At $600 billion, yearly education spend by government and households in India is larger than that of the US at comparable prices. The estimated CAGR of private revenue in Indian education, at 19% during ’11-’15, is also one of the fastest in the world. We expect revenue of private entrepreneurs in education at $45 billion by 2015. A sharp rise in household spend on education, with median income elasticity of 2, is driving this growth. Public policy is likely to aid the incumbents but steer private entrepreneurs away from school education. Skill and vocational training are emerging as big opportunities for private players. High growth, scarcity of investable opportunities and the recession-proof nature of the sector are likely to keep valuations high.

  • At $600 billion, Indian education is bigger than the US. With $600 billion in yearly overall education spend at comparable prices, India’s education sector is bigger than that of the US. Even at a value of $100 billion by market prices, overall education spend in India is the 9th highest in the world. India’s yearly growth in overall education spend, at 15%, is also one of the fastest in the world.

  • Private education revenue growing by 19%, to hit $45 billion by 2015. From $30 billion in 2012, private education revenue is set to reach $45 billion by 2015. The main revenue steams are expected from K-12 ($20 billion), technical education ($12billion), coaching ($8 billion) and pre-school ($3 billion). Excluding K-12, private education revenue is expected to register 18.5% CAGR (’11-’15).

  • Over 10% of wallet goes to education. 10.4% of the total consumer spend of the urban affluent (top 10% by spend) goes to fund, almost exclusively, private education. The rural poorest (bottom 10%) spends just 1.4% of wallet on education. With the median income elasticity of demand for education at near 2, a 1% rise in per capita income leads to a 2% jump in education spend, mostly on private education. This is the key driver of the sector.

  • Public policy to cause private players to defocus from K-12. India allows private investment in formal education only on a non-profit basis. While some of the ongoing reforms may help stronger incumbent private players, the Right to Information (RTE) Act is likely to deter private players from school (K-12) education, which is currently the largest revenue contributor.

  • Traditional models under threat. Shortage of quality trainers and ICT-based interface are likely to challenge the classroom-based coaching model. Within formal education, the focus of private players is expected to remain on technical education. Pre-schools are also expected to attract attention. While defocusing on K-12 models, private players are likely to compete for school management.

  • Professional, skill & vocational training: the next big things. With a gulf between the formal education curriculum and the job-skills required in the market, providers of skill development services are likely to see strong demand. In addition, the severe shortage of technicians is leading to employers sponsoring vocational courses. This is expected to further swell demand.

(Excerpts taken from the Indian Education Report by the research division of Anand Rathi, a Mumbai based financial services firm.)

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