Mumbai, July 22: It is the last frontier, and the most lucrative opportunity for business. After changing the face of the Chinese education sector, international education giants are waiting for the government to give them the go-ahead to set up shop in India. It is literally a once-in-a-lifetime opportunity, Robert Lytle, partner with international investment consultant The Parthenon Group, tells Sreejiraj Eluvangal in an interview, Excerpts
What is the level of interest among your clients with regard to investing in the Indian education sector?
Most of the interest currently lies in the higher education sector, in setting up brick and mortar colleges and universities. Most of the institutions we work with, including prominent names in the global education industry like Laureate Education, Apollo Education and Devry University, are extremely interested in setting up operations in India.
Can you quantify the investment potential in the sector?
As of now, we can think of around 70 to 80 global players who are willing to set up operations in India and most of them will invest hundreds of millions of dollars when they do so. In all, we would expect that the total inflow would be billions of dollars in the first year itself.
So, what prevents them?
A host of reasons. First and foremost is that, though foreign investment is allowed into the sector, no company or for-profit organisation can invest into education. This has, however, not prevented companies or for-profit organisations and investors from opening schools and colleges through shell companies and arrangements. But international investors are usually averse to getting around the law through loopholes, no matter how big the opportunity.
The second reason is the unbelievable amount of red-tape in the sector. Everything is controlled by agencies like the UGC (University Grants Commission) and AICTE (All India Council for Technical Education). I can only charge the fees dictated by the UGC. I can only enroll the number of students stipulated by the AICTE. No matter how much invest, I can only start with 60 students in one course. Worst of all, I have to buy my own land, put up a building, have an endowment corpus etc before I even apply for permission to start a college in India.
What this has created is a situation reeking of corruption from top to bottom. Since the schools and colleges are not supposed to redistribute profits, they extract profits through over-priced ‘service contracts’. Since the fees are capped, students are forced to pay illegal ‘capitation fees’ if they want to get into an institution with good infrastructure. People who want quality education are forced to go out of the country, even for ordinary courses like MBA and undergraduate degrees.
I have seen many regulatory regimes all across the world, but India wins hands down when it comes to the complexity of regulations in education.
So why are you still here? Where is the opportunity?
Two reasons — one is the sheer need for private investment in the sector and the other is the positive noise coming from the current ministry under the leadership of Kapil Sibal.
Moreover, reforms are inevitable. India today has 13.8 million students in post-secondary education. The enrollment ratio is around 13-14%. Compare this to 75%-plus in the US, 55% in Argentina, close to 30% for Philippines.
India has the youngest population in the world, one which is rapidly approaching the college-education age in huge numbers. Take a state like Andhra Pradesh. Around 2.3 lakh students appear for the engineering entrance exam and just 1.16 lakh get admission. Whichever state you take, the market is able to meet only about half the demand… which other market do you know in the world where the supply is only half the demand?
So, even if we want to give higher education to just one in five persons, we will need 21.5 million seats, against the current availability of 13.8 million. So we need that extra 7.7 million seats in the next 5 to 7 years if we want to keep up with the students now in school. Do a little bit of back of the envelope calculation. At Rs 1.5 lakh capex per seat, the required expenditure turns out to be around $200 billion (Rs 10,000 lakh crore), around the same size as the total Budget of the Indian government.
Who do you think has that kind of money?
So reforming the higher education sector and bringing in private investment is inevitable.
And we need not look very far to find out how it can change things. Historically, China has always had a higher education enrollment ratio roughly half that of India’s. So, at the end of 1999, China had around 4 million students in post secondary education against India’s 7.5-8 million. In 2000, China opened up the education sector to private and for-profit companies. In two years, by 2002, China had more students in higher education than India. By 2004, India still had 10 million students in post secondary education while China had zoomed to 15 million.
Here we have a situation where we have people who are willing to put in billions of dollars into a socially beneficial sector like education and we are keeping them away with scary regulations.
What should be a higher priority — to have world class soaps and cars, or to have the facilities for a world class education?
And all that is needed is just changing a few rules. Make the industry clean and transparent and let us not convert a demographic dividend into a demographic liability.
-Agencies