Indian education sector grew at a compounded annual growth rate of 16.5% during FY05-FY12

Updated on: Tuesday, January 22, 2013

India Ratings, a Fitch Group Company, said that it has a stable outlook on the Indian education sector which includes both school and higher education.

Despite a high demand for education within India, India Ratings has concerns of the sector. In 2012, the sector faced liquidity issues due to a fall in enrolment growth and delays in HE students’ fee reimbursements by a few state governments.

“Some segments in the education sector face enrolment slowdown due to macro-economic factors, lack of industry appeal and employability issues. Management institutes with less or no industry association witness low enrolment and revenues leading to loan defaults or closures. India Ratings does not expect enrolments for these entities to rebound in the short term,” said the report.

In the recent past several education institutes have discontinued programmes due to fewer demand. A case in point is Mumbai-based Narsee Monjee Institute of Management Studies (NMIMS) which has decided to discontinue the MBA programme in actuarial science.

This fall in enrolment growth and delays in HE students’ fee reimbursements by a few state governments has created liquidity issues for many. “Fee ceilings in HE institutes (both for the government and management quota) and schools curb the financial prowess of the entities. Even though the fee reimbursements scheme (applicable only to HE) propelled enrolments and made education affordable to certain educationally disadvantaged sections of the society, delays in reimbursements by a few states tightened the liquidity for education institutes,” said the report.

Irrespective of an institutes’ size, loan repayments depend on its relationship with lenders. Due to tightly-regulated operations such as restrictions on student intake, fees and infrastructure, an institution’s autonomy is restricted, leading to weak finances and credit indiscipline. In India Ratings’ opinion, the upcoming regulatory changes could possibly provide autonomy and enhance the credit quality of the issuers.

The stipulation to keep education as a not-for-profit structure is seeing evolution of new structures. “Although the institutes were formed as ‘not-for-profit’, they plough back profits through associates. Associate companies provide facilities management and charges management fees, lease rentals and other fees. India Ratings views the structure evolvement as a positive,” said the report.

Although, foreign investment is allowed under automatic route in education, there are regulatory issues. Nevertheless, twining programs with foreign institutions are recognised by the regulators.

The other key positive for the sector is the federal government’s 12th Five Year Plan to propel the gross enrolment rate across levels, establish new entities, liberalising the sector (allow private universities and foreign players) and take other measures including access enhancement, might revive the demand for the sector. These measures, combined with adherence to contractual provisions, would result in a positive outlook.

Indian education sector grew at a compounded annual growth rate of 16.5% during FY05-FY12

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