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Why is Indian education sector shy of 'for-profit' capital?

For years, the education sector in India has been characterised by traditional ideals and goals, but limited by inadequate state funding and the restricted reach of not-for-profit system.

Deepak Mehrotra | July 6, 2016 | Updated 20:56 IST

Deepak Mehrotra
"There are two educations. One should teach us how to make a living and the other how to live," said John Adams, one of the founding fathers of the United States.

For years, the education sector in India has been characterised by traditional ideals and goals, but limited by inadequate state funding and the restricted reach of not-for-profit system. Even today, the government resource allocation is insufficient to meet its own targets (30 per cent Gross Enrolment Ratio or GER by 2020), falling from a high of 1% of Gross National Product (GNP) in 1950s to nearly half of that in recent times with much of it going to fund primary and secondary education. Despite a substantial rise in allocation to about $18.8 billion in the 11th Plan (2007-12) from $2.1 billion in 10th Plan, funding needs remain much higher to achieve the set GER targets and it might take a good decade or two thus leaving quality education out of the reach for a majority of youth in the current generation.

India is no stranger to the capability and success of private sector participation in many sectors. If we draw a parallel to the liberalisation of healthcare, telecom, banking and insurance, the government did realise its capabilities and has rightly let the private sector flourish, under the vigilance of credible industry regulators. Particularly in healthcare, it is interesting to see the boom of private sector participation in the last decade, so much so that it has become one of India's largest sectors - both in terms of revenue and employment. The private sector provides the majority of secondary, tertiary and quaternary care institutions with a major concentration in metropolitan, tier-I and tier-II cities. That's why we have a serious case to endorse the 'for-profit' education system in India, which can effectively draw abundant resources, contemporary management ideas and more advanced products and services.

With our emotional resistance to the for-profit education system, we are keeping away the abundant private resources for making a similar impact on the state of education in the country. Even the worst critics of for-profit education agree that it induces cost and resource efficiency, better usage of teaching faculty and a greater window of opportunities. Profit incentivises more investments in any industry; when educational facilities thrive, they also enhance the universal access to education.

Enrolment in for-profit institutions is up across the world and India is no exception as more students today value efficiency of the unaided private institutions than ever before; figures showing a 50 per cent to 60 per cent spurt in enrolments every year, speak for themselves. Studies confirm that China and Brazil have induced better enrolment by opening up education to the for-profit segment. Since 2000, millions of Americans have improved career prospects using advanced and updated courses from for-profit institutions.

A qualitative differentiator could be in teaching where for-profit colleges link performance with the output of teachers, as gauged by test scores or even absenteeism. Experts say for-profit institutions use capital more efficiently by optimising the size of batches or shifts. Even their students are known for higher employability, enabled with essential vocational and technical skills in line with the industry needs.

Globally, investors acknowledge modern education as the sole opportunity for innovation and social up gradation among vast underprivileged sections hence are increasingly outlining capital investments. In fact, India had toyed with the idea of permitting higher education institutions to be run for profit in the 12th Plan as the demand-supply gap in higher education and skill training continued to be wide. Given its tremendous demographic dividend, India can't afford to miss the emerging prospects as more advanced countries are aging and seek workforce from outside. However, a recent report by research firm, Ambit Capital points out that even as India's demographic profile today is similar to that of the US in 1960s, a demographic dividend is very unlikely to accrue anytime soon since a large chunk of its youth today lacks education and job opportunities.

At the outset, India needs to liberalise its outlook and rules of engagement for the education sector, making it easier to attract investments. It may then build adequate monitoring to allow private institutions to complement the existing education mechanism. The biggest criticism about the for-profit, at least in the West, is around the student default rates and unrealistic employment prospects offered.

Particularly in India, there is a big question about the efficiency of for-profit higher education institutions, particularly in engineering and management institutes. This is reflective of the fact that out of the 600,000 fresh engineers produced annually in India; only 18.43 per cent are employable for the Software Engineer-IT services role, while a dismal 3.95 per cent are appropriately trained to be directly deployed on projects. In the absence of a firm regulatory mechanism, the quality of education imparted in these institutes is being compromised.

To increase job-readiness in today's learners, we must focus on three fundamental areas - firstly, the 'recognition of prior learning' process to evaluate skills acquired by an individual outside the formal learning system. Secondly, imparting concrete skills through 'competency-based learning' model and lastly, implementing the 'Badging' system to seamlessly integrate learning in formal, vocational and professional environment by attaching credits to each phase. This system can only be scaled-up with the investments from the private sector.

India can also learn much from the Brazilian experiment which worked commendably to attract quality capital in higher education to meet the growing demand. The issues like higher tuition fees and aggressive marketing strategies will get rationalised as the competition becomes intense, forcing market players to offer more innovative products at reasonable prices to ensure higher enrolment. In India, the segment might mature faster, leading to the exit of non-serious players.

As the father of our nation, Mahatma Gandhi once said, "True education must correspond to the surrounding circumstances or it is not a healthy growth."  A good education must ensure jobs, social status and dignity. The consistency with which the enrolment in for-profit colleges is growing since 2010 indicates that people are willing to pay for quality and employability of such an education.

The author is Managing Director, Pearson India and can be reached at deepak.mehrotra@pearson.com.

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