Is Education India’s next gold rush?

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About twelve years ago, I was sitting in a seminar listening to the Israeli management guru, Dr Eli Goldratt, expound forth on his seminal Theory of Constraints (TOC).  Dr Goldratt shared something very basic but something we often forget - that a chain is as strong as its weakest link.  This thought has stayed with me and it brings me to the theme of this week’s blog – higher education in India. While statistics in the Indian context are astounding, the one’s relating to education are mind-boggling.

• 5: The multiplier by which the budget for education has increased in the 11th Five Year Plan (2007-12), compared to the 10th;
• 14%: Current enrolment rate in higher education; targeted to increase to 30% by 2020;
• 18,000+: Number of universities and colleges in India;
• 600,000: Shortage of doctors;
• 1,000,000: Shortage of nurses;
• 15 million: Annual increase in labour pool by 2015;
• 240-250 million: Estimated skilled workers required over the next 12 years to cater to the incremental skilled workforce demand in 20 high-growth sectors as well as the unorganised sector;  and
• 600 million:  Indians under 25 years of age.

The strain of inadequate educational infrastructure is beginning to take its toll.  A few weeks ago, the World Economic Forum released its Business Competitiveness Report 2010-11.  India had dropped two places to rank 59.  Poorer rankings on education were identified as one of the major speed-breakers.  

Sensing the opportunity, a number of players – new and old - have jumped on to the bandwagon.  Exponential growth in stock prices of educational companies over the past decade bears testimony to the demand-supply dynamics.

Leading international universities have not been impervious to India’s hunger for quality education. Last week, Duke University announced its intent to set up a campus for its business school in India. Like Yale, Brown and Massachusetts Institute of Technology (MIT), it is also in talks with India’s Ministry for Human Resource Development for partnering the upcoming 14 innovation universities. 

As institutions jostle for market share, the resulting frenzy has prompted the Advertising Standards Council of India (ASCI) to introduce a new set of guidelines prohibiting educational institutions and programmes from claiming recognition, authorisation, accreditation, or affiliations without proper evidence.   

To my mind, and borrowing from Dr Goldratt’s TOC, embedded in the education opportunity is one more nugget – that of standards and certification.  Indeed, attention to this could easily apply to India’s preparation for the Commonwealth Games.  After all, success in India is not only about what you do but how.

If you would like to increase the growth for your organisation by deepening its engagement with India, do write in at ratika.jain@whiteowladvisory.com .

Of Land, Marx and Landmark judgements

Till the 1980s, private enterprise was somewhat of a social pariah in India.  Economic liberalisation in the 1990s reconfigured the equation.  As the Indian corporate sector became the ‘poster boy’ for the India growth story, a number of policies were drawn up to support corporate growth.   Recent announcements are signalling an interesting directional shift in Indian policymaking towards industry, investment and its interaction with society at large. 

1)   Environment matters. In a landmark decision to safeguard the environment while implementing industrial projects, India’s Environment and Forests Minister, Jairam Ramesh, announced that the bauxite mining clearance given to Vedanta Resources and the Orissa Mining Corporation in Orissa had been withdrawn. He also said an initial approval for a six-fold expansion to Vedanta’s aluminium refinery in the state was being suspended.  According to a source, the Saxena Report on the matter had said that allowing mining operations would mean a loss of 121,000 trees, affect the region’s water supply and will shake the “faith of tribal people in the laws of the land”. The Ministry has also barred the Vedanta refinery from buying bauxite — the main raw material needed to make aluminium — from 11 other mines in the state of Jharkhand, pointing out that these were illegal.

2)   Property rights. Anyone who has heard of Singur or Nandigram will know just how sensitive the issue of land, and its acquisition, can be in India.  As the race for economic growth is intensifying across states in India, so are the pulls and pressures on land.   

The Indian Government’s ambitious road-building programme aimed at laying 18,637 km of expressways by 2022 has hit a road-block as well on this count. According to some estimates, delays in land acquisition are hampering 70% of the projects under this programme.  Towards addressing this issue, the Congress President, Sonia Gandhi has intervened and sought annuity benefits for displaced farmers.  These are likely to be woven into in the Land Acquisition (Amendment) Bill, 2010 and the Resettlement and Rehabilitation Bill, 2010.  Individual states, such are Haryana and Uttar Pradesh, are experimenting with compensation formulae blending cash, annuities and equity.

Towards addressing concerns regarding fair compensation in the mining sector, the Indian Government is likely to make it mandatory for mining companies to hand over a part of their revenues and make annual payments to those displaced.  The revenue sharing model combined with annual payments is likely to find its way into a proposed legislation - the Mines and Mineral (Development and Regulation) Bill - setting the rules for investment in minerals.

3)   CSR = compulsory social responsibility.  According to news reports, the new Companies Bill will make it mandatory for large companies to earmark at least 2 per cent of their net profit for corporate social responsibility (CSR) activities in the new Companies Bill. The new provisions are expected to apply to companies having a net worth of `500 crores (approximately US$109 million) or more, or a turnover of `1,000 crores (US$ 218 million) or more, or a net profit of `5 crores (US$ 1.1 million) or more, during a year.  The revised Bill is expected to be presented in Parliament for passage in the Winter Session. 

That the intention exists to foster social contribution is commendable.  Whether this is the appropriate intervention is moot.

These shifting sands reflect India’s desire for inclusive growth.  How these, and similar policy shifts, will play out in a company’s calculus remains to be seen. 

If you would like deeper insights to India and what it means for your company, do write in at ratika.jain@whiteowladvisory.com.

India’s Tier II and Tier III cities – are you missing the bus?

In March 1994, the Indian domestic aviation sector was opened up, allowing for scheduled services by the private sector.   One major caveat was introduced.   Private airlines would only be able to ply between India’s lucrative major cities provided a certain number of flights in their portfolio covered the, less lucrative, smaller cities as well.  Grudgingly, operators complied.

Fast forward to 2010.  Much mention is being given to urbanisation in India. How there are currently 42 cities with populations of more than 1 million, compared to Europe’s 35.  How the annual income of households in cities is expected to rise from about US$700 billion today and double every five years and reach almost US$4 trillion in 20 years. The late Prof C K Prahalad, one of India’s most eminent management gurus, was renowned for his clarion call on the need for India to create 500 more cities by 2022 to absorb the shift in migratory patterns and developmental needs in terms of jobs, access to markets and infrastructure.  

Which are the sectors which have been, or currently are, making big bets and driving growth in the Tier II and Tier III cities? Below is a snapshot analysis.

1.  Infrastructure: It is estimated that India needs to invest US$1.2 trillion in urban infrastructure capital over the next 20 years.  According to the McKinsey Global Institute (MGI), India’s tier II cities will need $200 per capita per annum expenditure on urban infrastructure over the next 20 years, compared to the national average requirement of $134 per capita per annum. In terms of connectivity, the Government of India has embarked on an ambitious National Highway Development Programme.  It aims to develop more than 50,000 km of national highways in seven phases.  The map of projects completed under the NHDP in the last 10 years can be seen here.

2. Travel and Tourism: In many ways, a bellwether of economic development, this sector has traditionally been a significant growth engine for India’s smaller cities. Be it for business or leisure, the travel and tourism industry has served to provide critical basic infrastructure, creating a demand-pull for greater connectivity.  With prohibitively high costs of real-estate in the Tier I cities, more and more high-end hotel chains, such as the Marriott, are extending their attention and presence to the needs of the Tier II and Tier III cities.  Interestingly, reverse flows are also being explored.  The Singapore Tourism Board has recognised the untapped potential of these markets and launched a campaign to woo tourists from these Tier II cities to the city-state.

3.  Real estate: The availability of land at affordable prices in these cities, backed by the demand for organised realty, is proving to be pivotal to the success of real estate in Tier II and Tier III cities. According to Ernst and Young (E&Y), several Indian cities with a population of 0.5-1-million will emerge as the most promising market for residential and retail developments, within the next 3-5 years.

4.  Retail:  Of the 80 million households that constitute the Indian middle class, only 25 million are in Tier I cities. Close to 55 million belong to the smaller towns.  According to a study of 100 cities’ consumption spending by Indicus Analytics, only 30% is accounted for by Tier I cities.  With the growth of organised retail, franchising is also booming in untapped Tier II and Tier III cities, showing a phenomenal 40-45% growth in the $16 billion Indian franchising industry. Some of the world’s multinationals have cottoned on to this potential. Earlier last month, Canon India said that it would be aggressively looking at Tier II and Tier III cities, which are expected to generate 70 per cent of its business (currently US$267 mn) by 2015. According to Mercedes-Benz, there is a possibility of 15-20 per cent sales coming from tier-II and III towns. Mercedes already sells more cars in Ludhiana than in Mumbai. Bose Corporation, Adidas, Bacardi, Daikin, Panasonic are some other well-known names placing big bets on these smaller cities.

5.  Education: Anyone familiar with India’s engineering powerhouses, the Indian Institutes of Technology (IITs), should probably be familiar with the city of Kota, the national hub for student coaching.  Today, coaching is the lifeblood of the Kota economy and contributes more than $100 million, from insignificant sums two decades ago.  This is just one example. The reality is that 600 million Indians are under 25 years of age. By 2015, more than 550 million will be teenagers. The total labour pool that will require advanced training in vocational, managerial, IT and other skilled and semi-skilled professions is expected to exceed 30 million individuals per year through 2020.   

6.  IT and Business Process Outsourcing: According to a recent study, India's business process outsourcing industry has the potential to rise nearly five times to US$50 billion in revenues by 2012, provided it successfully taps talent in smaller cities and town, a global consulting firm said.

As per the MGI study, India will have 68 cities with a population of more than 1 million, 13 cities with more than 4 million people, and 6 mega-cities with populations of 10 million or more, by 2030.  

Are you positioned to garner a slice of the pie?