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Luis Miranda

Why I have turned pessimistic about the education sector

A few months back I attended a discussion on education in India. The panelists were Ninad Karpe of Aptech and Jetu Lalvani of Kaizen Private Equity. I was happily sitting in the back of the room minding my own business when Rontu Basu of Quest Partners, who was monitoring the discussion, asked me for my comments. And I sounded very negative on the education sector when I spoke. Later that night as I was heading home by train I asked myself why I had become so negative on the education sector. The answer was actually very simple.

In the past I looked at the education sector from an investor’s perspective. The gaps and opportunities in the sector in India are so large that one has to be an idiot to lose money as an investor in the sector. There are only 3 reasons to lose money in Indian education – pay too high an entry price, execute poorly or get stuck in regulatory crossfire. The fact that engineering colleges are closing down in UP and business schools in Gujarat and Maharashtra are doing the same highlight the fact that there are many idiots playing in this sector (and I have had my fair share of idiotic non-education deals). Hence my friends on the investment side are correct to believe in the great education opportunity in India.

But these days I spend a lot of time looking at policy issues in the education sector, across all aspects – K-12, college and vocational. And the situation is deplorable. There is a lot of talk by the government, especially by the previous HRD Minister, but no serious significant attempts are being made to improve the quality of outcomes. It is frustrating to see how the powers-that-be are only taking small steps to fix the problem. All we see is some tinkering on the sidelines. The RTE has been a disaster when it comes to implementation. I was in Manipur recently and visited a remote village where the only private school in the village was shut down last month because it wasn’t recognised. The government school is like something from the future … a ‘virtual’ school – it allegedly has paid staff but no school building and students. Hence 40 kids have no school to go to from February 2013. Yes, the private school in this village was pathetic, but isn’t the RTE supposed to offer education to all and not cut down access to education? And I am sure that this will be repeated across the country.

This is why I am pessimistic about the education sector today. Hopefully the new ministers will do something different.

On a separate note, I just spent a week in Australia looking at the hotel industry there. One of the very pleasant surprises on this trip was the ease of checking into Qantas domestic flights – the entire process has been automated, including dropping off checked-in bags, and it is extremely efficient. It is also interesting that no one asks for any form of ID and one can carry bottles of alcohol on board in your hand baggage. It will be a sad day when terrorists destroy this Aussie travel experience.

But that’s not the reason for talking about my Australia trip. In Brisbane I drove through a super tunnel that went under a part of the city, cutting down travel time considerably. When driving in from the airport I asked a colleague about the performance of the developer, BrisCon, which is a part of Macquarie Group. A few hours later he told me that BrisCon had called in administrators because they owed AUD 3.5 billion to banks. This was big news in Australia.  This Airport Link toll road in Brisbane had been operating for just 6 months. It is a truly world-class piece of infrastructure, but traffic is only 50,000 cars a day compared to the projected 135,000 cars a day. This once again highlights the risks of developing large infrastructure projects across the world.

In India the risk is even higher because of regulatory uncertainty.  History is full of examples of great infrastructure projects that were financial disasters for the initial developers. In 2009 Fitch published an interesting report that talked about the financial problems developers of projects like the Panama Canal, the Eurotunnel and Boston’s Big Dig.  As governments across the world run out of cash and rely on the private sector to build marquee infrastructure projects through a PPP model, it will be a disaster if the private sector stops developing large projects. It is imperative that frameworks get established to ensure that these PPPs continue to get funded and developed.

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Has the sentiment changed for you? Luis, what is your view about outcome oriented mobile education interventions in primary education, specifically in Rural India? Thanks, Raj
Ever since education became a "dhanda" or a business in India, the quality of education has simply gone downhill. No private institute not even the Indian School of Business in Hyderabad can compare with the quality of an IIM Ahmedabad Same with medical care. In my hometown, Goa, the Manipal Hospital near my home is a mess and an expensive rip off. When all else fails to treat a sick or injured person in Goa, it is the government owned Goa Medical College & Hospital in Bambolim which is the final port of call. In New Delhi, it is AIIMS which has the BEST doctors, not Apollo Hospitals.
Rajat, I disagree. The quality of education and healthcare has not gone down because of the growing role of private operators. Most people that I know, poor or rich, prefer to go to a private school or hospital - and this also includes our former maid who prefers to travel miles to the Manipal Hospital in Goa. Regarding IIM-A: any system which takes the brightest kids and puts them through an extremely rigorous programme will produce great results. I do not think that quality of education at IIM-A is great; but I agree that the quality of an IIM-A graduate is great.
It is really heartening to see that what we are looking as growth in last few years is just the increase in number of schools and colleges that also in the private sector only. There is one very basic thing I have observed is that no change in CONTENT and TEACHING METHODOLOGY has been achieved. I can still use the 10 year old books whether it is in accounts, economics or any other subject without any change even in examples given to explain. The situation is same atleast upto the post graduation level. How come it is possible to see no need for improvement in basic content of our books with so much change happening around us.
I am a fresh engineering graduate out of college (2011 batch). I admit I may not be very aware of all the statistics of the social sector in India, but there is this big doubt which comes to my mind every time I read a blog like this one, or a debate on some social sector. In all of these discussions, one thing which is common is the cry on "ineffective and inefficient policy making by the government" and almost everyone who is a part of the "intellectual strata" of the country (I mean people like you who have good degrees, professional experience or at times social sector specialists) seem to be very unhappy about the way government is approaching the social sector development. Well, there is no doubt that government has performed very badly on the social front and failed to provide the basic amenities to the people. But don’t you think that the biggest reason for this is the dearth of “well-educated” and “professional” people in politics. There is this big pool of people, who did their masters from abroad back in 1980s and today have an impressive corporate track record, and it’s great that they have entered social sector and determined to change it by philanthropy or becoming a part of social activism. But why don’t this set of people get bold enough to enter into politics or become a part of the policy making group of government just like economic advisors to the government. This intellectual stratum is undoubtedly a big achievement for India but if they are bold enough to leave their big corporate jobs and enter into social sector, so why are they not bold enough to enter politics which is actually the “big game”. Just for example, there must be some NGO who may be working for child education for 20 years and suddenly one day a right person come to politics and makes right to education for everyone. All I am trying to say is that this “intellectual strata” can make a very big impact if they become a part of the policy making. Some may say that they are just corporates and don’t want to enter politics. But then I would say either they chose to enter those sectors which are free from government regulations (and not social sector) or if they are bold enough to chose to work in social sector (which may be govt controlled) then why they don’t they become the government themselves. A big example is of the bright IIT+IAS Arvind Kejriwal who was bold enough to come out openly against government, rather than making pleas to government through debates or complaining about government whenever they get a chance to! They should either enter the fight openly or should not chose to interfere at all..why this half way thing??
Dear Kumar, thanks for your comments. Yes, there are many people who stay on the outside and criticise the government. And there are others who do get involved. When I was in college I thought, like you, that getting involved only meant fighting an election. However, that is not necessarily the case - one can be involved by being an advisor or an investor, working with NGOs, etc. And many 'educated' people are doing just that, and are having significant impact doing so.
I do agree that one can impact things by staying out, but then I wonder by how much? I dont think that by opening NGOs one can make "significant impact". Change does happen but very slowly...I remember once my professor at IIT told me that how "a change which happens at a pace slower than it should happen, loses half its worth till the time it fruits up". Anyhow, I think it depends on what actually interests our "intellectual strata". Just like if you are more concerned with Karma, as in opening up NGOs gives you more happiness then its fine, but if you are more concerned with the final aim - that is development of country than you should prefer a faster means which is "the politics". Politics. Decisions made on a national scale, affecting everything, controlling everybody. A few words on paper, a directive-changing the life of every person in every nook, cranny and penthouse of this country!
I am a fresh engineering graduate out of college (2011 batch). I admit I may not be very aware of all the statistics of the social sector in India, but there is this big doubt which comes to my mind every time I read a blog like this one, or a debate on some social sector. In all of these discussions, one thing which is common is the cry on "ineffective and inefficient policy making by the government" and almost everyone who is a part of the "intellectual strata" of the country (I mean people like you who have good degrees, professional experience or at times social sector specialists) seem to be very unhappy about the way government is approaching the social sector development. Well, there is no doubt that government has performed very badly on the social front and failed to provide the basic amenities to the people. But don’t you think that the biggest reason for this is the dearth of “well-educated” and “professional” people in politics. There is this big pool of people, who did their masters from abroad back in 1980s and today have an impressive corporate track record, and it’s great that they have entered social sector and determined to change it by philanthropy or becoming a part of social activism. But why don’t this set of people get bold enough to enter into politics or become a part of the policy making group of government just like economic advisors to the government. This intellectual stratum is undoubtedly a big achievement for India but if they are bold enough to leave their big corporate jobs and enter into social sector, so why are they not bold enough to enter politics which is actually the “big game”. Just for example, there must be some NGO who may be working for child education for 20 years and suddenly one day a right person come to politics and makes right to education for everyone. All I am trying to say is that this “intellectual strata” can make a very big impact if they become a part of the policy making. Some may say that they are just corporates and don’t want to enter politics. But then I would say either they chose to enter those sectors which are free from government regulations (and not social sector) or if they are bold enough to chose to work in social sector (which may be govt controlled) then why they don’t they become the government themselves. A big example is of the bright IIT+IAS Arvind Kejriwal who was bold enough to come out openly against government, rather than making pleas to government through debates or complaining about government whenever they get a chance to! They should either enter the fight openly or should not chose to interfere at all..why this half way thing?
Anshuman Goenka
As a PE investor, I scanned this sector for aboout 5 years. And I am happy I never invested. You make some interesting points. But a few add-ons: (1) Nobody in India (government, regulators, investors, entrepreneurs) ever thought of establishing a credible accreditation body in India. You had ratings from magazines (often managed with generous advertisement) filling in for the absence of a clear, credible and neutral ratings system. (2) Education in India went through a real-estate-like cost inflation, making the product out of reach for a large market. From fancy IB schools to vocational colleges to the more established test-prep, the rent-seeking in the system was immediate and completely out of proportion to the cost inflation in other sectors of the Indian economy. (3) Some early investors made attractive returns triggering a domino of investor enthusiasm, which I think is primarily culpable for where we have landed today. All of us know about companies who had attractive growth fuelled by government-spend on the sector, but awful balance sheets all the way. The investor response, esp after initial success, to such businesses was rather untempered. So, the sector attracted even more fanciful valuations, and even more enthusiastic investment bankers and investors - just until the first success began to unravel. You have rightly pointed to RTE as a disaster. But maybe time to think of something outside the box. Could there be a not-for-profit that aims to close the information asymmetry in this sector? There are a few accomplished PE names, including yourself, now looking to make a mark on education, in the non-profit sector - and I can think of this as a great place to start.
Thanks Anshuman. There have been attempts to start accreditation bodies. But they haven't met with much success - may be worth exploring why. If we just loosened the controls on supply the poor schools will shut down.
Education should be held accountable to standards just like most other disciplines like medicine and law. Teaching to national curriculum may be a long way away in India, (maybe it's already in place) but if we're looking to overhaul a system, there's a start. When you have a nationally stated objectives or outcomes, teaching to those standards will and have to follow.
However, I am not a fan of private companies taking over the role of basic government duties like health, education, defence etc. simply because companies act primarily in the interests of their shareholders. Stagnant or negative growth is seen to be disastrous to investors.
If I understand correctly, you say we should make it attractive for private companies to invest in infrastructure. This sounds like a logical good idea at first, (after all governments around the world are being branded as the evil doers and redistributors of the rich's wealth and therefore not interested in progress) but only later do thinking citizens realise how expensive a regular toll charge is, or how much more they're paying on electricity that once used to be government run and cheaper. Boo hoo if the Brisbane tunnel hasn't made their projected targets yet, but don't you worry, they'll take their pound of flesh and a lot more when the tolls stay in place not just for us to repay, but for our children and children's children.
However, with the right kind of education I will teach my children how to overcome the system, think big, earn even bigger and of course never forget to pray for the poor.
I always have believed, maybe because I was brainwashed at Chicago, that the makers can do a better job than the state because of proper incentives, competition and competent regulation. However, ensuring that these 3 factors work effectively is always a risk, but I also believe that markets fail less often than the state fails. Remember that the best US universities ae all private. There is an important difference between for-profit and not-for-profit private enterprises which is often ignored.
A great article Luis. What you saw in Manipur is perhaps the tip of the iceberg with many such battles being waged in small villages and towns across the country. Like it or not, there are hundreds of small schools run in remote communities that may not impart the best of learning, but are virtually the only available opportunity for kids to be educated. Almost all of these would fall foul of RTE stipulations and would technically require to close.... you can imagine with what consequences. There seems to be a huge disconnect between our city-based policy makers and the people at the cutting edge on the ground especially in remote areas.....
Yes, it is unfortunate that the RTE could actually keep kids away from school. In such poorly run schools I see a huge opportunity for technology based teaching, where a one-way instiction by a great teacher on a screen is better than what the kids currently get.
M.A.Padmanabha Rao, PhD (AIIMS)
Mr.Lius,
I appreciate your optimism. For example, the All India Institute of Medical Sciences at New Delhi was aimed to be the primier institution in the country. When I worked there and afterwards I came across some brilliant students and faculty. The institute had the potential to become one of the best institution in the world. It is not able to come up to the high standard that the country expected. It is not trying yet. AIIMS should be able to pay 4 to 5 times the normal salary to the faulty to attract best talent?
Education sector needs revolutionary improvements. Many distinguished academicians are avaialble in the country. I saw in Russia many scientists working at 70 or 75 years age. India can appoint retired professors giving them 5 to 6 times the normal salary. Private organizations should come forward to build academic and research institutions providing the salary to each Professor a salary 5 lakh Rupees or more. The environment should be created to be better than any foreign institution. What is required is MAKE THE STUDENTS AS LEADERS IN VERY WALK OF LIFE.
Some of the eminent academicians from other countries also can be invited as Faculty in these institutions. It is not necessary to bring all the faculty from abroad. There are more talented people like Dr.M.S.Swaminathan (in Agricultural sciences), Dr.Venugopal (in Medical Sciences) within this country. We have to first identify our leaders in every sphere of life, make them our national heros, get their guidance to build a 'New Emerging India'. Forbes India can play a significant role. Jurists and Journalists can save the nation in difficult situations.
IF PROPERLY PLANNED, YOU CAN WITNESS REVOLUTIONARY IMPROVEMENT IN EDUCATION SECTOR AND IN INDIA AS SUCH IN 3 TO 4 YEARS TIME.
Dr Rao, I still believe that there is hope ... Though one has to hunt hard for it ... Allowing competition helps the consumer ... So we should ignore controls on inputs and let people set up many schools and colleges ... Fees will drop and the bad ones will go bust ... The Much-aligned Markets have a role to play in education also.
M.A.Padmanabha Rao, PhD (AIIMS)
Dear Mr. Luis Miranda, If you are really interested to know the untold story, and unfold the truth to Government of India to know the facts what is happening behind the scene despite spending billions of Rupees in academic and research institutions. INDIAN DISCOVERER KEPT UNDER CAPTIVITY & BLACK HOLES IN WHITE APRON https://plus.google.com/u/0/108828748608115661732/posts
M.A.Padmanabha Rao, PhD (AIIMS)
Dear Mr. Luis Miranda, You are not wrong in your assertion: “Why I have turned pessimistic about the education sector”. Today's education is devoid of teaching moral values. As a result, people do not hesitate doing wrong practices even in education sector. Even educated people hardly speak truth because telling lies has many advantages. I saw with my own eyes how INDIA’S ACADEMIC AND RESEARCH INSTITUTIONS ARE CRUMBLING. There is only one path opened for any Indian, if wanted to remain in India and work in academic and research institution or anywhere else in India. EITHER TO JOIN THE GANG OF CORRUPT PEOPLE, MAKE MONEY AND SHARE WITH OTHERS or RUIN ONE SELF. Billions of Rupees Government of India is going down the drains because of rampant corruption in academic and research institutions that has spread in endemic proportions which cannot be eradicated under any circumstances. The real facts are not coming out because no journalist is coming forward to highlight breakthroughs if any or evils in Indian institutions..... You can have a glimpse of the sad state of affairs what is happening today on the name of research institutions from the following Blog of Forbes India by Senior Editor Ms Seema Singh, who dared to present facts boldly. You can also see how two people Krishnan and Gp. Capt. G. S. Sandhu (Retd.) resorted to mudslinging on the physics discoveries done in India without any knowledge on radioisotopes and XRF sources, just to defend DRDO.... What this 75-yr-old’s Story tells us About Discovery in India ..... http://forbesindia.com/blog/technology/what-this-75-yr-olds-story-tells-us-about-discovery-in-india/
Excellent article Luis. Our ministers indeed need to do more to get serious about implementing RTE. What is needed is a collective push from the private sector.
Atul, true ... But the regulatory framework is not that supportive
 
 
Luis Miranda
Luis Miranda started investing in India's infrastructure before it became fashionable. He started IDFC Private Equity and was earlier a part of the start-up team of HDFC Bank.
Luis has invested in and has been on the boards of companies like GMR Infrastructure, Delhi International Airport, Gujarat Pipavav Port, Gujarat State Petronet, L&T Infrastructure and Manipal Global Education.
Today he is involved with various non-profits like Centre for Civil Society, SNEHA, Human Rights Watch, Gateway House and Samhita Social Ventures. Luis graduated with an MBA from Chicago Booth.
 
 
 
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September 03, 2013 18:44 pm by Rajagopalan C
Has the sentiment changed for you? Luis, what is your view about outcome oriented mobile education interventions in primary education, specifically in Rural India? Thanks, Raj
May 11, 2013 18:15 pm by Luis
Rajat, I disagree. The quality of education and healthcare has not gone down because of the growing role of private operators. Most people that I know, poor or rich, prefer to go to a private school or hospital - and this also includes our former maid who prefers to travel miles to the Manipal Hosp...
May 09, 2013 12:47 pm by Rajat Bhatia
Ever since education became a "dhanda" or a business in India, the quality of education has simply gone downhill. No private institute not even the Indian School of Business in Hyderabad can compare with the quality of an IIM Ahmedabad Same with medical care. In my hometown, Goa, the Manipal Ho...
April 15, 2013 17:36 pm by Mani Goyal
It is really heartening to see that what we are looking as growth in last few years is just the increase in number of schools and colleges that also in the private sector only. There is one very basic thing I have observed is that no change in CONTENT and TEACHING METHODOLOGY has been achieved. ...
March 20, 2013 22:17 pm by n.kumar
I do agree that one can impact things by staying out, but then I wonder by how much? I dont think that by opening NGOs one can make "significant impact". Change does happen but very slowly...I remember once my professor at IIT told me that how "a change which happens at a pace slower than it should ...