Schemes to Revitalise Infra, Improve Standards & Develop Skills - the Way Forward for Education Sector

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the education sector for FY19, in view of near stagnation on the enrolment front. Enrolments have marginally increased for higher education (FY17: 3.18% yoy; CAGR over FY13-FY17: 4.36%) and declined at a 0.52% CAGR over FY13-FY16 for primary education.

Ind-Ra has revised the FY19 Outlook on its rated educational entities to Stable from Positive in FY18 due to nearly stagnant enrolments and net profitability. This is mainly attributed to a fall in the demand for engineering courses despite these institutions having adequate infrastructure as also a shift in the course preferences.

The recent developments in automation, artificial intelligence and labour-replacing technologies are creating anxiety among youth, as this will potentially reduce the overall demand for workers worldwide. As a result, students' preference has shifted to other graduate courses instead of Bachelor of Technology, according to all India Survey on Higher Education report. The course recorded 1.87% and 1.20% yoy fall in enrolments in FY16 and FY17, respectively.

However, the overall enrolment in the undergraduate level increased 2.40% and 8.15% yoy in FY16 and FY17, respectively. Despite such hiccups, Ind-Ra estimates the market size of the education sector to reach INR5,912.20 billion (USD91.7 billion) in FY18 and INR6,680 billion (USD101.1 billion) in FY19 (FY16: INR4,630 billion (USD70.7 billion)).

Aggregate public expenditure on education was just 3.66% of the total expenditure, according to FY17 budget estimates. The government introduced education cess on corporation/income tax at 2% in FY05 to augment government expenditure on education. This was increased to 3% in FY08. In the FY19 budget, it has been reclassified as health and education cess and increased to 4%. Nearly 42% of government's expenditure on education in FY17 was funded through cess collection.

Although India has the largest number of higher education institutions in the world (source: the British Council), the institutions lack accreditation/global ranking due to sub-par quality of education/ research publication and infrastructure. Government is the key spender on R&D in India. However, higher education related R&D received only 4% of the total government R&D expenditure in FY15.

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