Riding The Indian Education Boom

India’s education sector is seeing hectic entrepreneurial activity and private equity investors are deploying significant capital in this sunrise sector. Funds focusing exclusively on education have emerged. Recently, education company Kaplan announced the formation of Kaplan Ventures, which will invest in the education sector in India and other countries.

There are a few structural drivers to the boom in India’s education sector.

First and unusually, the Indian government has made a commitment to restructuring the policy framework, including the setting up of foreign universities in India. Human Resource Development Minister Kapil Sibal has taken a few steps forward, and some backward, but for now even the mere promise of reform and more openness in the sector is sufficient to generate hope and excitement that spurs investment and business plans.

But some caution would be apt. There is a strong case for regulating the sector and putting in place standards and guidelines for what it takes for an educational institution to be recognized as a university or school. Without sound regulatory norms in the early stages, the education boom may fizzle out to the detriment of investors, entrepreneurs and India’s economy. Regulation, however, should be left to individual school examination boards and professional accreditation bodies as far as possible, distributing rather than concentrating authority.

For instance, there has been a profusion of institutions offering the International Baccalaureate program for high school students. The IB is governed by the IB Organization based in Switzerland, which sets its own standards for what it takes to be an IB school. The government should empower Indian boards to set standards in the same way, for this would allow for competition between boards. Schools, private and government-aided, should be free to choose the board they want to offer, to design the admissions mechanism and to charge the fees they wish.

Second, India is entering a phase of demographic change that has far-reaching consequences for society and the economy. According to research from Deutsche Bank, India will be adding almost a million people to its labor force every single month for the next 20 years till 2030. That’s a staggering number of people, equivalent to the current populations of U.K., Germany, Spain and France combined. The only comparable demographic shift from recent history is the post-World War II baby boom in the United States. Skill development, training and education will be among the first areas where all those consumers will want to put their money.

These trends will only accelerate, making the education sector very attractive for both entrepreneurs and investors. Moreover, without private capital and the participation of entrepreneurs, India simply cannot train and educate a workforce of this size.

While projects such as building full-fledged schools and universities would be beyond the reach of most first-time entrepreneurs and are typically not “fundable” from a venture capital perspective, ancillaries like infrastructure, technology and services are attracting investments.

In 2009, TutorVista, Career Point and FIITJEE were some of the companies offering training for competitive university admission examinations that saw substantial investor interest. The most successful companies in the sector so far have been those that are providing information technology and software solutions to brick-and-mortar institutions. Companies like Educomp Solutions and EdServe Softsystems have combined the high margins of the software business with the scale and opportunity in the education space.

Education is a very large canvas. The challenge is to identify the areas within it that will be the most profitable. As the sector evolves and grows, opportunities which cannot be anticipated today will soon emerge.

Originally Published: WSJ

The Jugaad Myth

In 2001, Fevicol ran an advertising campaign showing a truck overloaded with people making its way across a rough and barren landscape. Even though the terrain is rocky and the truck overflowing, none of the passengers fall off, bonded together, viewers are to think, with the same strength and reliability as India’s leading adhesive brand.

The campaign was a hit, winning the prestigious Cannes Lion for the advertising firm which conceptualised it. It deserves full marks for creativity and for capturing poignantly how Indians get by and get on with life despite seemingly insurmountable hardships, a classic example of art imitating life.

This phenomenon, where people in India seem to always find a way to muddle along somehow or the other, has slowly entered management-speak as jugaad, a curiously Indian way of getting things done. Venture capitalists and management gurus have praised this approach of doing more with less, but jugaad is more an outcome of limited access to capital, resources and infrastructure, than it is innovation.

Peter Drucker, doyen of management studies, defined innovation as “the specific instrument of entrepreneurship that endows resources with a new capacity to create wealth.” Take the case of the humble earthen pot, which has been used since time immemorial to keep drinking water cool in some of the hottest regions of the Indian hinterland. Is the earthen pot an innovation in the modern sense, or does it reflect the brazen poverty and under-developed economies of its end-users?

The pot is certainly an innovation insofar as it allows water to be cooled even in very high temperatures, but it is also used by those who cannot afford or access modern technology such as refrigerators. Higher-income homes do not rely on earthen pots.

Innovating for bottom of the pyramid should not degenerate into a paternalistic condescension of creating low-quality products that have poor usability. Many innovations which claim to be for the bottom of the pyramid would want their purveyors to be stuck at the bottom, for if they managed to increase their income levels, they’d choose more technologically-advanced solutions which actually boost productivity and create wealth.

An inexpensive refrigerator that delivers effective cooling at a low operating cost would be more of an innovation, allowing more people to use refrigeration the way the Nano automobile from Tata Motors has made cars accessible to a broader section of society. Tata Motors’ Nano plant at Sanand, Gujarat uses automated manufacturing, cutting-edge supply-chain management and robotics to produce the world’s cheapest four-wheeler.

Tata has re-invented several aspects of automobile engineering when designing the Nano, and the company has broken the stereotype of India being only a competent outsourcer. Even though the Nano is a product targeted at the aspirational bottom of the pyramid, it is built to meet global standards of safety and performance at a world-class factory.

A nation’s innovation ability is tied closely to its research capacity in science and engineering, which is a function of the higher-education system. The government has a role to play in investing in fundamental science research areas where it would take very long for private capital to get a return on investment.

According to India’s Department of Science and Technology, total investment in research and development has languished between 0.85-0.90 percent of GDP since 2000. In contrast, the US invests around 2.6 percent of GDP and China, 1.4 percent, about twice as much as it did in 1995.

Moreover, Indian private sector investment in R&D has grown substantially since 1998 to contribute over 25 percent of the pie, while government investment has declined. This means that while tax receipts have increased in the period alongside the boom in the economy, the government’s research funding has declined in relative terms and the gap has been bridged by the private sector.

The substantial growth of the economy has not seen a commensurate increase in the establishment of more science and engineering universities and government R&D investment. Instead, we have seen a rationing of existing supply, with increased reservation of seats at the IITs and other centrally-funded universities—policies that can compromise quality. India should be focusing on increasing capacity to such an extent that everyone has opportunity and nobody is left behind.

However, increasing capacity does not mean building a campus and naming it Indian Institute of Technology. Institutions are not just mere buildings and infrastructure, they are nurtured by people, and it takes decades of relentless focus on excellence for an institution to achieve a reputation. Political opportunism and promises of an IIT for every state are destroying a brand built over five decades. Dr C N R Rao, chairman of the Prime Minister’s Science Advisory Council, has severely criticised the government’s policy. In a nation the size of India, should there be just one world-class university brand?

Earthen pots and other types of jugaad may make good documentary film subjects, but we should remember that these are typically low productivity solutions with a below-par user experience. They should not be romanticised. India cannot become a world-beating economic force by under-investing in fundamental scientific research and celebrating the stop-gap survival mechanisms as path-breaking innovation. Such celebration and characterisation should be left to advertising agencies and other creative types looking for a story to tell. The state should commit itself to turning India into a magnet for top scientific talent from around the world, increasing investment in fundamental science and engineering and creating infrastructure which will give Indian scientists the choice of working in their home country instead of moving to more hospitable climes abroad.

When such an environment is created, storytellers will find inspiration from life to imagine and create more on the lines of the recent Hollywood blockbuster series on high-technology superhero Iron Man, showcasing cutting-edge technology that can inspire real innovators.

Originally Published: http://navam.in/2qdx2Pw