Thanks to statutory anomalies, a very large proportion higher education institutes in India are promoted by group of individuals or SME entrepreneurs. The AICTE guidelines for starting an Institute mislead the first generation promoters on the need for funds, while corporates who understand the capital intensity shy away from the business because of the convoluted mechanisms involved to realize returns.
Most greenfield Higher Education projects will be able to recover the initial investments only in about seven years. In that sense this is a sector with a longer payback period. Also in the first few years of the institute’s life, it does not operate at full student strength [and concomitantly student revenues]. However, financing institutions in India – as they are wont to - are giving principal and interest moratorium of about 12-18 months on the loans extended to such projects. Interestingly, in the initial years, the need for capital investments in also the highest. As a result of which, promoters are always pre-occupied to either raise funds for capital investments and / or debt servicing. This is one of the root causes of de-focus from the core objectives [i.e. of academics or excellence orientation] for most higher education institutes.
This is one of the major reasons, why even well meaning, educated and motivated promoters of educational institutes find themselves not devoting time to institute building as they are busy driving admission related activities from season to another to fill up the coffers and use the intervening time running pillar to post to either re-schedule existing loans or to seek fresh loans. The irony here is hard to miss, promoters needs funds to create assets for which they need loans. However to get the loans they need to provide assets as collaterals. Goes back to the age-old chicken egg story. The lack of depth of the financial instruments of our institutions is the bane of every MSME [Micro Small and Medium Scale Enterprise]. Especially every promoter who or enterprise that wants to follow an elegant route to wealth creation.
The higher education edupreneurs are worst hit by the apathetic lack of originality and sanity. Financiers know from day one, that additional funds will be required going forward to meet genuine needs of expansion and debt servicing. However, they collude with borrowers to ignore / hide / tweak key facts of a proposal to pass their internal norms. As a result of sometimes institutes need to change financiers midway as the earlier proposed numbers are expectedly not met and the subsequent tranches are not released – the same story is repeated with the new financier as well. This is a never ending process for the first few years.
As super-human efforts in terms of endurance and enterprise are required to basic survival, it is most unfortunate all the other priorities, values and dreams go lower down the pecking order.
We have a conservative banking system, despite that for higher education sector an answer to this problem should be easier found. There is a clear case to have specific industry specific instruments to save the sector. Firstly, ninety percent of the investments are for creating low risk physical assets. Secondly, this sector has escrowable revenues to mitigate the risks of the willingness to pay. Thirdly, the capital investments become minimal after steady state after which almost thirty to forty per cent can be ear-marked for debt servicing. In addition, if required banks can seek checks and balances in the governance of the institutes – which genuine promoters will have no problems adhering to. These tools should be enough for the banking sector to design relatively risk-free longer term loans for the education.
Till we find a sustainable solution to this problem, we will not have quality higher education institutes. We will always be struggling to have at best thirty per cent employable pass-outs. And the Indian education sector will never improve, and this will have contagion effects on the economy per-se. Time we realized that this is very serious problem and needs urgent redressal through policy and structural changes.
Bhubaneshwar
August 28, 2011
Wednesday, August 31, 2011
Time to look for optimisation opportunities in Higher Education
Indian engineers have provided the people-fuel to many global giants. Indian doctors, para-medics and nurses have also played a critical role in building the healthcare resource base of many developed Anglophone countries. If not anything else, it proves that Indian resources have demonstrated that they have and they can compete with the best of the rest of the world.
But the debate, if at all there is any, is whether this demonstrated capability is because of the education system or is it despite the system. What do the macro metrics speak? Looking at per-capita indicators of engineering college seats, university seats, doctoral students Indian numbers compare very poorly with most economies. Which basically means, we need much larger numbers of educated class to meet the demands for professional resources. Equally importantly we need greater depth in our national resources to create a leadership position in the comity of nations.
The fact that India having far lesser of colleges / students than what we should be having as a nation, should mean that everyone who passes out from a university should get a red carpet treatment in the job market. The reality however is far different. Take the example of engineering graduates. Seventy-percent are unemployable! They cannot even earn 10,000 rupees a month without significant additional capacity building. That is the sad truth.
Companies are hamstrung for talent and that is one of the critical reasons that the country is not growing at 10% per annum. SMEs, who do not have the wherewithal to spend huge sums of money on fresher grade training, find themselves seriously undermined to create globally acceptable solutions and competitive prices.
Worse, the social prestige attached to degrees and not skills/employability makes students blindly go for higher professional education, irrespective of ability to cope up. The only differentiator between a person who takes up professional degree education and the person who doesn’t is affordability and not ability. As a result, students armed with expensive degrees and taking up lower paid jobs [without a modicum of a chance to get due return-on-their education] while students [the limited few] who have planned the careers well by joining the correct courses [i.e. eschewing ‘degrees’] may face a disadvantage to start with as they line-up against ‘degree’ holders.
There are a whole of other problems or manifestations of problems. But to me, these two are the most stark manifestations of the core problems in the higher education sector [post higher secondary education]. To re-articulate: one, lack of rigour in the system and two, inadequate social investment on short term certificate courses that impart respectable livelihood skills.
As a society – rigour is not our strength. Taking the easier, contented path is always acceptable. The fighter is always laughed at in school. This is clearly gravitating upwards to plague our professional/higher education students. It is very rarely that students are clear in their concepts and answer serious questions confidently. Even less often does one find students – who love to take up the gauntlet. This is an extremely serious problem. There are few institutes which have an institutionalized mechanism to churn the students to a higher level. According to me, less than 50 from the around 20,000 higher education institutes in the country will fall in this category. The premium institutes may not fall in this category. In such institutes, the churn - which can be significant - is because of extra-ordinary input quality and peer pressure. Not because of pedagogy or innovative/ committed academics or academic administration.
Till we correct this anomaly, it is no good creating expensive physical infrastructure to under-capable professionals. Worth noting that education is one of sectors with highest capital intensity [from an asset-turnover ratio and pay-back period perspective] and optimal use of such assets will come from churning out a greater percentage of employable students rather than creating new infrastructure which can produce hygiene levels of employable students.
The other problem is not creating enough skills to occupy the base of the pyramid of the corporate sector and sustainable prices. How do we encourage students to get skills early on and start earning? It is not always required to spend four years to do a degree course – especially if it does not assure a sustainable head-start in the professional career. How do we create more and more demand / supply side success stories for certificate and vocational courses is another story. Large sums of money that go for creating under-utilized higher education infrastructure and for procuring inadequate / half-baked competencies, can then actually be used for capacity creation and wealth creation. The creation of lean and globally aligned work-force.
In the future, education organizations – will benefit if they focus on these two gaps. The organizations who do these – either as facilitators or education providers - will be the ones who will create maximum wealth for the community, education sector and themselves.
Bhubaneshwar
August 23, 2011
But the debate, if at all there is any, is whether this demonstrated capability is because of the education system or is it despite the system. What do the macro metrics speak? Looking at per-capita indicators of engineering college seats, university seats, doctoral students Indian numbers compare very poorly with most economies. Which basically means, we need much larger numbers of educated class to meet the demands for professional resources. Equally importantly we need greater depth in our national resources to create a leadership position in the comity of nations.
The fact that India having far lesser of colleges / students than what we should be having as a nation, should mean that everyone who passes out from a university should get a red carpet treatment in the job market. The reality however is far different. Take the example of engineering graduates. Seventy-percent are unemployable! They cannot even earn 10,000 rupees a month without significant additional capacity building. That is the sad truth.
Companies are hamstrung for talent and that is one of the critical reasons that the country is not growing at 10% per annum. SMEs, who do not have the wherewithal to spend huge sums of money on fresher grade training, find themselves seriously undermined to create globally acceptable solutions and competitive prices.
Worse, the social prestige attached to degrees and not skills/employability makes students blindly go for higher professional education, irrespective of ability to cope up. The only differentiator between a person who takes up professional degree education and the person who doesn’t is affordability and not ability. As a result, students armed with expensive degrees and taking up lower paid jobs [without a modicum of a chance to get due return-on-their education] while students [the limited few] who have planned the careers well by joining the correct courses [i.e. eschewing ‘degrees’] may face a disadvantage to start with as they line-up against ‘degree’ holders.
There are a whole of other problems or manifestations of problems. But to me, these two are the most stark manifestations of the core problems in the higher education sector [post higher secondary education]. To re-articulate: one, lack of rigour in the system and two, inadequate social investment on short term certificate courses that impart respectable livelihood skills.
As a society – rigour is not our strength. Taking the easier, contented path is always acceptable. The fighter is always laughed at in school. This is clearly gravitating upwards to plague our professional/higher education students. It is very rarely that students are clear in their concepts and answer serious questions confidently. Even less often does one find students – who love to take up the gauntlet. This is an extremely serious problem. There are few institutes which have an institutionalized mechanism to churn the students to a higher level. According to me, less than 50 from the around 20,000 higher education institutes in the country will fall in this category. The premium institutes may not fall in this category. In such institutes, the churn - which can be significant - is because of extra-ordinary input quality and peer pressure. Not because of pedagogy or innovative/ committed academics or academic administration.
Till we correct this anomaly, it is no good creating expensive physical infrastructure to under-capable professionals. Worth noting that education is one of sectors with highest capital intensity [from an asset-turnover ratio and pay-back period perspective] and optimal use of such assets will come from churning out a greater percentage of employable students rather than creating new infrastructure which can produce hygiene levels of employable students.
The other problem is not creating enough skills to occupy the base of the pyramid of the corporate sector and sustainable prices. How do we encourage students to get skills early on and start earning? It is not always required to spend four years to do a degree course – especially if it does not assure a sustainable head-start in the professional career. How do we create more and more demand / supply side success stories for certificate and vocational courses is another story. Large sums of money that go for creating under-utilized higher education infrastructure and for procuring inadequate / half-baked competencies, can then actually be used for capacity creation and wealth creation. The creation of lean and globally aligned work-force.
In the future, education organizations – will benefit if they focus on these two gaps. The organizations who do these – either as facilitators or education providers - will be the ones who will create maximum wealth for the community, education sector and themselves.
Bhubaneshwar
August 23, 2011
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