At the Malleswaram school in Bengaluru, which consists of a few basic classrooms, a group of 8-year-old children sit on the floor, practising their writing in Kannada, the local language. Their teacher does not speak English. They do not have desks. At lunch time, they again sit on the ground to eat their lunch. The government-run school is free of charge.
Away from the city, in Belgaluru’s countryside, the scene could not be more different at the Stonehill International School, a non-profit private school, set up by one of Bengaluru’s major property developers, Embassy Group. There, privileged Indian and expat children enjoy modern classrooms where they are taught in English and have the benefits of a large cafeteria, a swimming pool and expansive playing fields spread across 34 acres. The fees range from US$9,400 to more than $26,000 a year.
These are the two extremes of India’s education system.
There are huge opportunities in the education sector, given a growing need for more good schools, a young population, an expanding middle class and parents’ willingness to invest heavily in their children’s education. And despite the fact that India’s school system is largely based on non-profit models because of regulations, education providers are finding ways to legitimately generate profit from schools, creating significant business opportunities. To take a profit, there has to be a dual structure between a trust that runs the school and a management company that provides the educational support.
India Ratings and Research, part of Fitch Group, highlighted in a recent report that “the education sector has tremendous potential to grow due to the huge demand-supply gap”.
It says the country needs a further 200,000 schools, along with 35,000 colleges and 700 universities. The size of the market will reach 7,800 billion rupees (Dh427bn) this year, up from 6,423bn rupees last year, according to India Ratings.
Ramya Venkataraman, the founder and chief executive of the Centre for Teacher Accreditation (Centa) and the former leader of McKinsey’s education practice in India, says that demand for quality schools has grown significantly in recent years.
“This is driven by several things, such as spending more on education and greater understanding of what quality means because of the efforts of organisations and because of national level tests that have started,” she says. “At the bottom of the pyramid, there is also some amount of shift from government schools to private schools, mainly because of the need for English medium, which government schools offer only to a limited extent.”
Ms Venkataraman says there is another gap in the government school system, where many schools stop at seventh or eighth grades. Enrolment in secondary schools is rising and children may not necessarily be able to access a government secondary school nearby, forcing parents to send their child to a private school if they want to continue their education.
Demand for private schooling “is not just about elite private and international schools” but “it’s across the board, across income segments and geographical segments”, she says.
There is “a perceived quality difference” between government and affordable private schools, although she adds there is some debate over this.
Even India’s poorer citizens, from road sweepers to taxi drivers, say that they send their children to affordable private schools because they are not happy with the standard of education at government schools.
“The amount of money that parents are willing to spend is definitely going up,” says Pranav Kothari, the vice president of the large-scale education programme at Educational Initiatives, a technology solutions company in India involved in assessments and benchmarking of schools. “I don’t think there’s any doubt about the amount of money that is being thrown at education.”
Learning levels are low in a lot of government schools and cheap private schools, he says. There is a dearth of high calibre teachers in the country and a need to raise the standards of teaching.
Gems Education, a Dubai-based education company, is one entity that is capitalising on the need for quality school education in India. It has about 175 schools in India, with more than 65,000 students across nine states. It wants to open almost 3,000 budget schools in India by 2022.
Amreesh Chandra, the group president of Gems India, says that with the emergence of “brand India” there has been a “very large focus on the internationalisation of school education” in the past few years.
Corporates had already started setting up schools or tying up with providers to set up good schools for its employees’ children, he says. For example, Mercedes-Benz has a school in Pune. This helped to bring about a change in the education landscape in India.
The government allowed foreign direct investment (FDI) of 100 per cent and this “brought up the whole aspect of looking at India in the business sector and that’s where companies like Gems come in”.
Gems charges $350 a year at its affordable schools in India, with each of its schools having a multimedia centre. These cater to lower middle-class families.
Global Indian International School is another brand that is expanding and targeting wealthy parents.
“Affluent parents prefer schools that offer a globally branded curriculum, hence the demand for international schools in India,” says Atul Temurnikar, the chairman and co-founder of Global Indian International School. He says that “in the last few years, competition among international schools has considerably risen”.
Despite the fact that there is clearly strong demand for quality school education in India, Ms Venkataraman says there are challenges and “it has not been very easy for any player to tap this opportunity in as big a way as people expected”.
A major hurdle is the fact that schooling is meant to be not-for-profit in India. The trusts running schools can only reinvest surplus funds back into the school. Separate management companies can, however, be paid for their services.
“Trust founders are increasingly establishing private limited companies to manage the services of the schools by charging fees with markups,” according to India Ratings. “This structure facilitates companies to take away profits from the trusts.” It says that “these evolving structures are positive for the sector”.
But Ms Venkataraman says that this profit-taking is still perceived by some opponents as “a grey area”, which deters some investors.
India Ratings says that there need to be more business tie-ups in the sector to allow it to expand even further to meet the surging demand. “More international collaborations with education institutions along with joint ventures and merger and acquisitions with both foreign and domestic corporate players would further help the sector to grow.”
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