget and funds inflow towards the sector.
Yet, the public education system is ‘insufficient’ and ‘inefficient’, leading education-hungry and affluent Indians to spend $50bn on private education (14% CAGR over FY08-12E).
Public Indian Education Sector is Over-Regulated and Under Governed
While India has been proactive on liberalization, Indian Education Sector (IES) has remained largely untouched by the reforms process. A ‘priority sector’ status does ensure fund flow to an extent, but the government’s agenda of ‘social inclusion’ has trapped IES in a regulatory maze. Archaic rules mandate all formal educational institutes in India to be run as ‘not-for-profit’ centers under a society or trust.
Why the Public Education Sector Has Failed to do well?
A break-up of government spend shows that only a miniscule 0.82% component goes towards capital expenditure. A whopping 80% of the revenue expenditure on teachers’ salaries leaves little to be spent on infrastructure creation, which eventually translates into ‘ineffective’ infrastructure/ quality of education.
India has a network of more than 1 million schools, out of which 66% of the schools are till primary levels. Estimates shows that only 61% of the targeted group enrolls with drop out figures as high as 40%.
The other thorny issues includes –
Given the dismal state that IES (read government-run schools/ institutions) is in, consumers are increasingly veering towards private institutions, typically perceived as hallmarks of quality (even though quality comes at a price). In this backdrop, the market for private formal education has grown to a stupendous $50bn in size over the past few decades.
Since the Public Education Institutes lacks the quality, people of India are willing to pay higher price for better studies and training and steering themselves to the private education sector players. It is being estimated that the public investing in the private education is going to go as high as $80 billions by 2012.
Education Beyond Just Chalk, Talk and Black Boards
Private schools are working on evolving and improving their teaching delivery mechanisms by going beyond the traditional chalk & talk. Multimedia in schools uses digital educational content and infrastructure solutions as a teaching aid in classrooms by using audio and visuals means across various subjects.
While implementation of such products adds to differentiation and ability to charge
higher fees by private schools, the trend is gaining acceptability as the model does not require schools to invest any capex or incur operating/ maintenance expenses. With multimedia companies charging students directly, some schools even get a revenue share, which makes the proposition economically beneficial for the latter.
Vocational Training and Public Private Partnership (PPP) is the Next Big Thing!
Nearly 95% of the youth in the 15-25 years age group formally learn a trade or acquire a skill/ competency in most of the developed world. In contrast, only 5% of India’s young labour force (19-24 years) is estimated to have acquired formal training.
Low enrollments and high dropout rates throughout the education chain result in an inefficient supply of workforce. further, 80% of the graduates in general streams (i.e. non-career specific courses) like BSc/ BA are unemployable. Due to the high dropout rates and inefficiencies rampant in the system, a large chunk of the population needs to be trained.
Apart from a quantity shortage the primary concern in India today is a quality crunch. According to industry estimates only a quarter of all graduates are employable and ~80% of the job seekers in
employment exchange are without any professional skills.
Top Recruiting Companies Views about how skilled Indian job seekers are –
The space encompasses training services at all levels, be it for students passing out from schools and colleges or re-training needs of the employed set. We estimate the $1.5bn market to grow rapidly (~25% CAGR) in the coming years. The following exhibit points to the high underlying demand for vocational training across sectors like IT, financial services, retail, aviation, hospitality and English language training.
Formal Education Meets Vocational Training to Boost Company Skilled Headcounts
The ever-changing dynamics of education and employability in a knowledge-driven economy are
throwing up interesting trends. Employers are increasingly seeking employees that can contribute to the company’s topline/ bottom line from day-one and skill sets have to be continuously updated to remain competitive.
In this backdrop, the lines between formal and non-formal education have started to blur. To ensure quality training, employer companies are joining hands with private players to impart customized training to future employees. An interesting example of the same is the arrangement between ICICI and Manipal University to form ICICI Manipal Academy (IMA).
Public Private Partnership – A New Beginning, Yet Small
Another opportunity, though small in size, is on the horizon for private players in the space. The Centre has approved PPP, or Public Private Partnership, Scheme to upgrade 1,396 ITIs and transform them into Centres of Excellence. Educomp has taken over running of 18 ITIs as well as 12 skill development centers erstwhile run by the state government in Gujarat. More such arrangements are expected to follow. The focus of the Indian government is to dispense education with stress on
employment.
The 11th Plan has allocated Rs721bn to be spent on ICT and Vocational training. Of this, Rs411bn has been earmarked for setting up ICT labs for computer aided learning and Edusat Centers for distance learning programmes while Rs310bn has been allocated to National Skill Development Programme for training through Virtual Centers for Vocationalization.
According to the statement of Mr. N. K. Singh, Deputy Chairman, Planning Commission, 250,000 vocational schools will be opened in India in next five years in PPPs, wherein the corporate sector will play a major role.
Indians and Indian Education Sector By The Year 2020
India’s already inadequate education system is being further stretched due to its increasing population. Based on current and estimated population demographics, India would have a surplus of 47m people in the working age group by 2020 while RoW would see a shortage of 56m in this age group. In this backdrop, increasing mobility of the Indian workforce and its unique demographic dividend (a young working age population) can work in India’s favour, subject to the country upgrading the quality of its education and skill set development.
Education sector remains one of the important sector related to the Indian Economy and remains a good investment opportunity for wealth creation. But like every other Industry and sector, Education in India also faces some key challenges. The Private Education Sector and Players are better placed compared to Government under taking institute and is most likely that the Leaders in Private Players like Educomp Solutions, Everonn will continue to do better in the years to come.
Happy Studying, Reading and Investing!!
While the Education sector remains one of the top growing business sector in India, it also provides tremendous investment opportunity in India being enjoying the "priority status" in the world's second fastest growing Economy Of India.
The Indian Economy is estimated to grow to GDP rate of 9.5% by the year 2013-2014. In 2009-2010 Indian Economy has been steadily growing at 8.5% growth rate.
Indian Education Sector is by far the largest capitalized space in India with $30bn of government spend (3.7% of GDP; at global average), and a large network of ~1m schools and 18,000 higher education institutes. Indian Government constant efforts to make India a knowledge-based economy will keep boosting the sector overall by allocating higher budget and funds inflow towards the sector.
Yet, the public education system is ‘insufficient’ and ‘inefficient’, leading education-hungry and affluent Indians to spend $50bn on private education (14% CAGR over FY08-12E).
Public Indian Education Sector is Over-Regulated and Under Governed
While India has been proactive on liberalization, Indian Education Sector (IES) has remained largely untouched by the reforms process. A ‘priority sector’ status does ensure fund flow to an extent, but the government’s agenda of ‘social inclusion’ has trapped IES in a regulatory maze. Archaic rules mandate all formal educational institutes in India to be run as ‘not-for-profit’ centers under a society or trust.
Why the Public Education Sector Has Failed to do well?
A break-up of government spend shows that only a miniscule 0.82% component goes towards capital expenditure. A whopping 80% of the revenue expenditure on teachers’ salaries leaves little to be spent on infrastructure creation, which eventually translates into ‘ineffective’ infrastructure/ quality of education.
India has a network of more than 1 million schools, out of which 66% of the schools are till primary levels. Estimates shows that only 61% of the targeted group enrolls with drop out figures as high as 40%.
The other thorny issues includes –
- More than 75% of the educational institutes (in Maharashtra) are run by politicians. Low political will to realign the 'not -for-profit' education system.
- A large portion of subsidized land demarked for schools is hoarded and resold to schools at much higher prices; High land prices make economics unviable. Also unethical bidding of land leads to corruption, which is everywhere in India.
- Even though 100% FDI through the automatic route is allowed since 2000, no regulations formulated for recognizing foreign HEIs under UGC
Given the dismal state that IES (read government-run schools/ institutions) is in, consumers are increasingly veering towards private institutions, typically perceived as hallmarks of quality (even though quality comes at a price). In this backdrop, the market for private formal education has grown to a stupendous $50bn in size over the past few decades.
Since the Public Education Institutes lacks the quality, people of India are willing to pay higher price for better studies and training and steering themselves to the private education sector players. It is being estimated that the public investing in the private education is going to go as high as $80 billions by 2012.
Education Beyond Just Chalk, Talk and Black Boards
Private schools are working on evolving and improving their teaching delivery mechanisms by going beyond the traditional chalk & talk. Multimedia in schools uses digital educational content and infrastructure solutions as a teaching aid in classrooms by using audio and visuals means across various subjects.
While implementation of such products adds to differentiation and ability to charge
higher fees by private schools, the trend is gaining acceptability as the model does not require schools to invest any capex or incur operating/ maintenance expenses. With multimedia companies charging students directly, some schools even get a revenue share, which makes the proposition economically beneficial for the latter.
Vocational Training and Public Private Partnership (PPP) is the Next Big Thing!
Nearly 95% of the youth in the 15-25 years age group formally learn a trade or acquire a skill/ competency in most of the developed world. In contrast, only 5% of India’s young labour force (19-24 years) is estimated to have acquired formal training.
Low enrollments and high dropout rates throughout the education chain result in an inefficient supply of workforce. further, 80% of the graduates in general streams (i.e. non-career specific courses) like BSc/ BA are unemployable. Due to the high dropout rates and inefficiencies rampant in the system, a large chunk of the population needs to be trained.
Apart from a quantity shortage the primary concern in India today is a quality crunch. According to industry estimates only a quarter of all graduates are employable and ~80% of the job seekers in
employment exchange are without any professional skills.
Top Recruiting Companies Views about how skilled Indian job seekers are –
- Companies are able to select only eight or nine people out of 100 who apply and that’s a pretty low selection ratio…In my estimate only a third of the pool has the right skilld to be absorbed into the industry right away – Kiran Karnik, President, NASSCOM.
- The issue is no longer about finding jobs for people, but of ensuring that there are enough people with relevant skills for the jobs at hand – KV Kamath MD ICICI.
- There is huge gap in the specialiszed skilled front and we are constantly faced with the question as to how we get highky qualified people – Kiran Mazumdar Shaw, MD Biocon.
The space encompasses training services at all levels, be it for students passing out from schools and colleges or re-training needs of the employed set. We estimate the $1.5bn market to grow rapidly (~25% CAGR) in the coming years. The following exhibit points to the high underlying demand for vocational training across sectors like IT, financial services, retail, aviation, hospitality and English language training.
Formal Education Meets Vocational Training to Boost Company Skilled Headcounts
The ever-changing dynamics of education and employability in a knowledge-driven economy are
throwing up interesting trends. Employers are increasingly seeking employees that can contribute to the company’s topline/ bottom line from day-one and skill sets have to be continuously updated to remain competitive.
In this backdrop, the lines between formal and non-formal education have started to blur. To ensure quality training, employer companies are joining hands with private players to impart customized training to future employees. An interesting example of the same is the arrangement between ICICI and Manipal University to form ICICI Manipal Academy (IMA).
Public Private Partnership – A New Beginning, Yet Small
Another opportunity, though small in size, is on the horizon for private players in the space. The Centre has approved PPP, or Public Private Partnership, Scheme to upgrade 1,396 ITIs and transform them into Centres of Excellence. Educomp has taken over running of 18 ITIs as well as 12 skill development centers erstwhile run by the state government in Gujarat. More such arrangements are expected to follow. The focus of the Indian government is to dispense education with stress on
employment.
The 11th Plan has allocated Rs721bn to be spent on ICT and Vocational training. Of this, Rs411bn has been earmarked for setting up ICT labs for computer aided learning and Edusat Centers for distance learning programmes while Rs310bn has been allocated to National Skill Development Programme for training through Virtual Centers for Vocationalization.
According to the statement of Mr. N. K. Singh, Deputy Chairman, Planning Commission, 250,000 vocational schools will be opened in India in next five years in PPPs, wherein the corporate sector will play a major role.
Indians and Indian Education Sector By The Year 2020
India’s already inadequate education system is being further stretched due to its increasing population. Based on current and estimated population demographics, India would have a surplus of 47m people in the working age group by 2020 while RoW would see a shortage of 56m in this age group. In this backdrop, increasing mobility of the Indian workforce and its unique demographic dividend (a young working age population) can work in India’s favour, subject to the country upgrading the quality of its education and skill set development.
Education sector remains one of the important sector related to the Indian Economy and remains a good investment opportunity for wealth creation. But like every other Industry and sector, Education in India also faces some key challenges. The Private Education Sector and Players are better placed compared to Government under taking institute and is most likely that the Leaders in Private Players like Educomp Solutions, Everonn will continue to do better in the years to come.
Happy Studying, Reading and Investing!!
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