Investment in India

Investment options in Indian education sector

Education is the vital key for modernization. The importance of education can be realized from the fact that all modernized societies are emphasizing on universalization of education as a mode for sustained economic development. There is a huge demand for upgradation of education sector in India, as the country is expected to have a surplus of 47 million people in the working age group by 2020. The consumption trends predict that an urban India is spending nine per cent of his wallet on education while the rural consumer spends only six per cent.

Education in India

In the past few years Indian education sector has witnessed a series of changes, which resulted in a significant increase in market share of the education industry. With economic growth and enhanced technology it has become necessary to develop the Indian education sector. Funds are a major concern in the market to meet this demand. The Government of India has taken many initiatives to attract investments from non-resident Indians (NRIs) for the development of education infrastructure. The Government has also opened the doors for foreign universities by passing Foreign Educational Institution (Regulation of Entry and Operation) Bill, which will help in bringing foreign investments in education in India and shaping the education industry structure specially pertaining to higher education.

Growth drivers of Indian education sector

• Demographic advantage
  • As per Census 2011, 35.3 per cent of the Indian population is under the age of 14
• Increasing awareness
  • Increase in awareness towards education as a priority and essential tool for career growth
  • Increase in job opportunities and salaries offered making investment in education in India prudent
• Human Resource driven economy
  • Increase in the demand for an educated skilled workforce by services sector
  • Share of service sector in GDP increased from 30% in 1950 to 55% in 2007
• Technology aided delivery
  • Increase in penetration of technology resulting in virtual learning and education delivery
• New employment avenues
  • Newer employment avenues such as knowledge process outsourcing (KPO), legal process outsourcing (LPO), retail, aviation, animation etc. demanding highly skilled manpower

Investment opportunities in Indian education sector

Education sector in India is also considered as one of the major areas for investments, as the entire education system is going through a process of renovation, according to a report 'Emerging Opportunities for Private and Foreign Participants in Higher Education' by PricewaterhouseCoopers (PwC).

The Government of India has allowed foreign direct Investment (FDI) up to 100 per cent through the automatic route in the education sector.

According to the 'Indian Higher Education - Real Estate's New Emerging Sector', a study by real estate consulting firm, DTZ, the Indian higher education sector needs 5,550 million sq ft of additional educational space (excluding support services like hostel, cafeteria, recreational facilities) to meet the Government of India's 30 per cent Gross Enrollment Ratio (GER) in higher education target by 2020.

The sky rocketing economic growth will require huge number of engineers and management graduates which mandate infrastructural development to address the demand. Entry of foreign universities would not only intensify the competition, but also provide an international platform to the Indian students where they can achieve quality learning.

Investments Prospects in Indian Education Sector

Education in India is provided by the public sector as well as the private sector, with control and funding coming from three levels: central, state, and local. The Nalanda University was the oldest university-system of education in the world. Western education became ingrained into Indian society with the establishment of the British Raj.

Education sector in India falls under the control of both the Union Government and the states, with some responsibilities lying with the Union and the states having autonomy for others. The various articles of the Indian Constitution provide for education as a fundamental right. Most universities in India are controlled by the Union or the State Government.

Investments opportunities in Indian education sector

The Indian education sector has been recognised as a “Sunrise Sector” for investment in the recent past. This recognition stems from the fact that the sector offers a huge untapped market in regulated and non-regulated segments due to low literacy rate, high concentration in urban areas and growing per capita income. The Government has also been proactively playing the role of facilitator in this sector.

The higher education sector, owing to its huge potential, holds very promising prospects. With an estimated 150 million people in the age group of 18-23 years, the sector offers one of the most attractive yet highly complex market for the private/foreign players.

The Indian Education sector is characterized by a unique set of attributes:

• Huge market size both in terms of number of students and annual revenues
• A potential growth rate of 16% is expected over thenext 5 years
• Significant activity in terms of new foreign entrants and participation is expected to be witnessed in the years ahead
• Accreditation is still not mandatory, however, reforms are in the pipeline to address this issue

The Indian education sector is evolving, which has led to the huge investments options for non-resident Indians (NRI) and emergence of new niche sectors like vocational training, finishing schools, child-skill enhancement and e-learning among others. Growth is driven by the increasing propensity of the middle class to spend on education and more aggressive initiatives by private entrepreneurs.

Private sector investment options in Indian education

The Government of India has set itself an aggressive target of achieving 30 per cent gross enrollment ratio (GER) in Higher Education by 2020, which translates into doubling the GER in the next 8 years.

As per recent estimates by National University of Educational Planning and Administration (NUEPA), in order to achieve this target an additional investment of Rs 9.5 lakh crore, which includes capital expenditure and operating expenditure, has to be made in the next 8 years. To give a perspective, the total allocation to the education in India under the 11thFive Year Plan (2007-12) was Rs 2.7 lakh crore out of which higher education’s share was only about 30 per cent.

The private sector’s role in the higher education sector has been growing at a rapid pace over the last decade and needs to further expand at an accelerated rate in order to achieve the GER target.

Despite the huge potential in the higher education sector, not everyone has been able to achieve success. The challenges/threats, which the private sector players face in India are significant and therefore, approaching the market with a well thought-out strategy is advisable.

NRI Investment options in Indian education sector

India has emerged as a strong potential market for investments in training and education sector, due to its favourable demographics (young population) and being a services-driven economy. Further, India’s expanding role in sectors such as software development, generic pharmaceuticals and healthcare, would require the country to invest into learning and training segment as well.

Market size of education sector in India

With a growth rate of 10 to 15 per cent expected over the next decade, education in India has witnessed a series of developments and changes in the last few years, which has resulted in a significant increase in the market size and investment opportunities as compared to previous years.

In India, the pre-school segment is currently worth US$ 750 million and is expected to reach US$ 1 billion by 2012, said Arun Arora, Chairman, Serra International Pre-Schools.

The market size of K-12 sector is expected to reach US$ 34 billion in 2012, with a rise of 14 per cent, as compared to US$ 20 billion in 2008.

Vocational education/training is gathering huge investments from corporate and private equity (PE) firms as the methodology and technology pertaining to this sector is witnessing significant improvements.

Investment in Indian education sector

Education in India is also considered as one of the major areas for investments as the entire education system is going through a process of renovation, according to a report ‘Emerging Opportunities for Private and Foreign Participants in Higher Education’ by PricewaterhouseCoopers (PwC).

The Government of India has allowed foreign direct Investment (FDI) up to 100 per cent through the automatic route in the education sector.

Government Initiatives for promoting education sector in India

Some of the initiatives taken by the Government of India for infrastructural development of education sector are as follows:

• The Ministry of Human Resource Development plans to set up ten community colleges in collaboration with the Government of Canada in 2012. The Government of India has decided to set up hundred community colleges this year.
• The Government of Gujarat plans to set up a farming educational institute in collaboration with Israel, offering post-graduation and Ph.D programmes with practical training and degree from Israeli universities.
• The Government of India also plans to set up an Indian Institute of Agricultural Biotechnology at Ranchi with investments of Rs 287.50 crore.

Future of Indian education sector

Consulting firm Technopak is very positive about the growth of the sector and estimates private education sector alone to grow to US$ 70 billion by 2013 and US$ 115 billion by 2018 in its study ‘A Report Card on India’s Education Sector’.

There are clear investment opportunities for private players to enter the Indian education space. The opportunity exists in all three segments – schooling, higher education and vocational training. Some success stories are Manipal University, Amity University and the Indian School of Business. Public-private partnerships (PPP) arrangements, tax concessions for education and encouraging foreign capital to build infrastructure in India would encourage the creation of new capacities by the private sector.

India’s education sector is expected to witness huge investments from PE funds over the next couple of years on the back of increased Government spending and expansion plans of private players.