Primer on Education Sector in India 30 07 11

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Sameena Jahangir


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SCOPE

Facts

Segments

Legislative and regulatory framework

Investment structure

Regulatory issues Case study

Career Point

New Regulatory trends

Can listing be done

Will it remain as a charitable activity

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Facts - 1

Universities and Colleges*

*Ministry of HRD, Educational Statistics 2005-06

Central Universities 40

State Universities 243

Institution Deemed to be University 130

Institutions of National Importance 33

General Education colleges 11,698

Engg., Tech & Arch. Colleges 1,562

Medical (Allo/Ayur/Homeo/Unani) colleges 2,053

Teachers Training colleges 1,669Polytechnics colleges 1,274

Others colleges (Law,/Mgt./ MCA/ IT/Agri etc.) 2,513

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Facts - 2

Board of Intermediate Secondary Education 39

Pre-Degree Junior Colleges/Higher SecondarySchools 57404

High/Post Basic Schools 112165

Middle/ Sr. Basic Schools 305584

Primary/ Jr. Basic Schools 784852

Pre Primary/ Pre Basic Schools 60886

Schools*

*Annual report 2009-10, Department of School Education & Literacy, Department of Higher Education, Ministry of HRD

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Facts - 3

Annual government expenditure on education - $30 bn in 2006(3.7% of GDP)*

Annual private expenditure on education - $43.2 bn*

Entire education sector market size - $86.2 bn*

Investments by PE funds in companies in education sector(through 14 deals) - $1.68 bn

Literacy rates increase at a constant pace (1991 - 52.21%, 2005 -67.30%)

Number of listed companies in educational sector is more than 5(Aptech, NIIT, Educomp, Careerpoint, Everonn, Jetking etc.)

* Indian Education Sector Report, Kaizen PE

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Segments

Core

K-12

Higher Education

Parallel

Pre-schools/ Play schools Tutoring/ Tuitions

Test preparations

Vocational Training

Corporate Training

Ancillary

Multimedia & ICT Books and stationery

Teachers training

Management & ERP

Homework assistance

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Legislative and Regulatory framework

Constitution of India - Schedule VII

Entries in union list63 - Institutions at commencement of the Constitution64 - Institutions for Scientific/ Technical Education

65 - Unions Agencies and Institutions for(a) Professional/ vocational/ technical training(b) Promotion of Special Studies or research(c) Scientific or technical assistance in investigation or

detection of crime66 - Co-ordination and determination of standards in institutions for

higher education or research and scientific & technicalinstitutions.

Entry in concurrent list25 - Education, including Technical Education, Medical Education and

Universities (subject to Entries 63-66 of Union List), VocationalTraining and Technical Training of labour

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Legislative and Regulatory framework K-12

K-12 Education laws in the concerned States

Affiliation byelaws of the boards

Laws governing the form of the institution running the school

Education laws in the concerned States Widely vary across States - Andra Pradesh and Haryana requires

registration of all schools while Karnataka exempts CBSE / ICSEschools

Requires registration from state government/ NOC Governs the employment conditions

Regulates expenditure of schools Prescribes recognised institutions who can establish schools (mostly

NPOs)

Affiliation byelaws of the boards

Widely vary across boards CBSE/ ICSE/ IGCSE/IB/ State Board

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Legislative and Regulatory framework K-12

IB & IGCSE

The boards do not prescribe any particular form of entity which can runa school

The boards do not state that the school should be run as a community

service and do not commercialize it.

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Higher Education Section 22 of the UGC Act, 1956 states that a degree can be granted

only by a recognised university (Central, State, Deemed or PrivateUniversity)

UGC as on today has notified 163 degrees including LLB, LLM, BA, MAB.Com, M.Com, B.Tech, M.Tech, MBBS, MBA etc.

Thus all higher education institutions granting degrees (i) should beaffiliated to a recognised university (in case of colleges) or (ii) shoulditself be a university (in case of deemed university and privateuniversity)

Institutions granting certain specified degrees have to be approvedcertain statutory bodies (B.Tech, MBA etc. by AICTE, MBBS by MCI etc.)

Laws governing higher education institutions

Rules, regulations, notifications by UGC

Rules, regulations, notifications by the concerned statutory body(AICTE, MCI, DCI, INC etc.)

Laws governing the form of the institution running the institution

Case laws SameenaJahangir


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Higher Education

UGC

Provides grants

Promotes and co-ordinates the University Education

Determines standards of teaching, examination & research

Advises Central Governments and State Governments on HigherEducation

AICTE/ MCI/ DCI

Grants approval to colleges

Regulates the infrastructure requirement of the institution

Prescribes the curriculum/ qualification of teachers/ conduct of

examination Prescribes the fund position/corpus of the entity

Regulates the admission procedure

Regulates the intake of the students

Prescribes the eligibility criteria for the students

AICTE regulates the fees

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Supreme Court cases

Case Laws

TMA Pai Foundation Case - Private educational institutions have afundamental right to administer themselves

P.A. Inamdar & Ors vs State of Maharashtra & Ors Case Prohibition ofcapitation fees

Unni Krishnan, J.P. & Ors. v. State of Andhra Pradesh & Ors. UnniKrishnan Scheme for fee fixation

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Parallel & Ancillary

In parallel segment tutorials are regulated by state laws.

Thus coaching institutions, test preparation centres, other trainingcentres are regulated.

Requires registration in states like Kerala, Karnataka, Andra Pradeash

etc. (Kerala Municipality (Registration of Tutorial Institutions) Rules,1999, Andra Pradesh Education Act, 1982 etc.)

However the form of the entity which can establish tutorials is notprescribed

There are no regulations to the effect that these institutions should runfor non-profit motive.

Multimedia & ICT, books and stationery, home work assistance etc. are

not regulated by any sector specific laws.

Management services agreement is tricky as boards require themanagement vested with the trust/society.

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Regulatory challenges

Only NPOs are allowed to run K-12 and Higher Educationinstitutions

Trustees cannot benefit from trust

Restrictions on the services which can be outsourced (in thecontext management services agreement)

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Investment Structure in K-12 and Higher

Education Option 1

Management services agreement

100% FDI allowed in automatic sector

Usually the management fees of the Management Co. is linked to thetotal revenue generated by the School/ College

Management services include determining/ designing curriculum,

determining fees, appointing teachers, promoting Schools/ Colleges,management of infrastructure, assisting in procuring regulatoryapprovals, non-academic services etc.

Separate branding agreement entered into between the ManagementCompany and trust/ society in most cases.

Ex: Manipal School Services Private Limited Model

Investor (Foreign/ Domestic)

Management CompanyInstitution operating the school, college

(society, trust etc.)

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Education Option 2

* May attract FDI restrictions if the Company into real estate development

Management services agreement &

Lease agreement

This structure is suited for IB/ Cambridge schools where theinfrastructure can be taken on lease from a third party.

Provides additional source of revenue for the Company

Examples: DYP Model for IB School


Management Company& Property Company*

Institution operating the school, college(society, trust etc.)

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Education Option 3

Management Lease Agreement

Services

Agreement


Management Company Property Company

Institution operating the school, college(society, trust etc.)

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Investment Structure - Others

Ex: Educomp, Career Point etc.


Company providing paralleland ancillary services

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Types of NPOsDescription Society Section 25

companyPrivate trust Public Trust

Legislation The SocietiesRegistration

Act 1860Indian

Companies

Act,1956

The Indian trustAct 1882 General law ofthe state

MinimumMembers

7 Private:2

Public:7

1 2

registration Registrar ofsocieties:

charitycommissioner

Registrar ofCompanies

CharityCommissioner

CharityCommissioner

Constitutivedocument

Memorandumof association

Memorandum ofassociation

Deed of trust Deed of trust

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Case study X Structure

X COMPANY(Prop Co.+ Man Co.)

Trust 2Trust 1Deemed University Society

DepartmentOf

Management

DepartmentOfBio-

technology IB 1school

IB 2School

IB 3School

X-DC(certificate

course)

Settlor of the trustO&M Agreement

O&M Agreement

IB 4School

PE Investor

Offshore

OnshoreOR

Lease Agreement

Management

Colleges

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PE Investor


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Case study New regulatory trends The new Deemed universities regulation, 2010 provide for stricter norms

for the regulation of the deemed universities.

The Right of Children to Free and Compulsory Education Act, 2009requires schools (aided and unaided) to provide for free and compulsory

education.

The Educational Tribunals Bill, 2010 seeks to provide for theestablishment of educational tribunals at the national and state levels toexpedite adjudication of disputes in the education sector.

The Foreign Educational Institutions (Regulation of Entry and Operations)Bill, 2010 seeks to regulate the entry and operation of Foreign EducationalInstitutions seeking to impart higher education in India.

The Prohibition of Unfair Practice in Technical Educational Institutions,Medical Educational Institutions and University Bill, 2010 seeks to providefor prohibition of unfair practices in the in the technical and medicaleducational institutions.

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Case study Career Point Infosystems

Limited

Parallel Sector

Tutorial services to students for entrance examinations including IIT-JEE and All India Pre-Medical and Pre-Dental Test

Tutorial services are provided through our classroom training

programmes conducted through a network of company operated andfranchisee centres

Ancillary Sector

Education consultancy and management services (catering to K-12 andHigher Education segments.

ICT - technology enabled education delivery platform for deliveringcontent through TechEdge Class.

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Can listing be done?

Companies which are into parallel and ancillary segments canbe listed

However the strict regulations are in pipeline.

We cannot risk the career of students to the fortune of

stock market. We cannot allow profit going back to theshare holders as dividend Kapil Sibal

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Will it remain as a charitable activity?

Let us be clear that Indian businessmen, who probably

because of meltdown do not get profit anywhere, want toget profit out of education. I, as a minister, will stand as arock to ensure it does not happen. Kapil Sibal

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Questions?

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Thank YouSameena Jahangir

Mumbai - 400 030India

Contact 022 40041017

SameenaJahangir

Documents

Primer on Education Sector in India 30 07 11