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BW Businessworld

Education: Calculating Profit And Loss

Educationists agree that private institutes must be self-reliant, and that surplus, not profit, should be the operational objective

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By Mayura Amarkant

Education has always been looked upon as not-for-profit, noble work. Education initiatives were deglamourised and the focus was purely on teaching. Poor infrastructure and passionate teachers happy with meagre salaries have been the hallmarks of our traditional system. As India’s population grew, government spends on education fell short. This led to the entry of private players who changed the parameters of growth and operations in education.

According to the 2015 report by India Brand Equity Foundation (IBEF), “India holds an important place in the global education industry. There are more than 1.4 million schools with over 227 million students enrolled, and more than 36,000 higher education institutes. India has one of the world’s largest higher education systems. There is still a lot of potential for further development in the education system.”

Higher education has expanded rapidly, and currently has over 70 million students. In less than two decades, India has added capacity for over 40 million students. The sector is a Rs 46,200-crore ($6.96 billion) industry, and expected to grow at an average annual rate of over 18 per cent to reach Rs 232,500 crore ($35.03 billion) in the next 10 years.

What Has Changed?
Masood Ahmed, director general, Vishwa Vishwani Institute of Systems & Management (VVISM), established in 1998 in Hyderabad, says that a large number of privately-run colleges across India have shut down recently, due to large deficits or zero admissions. “The average employability ratio has reduced to a dismal 25 per cent, as industry expectations for entry-level trainees increased. Students opted out when they realised they may not get good jobs,” he says. With an annual turnover of Rs 30 crore, VVISM is the third largest business school in South India.

Rajiv Swarup, president, Shiv Nadar University, says, “Students know what is happening in Universities globally, what the world of the future needs to know is how to bridge the gap. They base their choice of institutions on research rather than hearsay or legacy.”

Some private players built innovative franchisee models that allowed entrepreneurs to explore unlimited opportunities. EuroKids International recorded a gross revenue of Rs 180 crore this year. They have in the process empowered more than 900 entrepreneurs, 80 per cent of whom are women, to build a business. They claim that franchisee partners receive an ROI of 18 to 30 per cent within two years.

School education is also changing, there is an integration of technology in teaching-learning practices. According to Nirav Khambati, CEO, Tata ClassEdge, “The chalk-and-talk method has been enhanced by the inclusion of digital classrooms. Interactive teaching methods engage students better.” Tata ClassEdge is present in 1,200-plus private schools, and more than 80 government and low-income schools.

Business Or Charity?
Public trusts like the Mumbai-based Rajasthani Sammelan Education Trust (RSET), established in 1948, are run with philanthropic donations and bank borrowings. President Ashok Saraf believes education cannot be treated like any other business. “The education sector in India adopts a not-for-profit structure. We must pick up the best business practices and run educational institutes more efficiently. At RSET, we invest in HR to offer our students the best teaching-learning experience.” With an annual turnover of Rs 40 crore, RSET runs 14 institutions from KG to PG with over 15,000 students. It also runs a school for underprivileged girls.

Rajan Saxena, vice-chancellor, NMIMS University, says “Educational institutes must adopt the corporate practice of activity-based costing analysis, create cost-effective systems, and throw out activities that hamper growth.”

Manoj P., Head of Operations at Azim Premji University, agrees. “Education, whether at school or higher education level should not be viewed as a business. Profit as a consideration in education is a bad idea.” Ahmed has a different view. “To improve efficiency, productivity, and growth, it is important that education is treated like a business.” While Saxena thinks otherwise, he recognises the importance of sustainability. “No venture can survive in deficit in the long run. Fees can’t be the sole way to raise funds. Privately-run institutes must look at research grants and corporate investments,” he says.

Pune-based P.A. Inamdar has been investing in the Maharashtra Cosmopolitan Education Society since 1948. The annual turnover of this public trust is Rs 60 crore. Of the 27,000 students on campus, 24,000 are from underprivileged groups. The entire campus is being digitised. They have also adopted 51 municipal schools.
“The word profit is never used with respect to education. We use the term surplus instead. Every educational institution must plough it back into the objects of the trust or society,” says Vidya Yeravdekar, principal director, Symbiosis International University. “The commercial angle didn’t exist in India. Some private players have commercialised education and spoiled the image of the entire sector,” she adds.

Swarup of Shiv Nadar University believes, “If an institute’s objective is to build a financially self-supporting, globally respected powerhouse, it will survive. These institutions are investment-intensive, and the objective is not necessarily to generate a surplus.” Shiv Nadar University is privately funded, and is supported by the Shiv Nadar Foundation. The funds committed are to the tune of Rs 3,100 crore.

Manoj of Azim Premji University says, “All private funding in education has to be philanthropic. Most leading universities of the world are a result of philanthropic endowments.” In December 2010, Azim Premji pledged $2 billion to improve school education in India. This was done by transferring 213 million equity shares of Wipro to the Azim Premji Trust.

“At Symbiosis, we never used the word ‘business’. Our approach has never been commercial. We support needy students through scholarships. We focus on skill development, employability, entrepreneurship, and above all on making students responsible global citizens,” says Yeravdekar.

Private-Sector Challenge
There are many challenges in terms of funds, policies, and competition for private players. “In a city like Mumbai, the biggest entry barrier is the cost of land and infrastructure. Brand-building is another challenge. Coupled with affiliation costs and cost of academic delivery, it could be an unviable proposition. Fortunately, RSET is funded by philanthropists from the Rajasthani community,” says Saraf.

S.D. Gupta, President of IIHMR University, Jaipur, says the education sector is booming and is a valuable business proposition for a new entrant. Ahmed and Inamdar disagree. They say capital investments, permissions and competition are entry barriers.

Ashok M. Kataria, chairman of Ashoka Education Foundation (AEF), envisaged schools and colleges that would impart practical education to students in Nashik, Maharashtra. With an annual turnover of 24.83 crore, AEF has 10 institutions that offer KG to PG options. Changing mindsets of parents, students and teachers is the biggest challenge, says Kataria. “Each student is assigned a mentor who helps the student set and achieve goals. Moulding teachers into mentors is a challenge.”

According to Yeravdekar, “Despite teaching being a ‘noble’ profession, it is not the first choice in a student’s mind. With the Seventh Pay Commission being implemented soon, salaries will be on par with the corporate world. The government must highlight this and encourage professionals to turn to teaching. Good faculty will ensure quality education and employable students.”

R. J. Barnabas, principal, BPHE Society’s Ahmednagar College, says, “Integrating the demands of industry with leadership skills in our students, and imparting education within the limits of prescribed syllabi is a challenge.” This partly-funded institution established in 1947 recorded an annual turnover of Rs 7.5 crore in March 2015. It recently won the ‘Outstanding B-school – West’ award from Hindustan Unilever, BSA and Dewang Mehta National Awards.

Investing In Education
“Government initiatives are focused on K-12 education. The onus of preschool education lies largely with private players like EuroKids. A recent survey by TNS said preschool education is an estimated Rs 4,000-crore market, with expected yearly growth of 35 per cent,” says Prajodh Rajan, CEO and executive director, EuroKids International.

Foreign interest in investing in education is growing too. The total foreign direct investment (FDI) inflow into education in India stood at $1.17 billion between April 2000 and June 2015, according to the Department of Industrial Policy and Promotion.

“The Indian education industry has seen greater corporate participation in recent times. Institutions are spending more on research and capacity-building. Emphasis is given to a professional approach, knowledge, multitasking and innovativeness,” says Barnabas.

Skill development is an important investment. “Over 300 million people need to be skilled across 38 sectors, to fulfil the demands of jobs that will be generated as a result of growth and expansion,” says Praveen Roy, CEO of the Tourism and Hospitality Skill Council.

Private investors like the Rustomjee Group set up the Rustomjee Academy of Global Careers (RAGC) in 2008 as part of their CSR. Over the years, it has contributed to vocational training and now has an annual turnover of Rs 15 crore. Vice-president Kavi Luthra says, “Profit is never the goal. We focus on providing the best facilities to students who need skills to help sustain their families... The focus is on employability, and we hire quality teachers and staff to ensure this.”
Roy says, “The Skill India motive pushes vocational training partners to be financially independent and enables them to grow. The education sector must be supported so that institutes earn a surplus and deploy it back in the system. Dependence on government grants should disappear.”

One of the forerunners in the self-sustenance model is Aptech Ltd. Early in 1986, Aptech saw an opportunity in IT education and provided the latest technology training. Ninad Karpe, CEO and managing director of Aptech, says: “Aptech has a 30-year relationship with education and skill-based training. We have successfully trained more than seven million students in diverse sectors apart from IT. Aptech ensures that the growth of skilled workers runs parallel with the growth of industry.” The company continued to be debt-free, and had a cash balance of Rs 37.9 crore as on 31 March 2015.

The IBEF report says, “The education sector in India is poised to witness major growth… as India will have world’s largest tertiary-age population and second largest graduate talent pipeline globally by the end of 2020. As of 2015, the education market is worth $100 billion. Higher education contributes 59.7 per cent of the market size, school education 38.1 per cent, preschool segment 1.6 per cent, and technology and multimedia the remaining 0.6 per cent.”

Swarup expects the education sector to get more organised. He says there will be greater acceptance of privately funded and managed institutions by the government. Roy says employability will improve if skilling is done state-wise and at the grassroots. “The focus should first be on local employment, and then migratory. This should match with the concept of ‘Make in India’, so that we produce trained manpower... Schools should encourage students to take up vocational skills… at an early stage, as it will help them convert practical experience into full-time employment.”

“The biggest growth envisaged in the sector will be in online education. India’s online education market size is estimated at $40 billion by 2017. It is estimated to grow at a compound annual growth rate of 34 per cent for the period up to 2017-18. The other shift that we see would be in the area of vocational education, training and skill development which will fast emerge as important areas of focus,” says Saraf.

Regulation Of Private Players
At present, all regulatory bodies focus on human and physical infrastructure as a parameter to award recognition to a private institute. Saxena says, “After awarding recognition, there must be a system of checks and balances. The institute must be rated according to the quality of students that emerge and research initiatives undertaken.”

“Quality can be achieved through accreditation. However, the current accrediting bodies are national and lack the bandwidth to look into so many institutions. It would be ideal if they have regional centres to monitor the quality of institutions,” says Yeravdekar of Symbiosis.

The consensus is that government regulation must be through a light touch, and private institutions must be given the long rope of autonomy. “Accreditation should be left to a body of academicians or management associations instead of the government. This is what happens in the best universities globally,” says Saxena.
Well-known Mumbai-based educationist Sunil Karve concurs: “The government must encourage private professionals to open educational institutions. The government needs to create systems that encourage self-regulation. This can be achieved by digitizing the process of checks and balances.”

Both Karve and Saraf also oppose government measures such as capping fees. They argue that fees should be a function of market dynamics rather than the arbitrary decision of a few committee members.

Saxena suggests a different solution, saying the government must treat private institutions on par with public ones. “A student opting for private education must be allowed to apply for government scholarships purely on merit. This will ensure that a deserving student is funded by the government irrespective of where he wishes to study. This way the socio-economic objective of the state will be fulfilled and a system of equality will prevail.”

The education discourse is throwing up interesting conclusions: a consensus is emerging that the education sector must align systems and corporatise operations to ensure better results. If private players work towards reducing costs and focus on becoming self-reliant, it will make education more accessible to a wider cross-section. On the other hand, if the government treats private players at par with public institutions, the latter will be ‘forced’ to improve their offering too.

The author is an education administrator, teacher, and writer, and runs Sarvashreshtha Integrated Marketing & Training Solutions

(This story was published in BW | Businessworld Issue Dated 14-12-2015)