The need for a more expansive and high-quality education system in India is well-known. Accordingly, the Union human resource development (HRD) ministry has embarked on an ambitious programme of education reform. However by the ministrys own internal estimate, the gross allocation to education in the Eleventh Plan (2007-12) covers only 20 percent of the total investment required. This strengthens the case for greater private sector participation. Given that consumer spend on education is expected to grow eight-fold over the next two decades, the size of opportunity for private players in education is substantial.Currently, the private sector plays three roles in Indian education. Firstly it plays a direct role in the formal education sector comprising K-12 schools and higher education institutions (colleges and universities). In K-12 education, most private schools, except for those affiliated with offshore examination boards, are bound by a ‘not-for-profit diktat. There is relatively greater freedom in higher education though operational control on fees, curriculum, student intake etc are stringent.
The second role discharged by private sector education entrepreneurs or edupreneurs is in the informal sector made up of non-compulsory educa-tion and training institutions — pre-schools, career training institutes and coaching classes. Unlike the formal sector, the informal sector is not subjected to control on operations or the right to earn profit.
The third space available to edupreneurs is that of vendor to the formal and informal education sectors. Here, players provide various products and services e.g books, stationery, e-learning solutions etc, to formal and informal sector enterprises. In this segment too, financial and operational constraints dont apply.
In the US, private institutions tutor 11 percent and 26 percent of students enroled in school and higher education respectively. These independent private institutions enjoy high degree of financial and operational autonomy. For-profit private institutions in the US are expanding their enrolments at 10 percent per annum as compared to public institutions which are experiencing 1 percent growth — an indicator of the value addition that private edupreneurs are creating for their customers.
There is another niche model of private participation in US school education. School districts selectively outsource the various services associated with the running of public schools to education management organisations (EMOs). The prospect of leveraging the efficiency of the private sector to improve delivery of public education is the rationale for the emergence of EMOs.
While EMOs have had limited success in the US thus far, a similar model has been far more successful in Sweden. In this model, the government funds private school ventures drawing benchmark data on educational spends incurred in public institutions in the same locality. The private body complies with broad guidelines and drives efficiency to make profits. Today, this phenomenon of ‘school voucher programmes caters to more than 10 percent of the Swedish population.
These examples indicate the possibility of two high-potential roles for private players in the formal education sector in India — a ‘direct independent role of operating institutions and a ‘collaborative role of running institutions in the PPP (public-private partnership) mode.
The PPP model could work in two variants. In premium public schools there could be selective outsourcing of critical services to private players. In non-premium schools, existing and new, we could witness the evolution of a model where the deficit between revenue and expenditure is financed by government (Centre/state) by way of subsidies.
Viability gap funding (vgf) in infrastructure projects and the universal service obligation fund (USOF) in telecom exemplify a vital point. In sectors where there is a public funding shortfall and where expected revenues from customers fall short of the cost of providing the service, the government or a central fund would need to finance the deficit. Private players with a ‘for-profit motive have to anticipate these changes, and accordingly prepare for strategic forays into the education sector.
In the immediate future, the direct independent model may be limited to higher education. The key to success under this model is identification of high-demand streams with limited current supply, and development of a detailed location strategy. In the outsourcing-based PPP model, the game-changer would be the ability to predict areas of outsourcing and acquiring appropriate capabilities. In the PPP model with funding incentives, it is vital to be involved in the game early, even as the government tests out this concept on a pilot basis.
Success in the education sector is also dependent on early entry, rapid scale-up and the ability to positively influence regulation. Depending on a companys strategic objectives, capabilities and risk profile, it can choose to play an effective role in one or more of these models, and create social as well as enterprise value in the fast transforming Indian education sector.

(K. Raman & Kaustav Ganguli are with the infocom, media & education division of the Tata Strategic Management Group)