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Education - The next great business opportunity

January 16, 2004

With the domestic economy finally coming into its own, it is clear that any business that provides value to the Indian consumer -- provided, of course, it is managed well -- will make a lot of money for its promoters.

And within this vast area of opportunity, the most exciting is education.

Talk to any taxi driver in Mumbai and he will proudly tell you the grade level of each of his kids.

I know of at least half a dozen domestic workers (including one at my house) who have, either on their own steam or with support from enlightened employers, taken computer classes, started working as teacher's assistants, and so on.

Of course, the huge demand for learning at this level has led to several fly-by-night operators blithely fleecing eager parents and students, which confirms both the huge supply-demand gap and ill-conceived controls on education services.

As you move up the economic curve, the supply-demand gap is, if anything, even wider -- or certainly more hysterical.

Witness the South Bombay mothers (and fathers) nervously preparing for entrance exams for their four-year olds. And college admission time sees many well-to-do parents burning up their social diaries to find someone who knows someone at such and such college.

Again, the legendary competitiveness of admissions to the IITs and IIMs evidences the huge supply-demand gap in professional and specialised education as well.

And while the NIITs and the Aptechs have quite successfully addressed some part of this gap, the demand for professional skills is certain to grow even more dramatically, particularly as the outsourcing phenomenon becomes part of the mainstream Indian economy.

In sum, it is patently clear that demand for education in India is spelled in all capital letters, blazing and blinking in multi-coloured neon.

Supply, on the other hand, as is the case with all controlled products or services, remains pathetically inadequate, both in quantum and quality.

The backward-looking approach of our education policy has been sustaining this imbalance.

Education is the single most important aspect of any government's job. Improved educational standards underpin every development index, from infant mortality to birthrate to family health to employment to GDP.

Now, as has been long proved everywhere, and is being increasingly accepted in our post-socialist economy, government is not particularly good at either implementation of projects or delivery of services.

Thus, government's best role in education would be to articulate goals, provide indirect support -- through tax incentives -- and get out of the way.

Given the screaming level of demand, there will be no dearth of business people who will storm in to fill the supply gap.

Of course, business will only invest if it can get an attractive return; thus, pricing of educational services should be left to the marketplace.

The essence of a reasonably free market is that prices will be directly related to the value provided. This price will be modulated by supply/demand gap, so it is likely that in India prices will start out higher than they should, but as the education market stabilises, prices will become more closely reflective of value.

On a back-of-the-envelope basis, in a 'free' education market, a bachelor's degree programme in Mumbai with reasonable facilities and -- crucially -- well-paid teachers would cost around Rs 75,000 a year -- that's about Rs 6,000 a month.

Even at this cost level, a good education in India would cost only around 15-20 per cent of the cost of tuition at a US university for a comparable education, which, incidentally, growing numbers of Indian students are paying.

The substantial price drop further enhanced by the cost advantage and comfort of staying at home, would further increase the domestic demand for a college degree.

Again, quality education at this price would likely attract larger numbers of foreign students (who could, of course, be charged higher fees, as is the global practice), turning education into yet another window of foreign exchange earning.

Of course, for most Indians, Rs 75,000 a year is huge amount of money, and to ensure that poorer sections of society could have reasonable access to this 'free-priced' education, the government would have to provide subsidies.

However, subsidies should be provided directly to users -- i.e., students -- rather than the suppliers -- viz., the institutions, to prevent a repeat of our failed subsidy programmes of the past.

The good news is that the recent mini-Budget appears to be moving in this direction, having approved subsidised educational loans; while it is a beginning, the estimated cost to the exchequer -- around Rs 40 crore (Rs 400 million) -- is smaller than the proverbial drop in the ocean.

As this programme expands, educational loans could turn out to be as big a product window for the financial sector as home loans.

In any event, the hysterical caterwauling that has been suddenly going on about fees at the IITs and IIMs is evidence that the system that has been strangulating education in this country knows that its days are numbered.

Come 2005 and under the WTO education becomes a tradable service.

Which means that you or I or anyone who is interested -- and there are a lot of us -- can set up an educational institution at any academic level and at any value/price coordinate we choose and provide our customers (students) with an internationally accredited qualification.

As always, the market will prevail.

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