Privatization Of Education Sector: The Pros And Cons
Hersh Shah, Founder, ITI EdVest
Hersh Shah is the Founder of ITI EdVest and Director-Group Companies at The Investment Trust of India Limited (ITI). ITI EdVest is an Edu-focused initiative founded by Hersh Shah and Chintan Valia with an objective to support institutions through structured finance, private equity, and other advisory services. An alumnus of IIM, Bangalore, Hersh is a Chartered Accountant and is also a guest speaker at various educational institutions. On a one-to-one interaction with HER magazine, Hersh talks about the key role and challenges of private players in the Education sector
Q. What is your view on the contribution of private players to the Education sector?
Contribution to the private education sector is majorly in the form of colleges, universities, coaching classes and K-12 schools. The exceptional growth in these segments is attributable to the active participation of the private sector. An additional capacity of about 25 million seats needs to be created if India is to meet its GER target for Higher Education. However, a break-up of the government spends shows that less than 1% of the budget allocated for education goes towards capital expenditure. This widening of the demand-supply gap will cause an infrastructure and investment deficit, creating growth opportunities for the private sector. Further, the ability to innovate and provide experiential learning through industry partnerships and research-based pedagogy is drawing the demand towards private institutions. I believe there is tremendous scope for the private sector to contribute meaningfully to Indian education. The major drivers include increasing awareness for quality education, higher competition for professional courses and increasing demand for skilled labor.
"The main challenges faced by educational institutes in India are inadequate infrastructure, unavailability of quality teachers at the proposed salaries and inability to invest in technology & research"
Q. Are you seeing any new trends in this sector?
I am seeing development mainly in 3 areas coaching industry, online education and vocational training. The Coaching Industry will continue to remain an attractive spot for private players given the nature of the business deregulated, asset-light models and good margins. The traction in the online education space has also been phenomenal with the industry expected to touch $2bn by PRIVATIZATION OF EDUCATION SECTOR: THE PROS AND CONS 2021. Some of the institutions which were traditionally run as brick and mortar coaching classes have now adopted a hybrid model and some of them are completely new players focusing on e-learning to penetrate faster and also leverage their technology to collaborate with international institutions. Reskilling and online certification is currently the largest segment of online education. Another important segment which has been attracting private investments is the skilling industry majorly regulated by the National Skill Development Corporation, focused on up-skilling of the youth in various disciplines. We are also seeing a great willingness on the part of the Government to provide autonomy to various colleges and institutes.
Q. What do you see as the major challenges faced by the education players?
The main challenges faced by educational institutes in India are inadequate infrastructure, unavailability of quality teachers at the proposed salaries and inability to invest in technology & research. These challenges can be addressed by the private sector through world-class infrastructure and innovative teaching pedagogy which would create sufficient interest among the student-parent community. The fact that private players can run the institutions efficiently ensuring sufficient seat occupancy enhances their ability to raise funds through private equity, banks, and NBFCs. These institutes do tend to charge higher fees however education loans are available from banks at reasonable rates. With increased private investment and sops from the government, we should hopefully move towards a day where our institutes will rank among the best in the world.
Q. What could be the reasons of loan default by these institutions?
The reasons for default generally include inability in managing operations & funds on account of inadequate student inflows, non-compliances with regulations resulting in the cancellation of licenses and heavy capitalization. Lenders find it challenging to predict the cash flows and assess the impact of external factors on education institutions. PSU and Private Banks both have experienced such transactions and some of these NPAs are now being resolved through the ARC route. Owing to this, Banks have strengthened their lending criteria and reduced exposure to good quality institutions only, while some of the institutions (say engineering colleges) are almost finding it impossible to raise funds.
Q. What is your view on the contribution of private players to the Education sector?
Contribution to the private education sector is majorly in the form of colleges, universities, coaching classes and K-12 schools. The exceptional growth in these segments is attributable to the active participation of the private sector. An additional capacity of about 25 million seats needs to be created if India is to meet its GER target for Higher Education. However, a break-up of the government spends shows that less than 1% of the budget allocated for education goes towards capital expenditure. This widening of the demand-supply gap will cause an infrastructure and investment deficit, creating growth opportunities for the private sector. Further, the ability to innovate and provide experiential learning through industry partnerships and research-based pedagogy is drawing the demand towards private institutions. I believe there is tremendous scope for the private sector to contribute meaningfully to Indian education. The major drivers include increasing awareness for quality education, higher competition for professional courses and increasing demand for skilled labor.
"The main challenges faced by educational institutes in India are inadequate infrastructure, unavailability of quality teachers at the proposed salaries and inability to invest in technology & research"
Q. Are you seeing any new trends in this sector?
I am seeing development mainly in 3 areas coaching industry, online education and vocational training. The Coaching Industry will continue to remain an attractive spot for private players given the nature of the business deregulated, asset-light models and good margins. The traction in the online education space has also been phenomenal with the industry expected to touch $2bn by PRIVATIZATION OF EDUCATION SECTOR: THE PROS AND CONS 2021. Some of the institutions which were traditionally run as brick and mortar coaching classes have now adopted a hybrid model and some of them are completely new players focusing on e-learning to penetrate faster and also leverage their technology to collaborate with international institutions. Reskilling and online certification is currently the largest segment of online education. Another important segment which has been attracting private investments is the skilling industry majorly regulated by the National Skill Development Corporation, focused on up-skilling of the youth in various disciplines. We are also seeing a great willingness on the part of the Government to provide autonomy to various colleges and institutes.
Q. What do you see as the major challenges faced by the education players?
The main challenges faced by educational institutes in India are inadequate infrastructure, unavailability of quality teachers at the proposed salaries and inability to invest in technology & research. These challenges can be addressed by the private sector through world-class infrastructure and innovative teaching pedagogy which would create sufficient interest among the student-parent community. The fact that private players can run the institutions efficiently ensuring sufficient seat occupancy enhances their ability to raise funds through private equity, banks, and NBFCs. These institutes do tend to charge higher fees however education loans are available from banks at reasonable rates. With increased private investment and sops from the government, we should hopefully move towards a day where our institutes will rank among the best in the world.
Q. What could be the reasons of loan default by these institutions?
The reasons for default generally include inability in managing operations & funds on account of inadequate student inflows, non-compliances with regulations resulting in the cancellation of licenses and heavy capitalization. Lenders find it challenging to predict the cash flows and assess the impact of external factors on education institutions. PSU and Private Banks both have experienced such transactions and some of these NPAs are now being resolved through the ARC route. Owing to this, Banks have strengthened their lending criteria and reduced exposure to good quality institutions only, while some of the institutions (say engineering colleges) are almost finding it impossible to raise funds.
