The next big thing

RATIONAL EXPECTATIONS

Ask anyone to name the most explosive-growth sector, for the current and the coming year, and the answer's obvious "" call centres, BPO, perhaps even software development.

I'd like to add one more to the list, a sector with as much potential and which isn't likely to see any reduction in profit margins for some time to come either.

Look around you, and it's pretty obvious which this sector is. What is the most high-profile investment Chandrababu Naidu's got in his state in recent times? The Indian School of Business, that's what.

Who has managed to double its billing rate by offering just a variant of the same product, with essentially the same crop of teachers?

The Delhi Public School's latest venture, DPS International at Saket in south Delhi offers students an international degree ("O" and "A" level degrees as opposed the CBSE ones at the main R K Puram school), and charges double the usual fees for this, while most of the teachers come from the same stable of DPSs around the country "" so sure were bankers of the school's success, all the Rs 20 crore required for building the school was raised by way of loans, without any equity from the DPS Society that controls all the schools.

DPS, by the way, has seen an explosive growth in the number of franchisee-branches in the last few years, and today has 112 schools across the country with 1,50,000 students in them.

In a little over a decade, the Amity Group has over 70 colleges/schools and has 22,000 students passing out each year "" a university in Australia is being planned right now.

And within a year of registering itself as a private university in Chhattisgarh, the Vinay Rai-group has 6,000 students in its 29 colleges/institutes.

In fact, according to the government's Selected Education Statistics, while the total number of schools has gone up by a little over 2 per cent over the last seven years, growth in private schools that receive no aid from the government has been an impressive 8 per cent per annum "" that for schools offering higher education (till the 12th standard) in this category has been over 10 per cent.

This figure, by the way, does not include "unrecognised" schools "" according to economic analysis firm Indicus Analyticus which is currently conducting detailed surveys in a few parts of the country, their survey in one area in Hyderabad showed the number of unrecognised schools were almost double the list they had for recognised schools.

Even more interesting, Indicus' study show it's not just the rich that send their children to private schools. Close to a fourth of all students in private schools in urban areas, and a fifth in rural areas, are those from the poorest 40 per cent of the population.

In fact, using CSO data, economist Surjit Bhalla has shown that while per capita expenditure on education rose 12.4 times between 1983 and 1999 for the poorest 40 per cent of the country's population, it rose a lower 10.8 times for all income categories taken together.

Not surprisingly, while the education attainment in the 5-14 age group rose 70 per cent for the poor, it rose only 29 per cent for the richest 20 per cent.

Bhalla explains this demand for education by the fact that wages are much greater for workers with higher education levels "" CSO data on wages shows that the returns from education are four times higher for a secondary-school passed person in comparison to someone who has only done primary schooling; that for a college graduate is eight times that for a primary school educated person.

Yet, despite the obvious potential, education is hardly seen as a major earner by most. The reason is simple: almost all educational institutions in the private sector are organised as not-for-profit trusts, and details of both turnover and profits are less than sketchy, with most promoters preferring to talk of the social side of their business rather than the P&L one.

The closest one can get to figures is from NIIT, whose operating returns on the software education business is around 12 per cent in comparison to 19 per cent for the pure-software part of the business.

One senior executive, in one of the trusts that offers MBA and other programmes, however, did say that while the capital costs take around 10 years to recover, fairly large operating profits begin to accrue from the second or third year of operations itself.

Another thing that has held back growth, a host of private providers feel, is the government certifying body called the AICTE "" a leftover of the licence raj, the AICTE is supposed to certify whether courses/colleges conform to certain standards.

In principle a good idea, the result has been a huge shortage in the number of approvals granted by the AICTE for setting up of colleges.

And it doesn't help that several colleges that have chosen not to get AICTE approvals, like the ISB in Hyderabad, have far superior faculty and facilities compared to many AICTE-approved facilities.

With a clear shortage of quality education providers, and the gap getting larger with even the poorest of the poor wanting to give their children a future, the education business can only become more lucrative. If only the government would fully get out of the way.

suniljain@business-standard.com