India’s Race Against Time

To the naked eye, India looks like an oasis in the middle of a wrenching emerging market economic downturn. In 2015 Indian GDP grew by 7.2% with the IMF projecting 7.6% growth over the 2016-17 period. FDI reached a record US$63 billion in 2015, exceeding China for the first time. And despite more recent concerns over a heated investment cycle and credit issues among India companies, the subcontinent remains a stable and low beta market when compared to its commodity and oil-based exporting peers. But look again, further over the horizon, and the outlook is far less assuring.

Between now and 2050 India will need to employ 300 million additional workers to its existing workforce, and they won’t be tilling the fields. Where to employ them, how to train them, who will pay, how to create a productive use of an impending youth bulge are important questions that will consume Indian policymakers and investors in the years to come. India today has the largest K12 system in the world, with more than 260 million students, a level roughly 30% larger than China and 10 times that of the US. Yet many children are left behind. In fact, looking at India’s respectable college enrollment rates obscures a more troubling picture in the student pipeline: lagging enrollment and completion rates at the secondary/high schools level; an acute lack of teachers to provide quality classroom education; impending shortages of University seats; and a lack of budgetary flexibility to make bold education spending choices in the midst of unacceptably high poverty levels, creaky infrastructure and rural healthcare challenges.

How India responds to these educational challenges will not only have a critical impact on sustaining economic growth but will also define the scale of foreign engagement and investment in areas such as technology and services industries. The Modi government is prepared to take bold steps in terms of universal access to education and research capacity building as part of its “Make in India” economic platform. But government alone will not be the answer given the scale of the challenge, and time is not on their side.

Consider the following:

I. India does well at the high end of achievement but fails further down

Let’s begin with the positive. Figures 1 and 2 set the stage by comparing a range of emerging markets with large populations. Between 2000 and 2013, our cluster of emerging economies experienced dramatic gains in net adjusted income per capita, which correlated strongly with enrolling students into colleges and universities. India was no exception; in fact, its enrollment levels were comparatively high given that its growth in net adjusted income per capita lagged significantly behind China. By 2015, India’s number of enrolled tertiary students approached 29 million compared to 35 million for China. Coupled with a rising number of Indian students studying abroad, the size of Indian graduates represent an laudable achievement that bodes well for the country’s emerging role in the world of science, technology and innovation.

Figure 1: Net Adjusted Income Per Capita v. Tertiary Enrollment Ratios (%): 2000

Figure 2: Net Adjusted Income Per Capita v. Tertiary Enrollment Ratios (%): 2014

But focusing on the elite end of India’s educational system obscures some hard truths. India’s comparative situation shifts dramatically to the worse when we look earlier in the student cycle and, specifically, the number of students who make it to high school (upper secondary). By 2014 approximately 56.4% of Indian students were enrolled in high school based on GER (gross enrollment rate) data, as noted in Figure 3. Pakistan, at 31.1%, was even more abysmal, undoubtedly due to the lagging participation of girls, which was a mere 23.2% GER (compared to India’s female enrollment rate of 54.8%, which is nothing to get excited about). But it is here that China pulls far away from India, registering a upper secondary enrollment rate of 87.2%. This has important implications for labor markets and academic achievement in both countries, to the detriment of India. Moreover, India’s close neighbor, Indonesia, was also comparatively strong with a 74.2% enrollment rate.

In short, India may look competitive in enrolling University students and does well at the top end of the brain race, but the number of students left behind represents an immense and growing societal challenge. India passed the RTE Act (Right to Education) in 2009 which secures free and compulsory education for children ages 3-14, but not older. Student drop-outs also skew India’s tertiary data, as these students are off the grid and not counted part of an educational system that has failed them (and no longer counted in the % of high school students who can go to college).

Figure 3: Net Adjusted Income Per Capita v. Secondary Enrollment Ratios (%): 2014

II. India’s Shortage of Teachers Is Worsening

On the supply side, India’s teacher shortage looks desperate. An estimate by the University Grants Committee concluded that India today needs 1.4 million more trained teachers but does not have the training necessary at University level, where 12 of the 40 central Universities lack a faculty of education. On the demand side, India’s number of pre-primary students has been exceeding China’s levels since 2003 so that accumulating pipeline of early age students is now moving into primary and secondary school grades.

Back in 2014, India was already enrolling approximately 46 million students at pre-primary levels compared to 37 million in China, or close to 10 million additional students per year over Chinese levels. As Figure 4 indicates, the pressure has not been abating but deepening over time, making it even more difficult for India’s stretched educational system to absorb even higher enrollments and provide the level of quality teaching required.

Figure 4: Pre-Primary Enrollments in India and China: 2000-2014

Figure 5 underscores the fact that India’s primary level teacher-pupil ratios lags our entire country set, including Nigeria and Pakistan. Despite India’s marked improvements since 2000, it still has relatively high teacher-pupil ratios of 33.6x in 2000 and 25.9x in 2013. The only other direct comparable to India in terms of population—China—enjoyed a much lower teacher-pupil ratio of 15.1x in 2013, which no doubt contributes to the latter’s superior educational performance. Conversely, the impact of teacher shortages on educational quality in India leads not only to higher student attrition rates but a drag on future economic growth and productivity.

Figure 5: Teacher-Pupil Ratios (x), 2000 v. 2013

III. India lags in both educating its women and employing them

Female participation in India’s labor force is falling as the aggregate population pool expands, from an already low level of 38.9% in 2005 to only 28.6% per cent in 2014, according to World Bank/ILO modeling data. Figure 6 places India against selected markets with one clear result: India resides at the lower level of both enrollment and labor force participation on a gender basis. Comparatively, what is most striking is the equivalent rate of female participation in China’s labor force by 2014, which was 70.4% and its 88.2% female high school enrollment—a massive difference from India’s 26% and 54.8%. But this lament also suggests that India’s “gender dividend” could be an enormous fillip to economic growth if more women with higher educational attainment levels are put to work.

Figure 6: Female Enrollment Rates at Secondary Level v. Employment


IV. Can India Afford It?

India’s ability to increase spending on education is further complicated by its stubbornly high poverty levels despite tremendous improvement over the past decade. As Figure 7 indicates, India had 74% poverty rate in 2000 (based on a measure of US$3.10 per day) which shrank to less than 58% in 2013. India’s expanding population complicates these statistics but the message is clear.

Although education is an important component of any anti-poverty effort, the country’s poverty rates are severe and issues such as basic health, nutrition and infrastructure can crowd out limited budget resources and the ability to tackle specific education gaps. Note that India’s public expenditure on education has traditionally been low at approximately 3.38% of GDP between 2000-2012.

Figure 7: Poverty Headcount (in Millions) at $3.10 per day (US$, 2011 PPP)

Fortunately, the private and household sectors are picking up some slack. PPP and philanthropic initiatives at the primary level have scaled well over the past decade, including companies such as Intel and Educomp and well-healed foundations at Bharti and Tata. Households are also sharing the burden, perhaps in response to a lack of public solutions. According to one household spending survey released by MasterCard, surveyed Indian families (mainly urban) have among the highest propensity to spend on academic tutoring in Asia relative to income levels (approximately 55% of those surveyed).

Despite this, India will require a lot more engagement from domestic and foreign institutions, companies and investors if it expects to create a quantum leap in education capacity against a rapidly expanding and youthful population. Without incurring more debt upon an already immense national burden, market-based solutions need to take root.

V. Money, Education and Technology

In a recent speech entitled “Money and Education” the government of India’s central bank and ex-Chicago economist, Raghuram Rajan, defined the solution to India’s education crisis across three areas: lowering the cost of education (particularly at college level), embracing technology, and improving University research capabilities.

As I discussed earlier, the latter point—expanding India’s research capabilities—is an important consideration for future competitiveness and indigenous innovation but does not go to the root of India’s more serious problems of educational quality, training and universal access. However Raja’s first two points—technology and cost—are more relevant as well as complimentary.

There are reasons to be sanguine. India’s market in e-commerce for retail purchases currently exceeds $600 billion and is expected to reach $1 trillion over the next three years. This bodes well for future consumer behavior and purchases that are directed at online education and related technology solutions, with China being the most relevant example. Even more importantly, risk capital is flowing to new ideas as the domestic edtech start-up and venture world grows rapidly alongside India’s traditional education and technology leaders such as Everronn, Aptech, NIIT, Emergent Global, Jetking, Classteacher and many others.

However foreign investment remains a wild card. At the transnational University level as well as areas such as private international schools, learning technologies, credentials and vocational platforms, there has been much greater promise than actual results. For years private, for-profit degree education has been suspect by stakeholders which has forced, where possible, creative work-around corporate structures for operating schools and businesses. Non-profit Universities and online platforms have also been hampered, despite some notable successes at free-access Khan Academy and Coursera.

India should drop the mask and internationalize its markets if it hopes to meet the daunting education and employment challenges ahead. Foreign collaboration is critical. Its neighbors—China, Vietnam, Malaysia—have all moved in this direction as both education and labor markets seek a wider connectivity abroad. Pronouncements from the Reserve Bank of India can help, but execution is critical. Time, and human potential, is wasting.