March 26, 2018

Rate This Article
1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)


- Saurya Bhattacharya, Partner [ Cyril Amarchand Mangaldas ]


With due government intent falling into place and the Indian education market projected to grow to USD 180 billion in a few years’ time, the need for capital, technology, and best practices from a private player will be invaluable to the sector


In two of the earlier pieces in a three-part series on the education sector, we had discussed the setting up of K-12 schools and higher education institutions. In the concluding piece, we focus on the investment climate in the sector and key considerations in this regard.

The above shall be looked at through two broad lenses, namely:

(i) Regulatory regime
(ii) Regulatory climate

Regulatory Regime

Hereunder, we look at some of the key factors that may come up in the context of investment in the education sector:

(i) Which sub-sector to invest in?

Unlike many other sectors which have harmonious sectoral regulators, the education sector has certain distinctive subsectors. Chief among these are:

(a) Pre-school education
(b) K-12 schools
(c) Higher education (colleges, universities, technical education)
(d) Ed-tech (education provided through technology, media, and innovation)

Each of these sectors is sizeable, with some statistics indicating that the K-12 segment is the largest by revenue. It contributes about 52% of a total education sector market that is estimated at a value of USD 100 billion. Therefore, it is a large canvas for an investor to explore.

(ii) Not-for-Profit?

The education sector is a social sector that has a direct impact on public sentiment and on policy-making. Keeping this consideration, there are sub-sectors that are governed by the rules of non-profiteering and requirements of surplus investments being utilized for the improvement of the educational institution itself. However, all sub-sectors are not under this umbrella. For instance, while K-12 schools and higher education institutions are largely governed by this philosophy, pre-schools and ed-tech do not have such stringent regulation. Deployment of funds in both these categories is possible, subject to compliance with regulatory requirements.

(iii) Is foreign investment in education permitted?

A question that used to historically arise is whether the deployment of funds into the education sector is investment in the first place. This question arose more from the regulated and non-dividend sub-sector and was compounded by the fact that the education sector was not specifically stated as permitted in the various Foreign Direct Investment Policies (FDI Policy) of the time. Would it at all count as an investment, was the question.

It may be noted, though, that foreign investment in the sector is under the automatic route up to 100% (governed by the FDI Policy).

(iv) Foreign Contribution

As a corollary to the above, there were questions over “if foreign capital deployment was not considered investment and not governed by the FDI Policy, would it be considered as a donation/foreign contribution?” The Foreign Contribution (Regulation) Act, 2010 (FCRA), for obvious reasons, is a far more stringent legislation.

While dependent eventually on specific transaction structures, foreign capital deployment would largely fall within the purview of the FDI Policy rather than the FCRA.

(v) Multiplicity of Laws and Regulators

The sector itself has overlapping laws and regulations, not to mention its vastness. These operate at various levels, namely sub-sectoral regulations, legislations applicable depending on structures, and distinct state-level laws. Illustratively:

(a) K-12 schools may come under fundamental union legislations like Right of Children to Free and Compulsory Education, 2009, alongside state legislations like the Gujarat Self-Financed Schools (Regulation of Fees) Act, 2017. This is in addition to affiliation regulators like state boards (e.g., Karnataka Secondary Education Examination Board, West Bengal Board of Secondary Education) or national boards (e.g., Central Board of Secondary Education, Council for the Indian School Certificate Examinations).

(b) Similarly, an institution of higher education may be governed by the University Grants Commission (University Grants Commission Act, 1956, and its various regulations) alongside the All India Council for Technical Education (All India Council for Technical Education Act, 1987).

(c) For not-for-profit education institutions, the core vehicle is typically a public trust, society, or a not-for-profit company. Each of these vehicles has its own regulations (e.g., a public trust in Maharashtra being governed by a strict Charity Commissioner under the Maharashtra Public Trusts Act, 1950; a society in Bihar under the Societies Registration Act, 1860, with the Inspector- General Registration; and a not-for-profit company under the Companies Act, 2013, and the Registrar of Companies).

(vi) However, there is no denying that education is a sector that requires private investments and is a viable sector for players who have a long-term view of it. The regulatory climate, discussed below, will make a further case for such viability.

Regulatory Climate

The last few years, now culminating in the recent Union Budget, show that the government is cognizant of the need for increased expenditure in the education sector to improve both quality and outreach. There is a bid to simplify as well as consolidate, thereby making governance and private party involvement more meaningful. Some key indicators are as follows:

(i) The Union Budget

The Union Budget allocates over `85,000 crore to the sector and plans to integrate the governance of the pre-school to twelfth standard schooling.

(ii) Consolidated Regulator

The Ministry of Human Resource Development has been contemplating establishing a new regulator for higher education in India (Higher Education Empowerment Regulation Agency), which is proposed to replace not just the University Grants Commission but also the All India Council for Technical Education. This may also allow for more efficient clampdown on non-compliant operators, thereby improving the overall quality of the sector.

(iii) Less Stringent Laws

About six months ago, the NITI Aayog also took up the matter of amending restrictive laws that discourage private participation in the education sector. These include amendments to the Companies Act, 2013; the AICTE Act, 1987; and the UGC Regulations.

Looking Ahead

With due government intent falling into place and the Indian education market projected to grow to USD 180 billion in a few years’ time, the need for capital, technology, and best practices from a private player will be invaluable to the sector. If the regulations are further relaxed, it could well be the impetus that this virtually recession-proof sector needs for enhanced private participation.


Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

Related Post

follow us

Publication & Enquiries

phone icon  +91 8879635570/8879635571

mail icon