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India Ratings expects the Indian education sector's market size to increase to Rs 602,410 crore ($109.84 billion) by FY15 due to the expected strong demand for quality education. Indian education sector's market size in FY12 is estimated to be Rs 341,180 crore

The sector grew at a compounded annual growth rate of 16.5% during FY05-FY12. The higher education (HE) segment was at 34.04% ($17.02billion) of the total size in FY10 and grew by a CAGR of 18.13% during FY04-FY10.

This fall in enrolment growth and delays in HE students' fee reimbursements by a few state governments has created liquidity issues for many. "Fee ceilings in HE institutes (both for the government and management quota) and schools curb the financial prowess of the entities. Even though the fee reimbursements scheme (applicable only to HE) propelled enrolments and made education affordable to certain educationally disadvantaged sections of the society, delays in reimbursements by a few states tightened the liquidity for education institutes," said the report.

Irrespective of an institutes' size, loan repayments depend on its relationship with lenders. Due to tightly-regulated operations such as restrictions on student intake, fees and infrastructure, an institution's autonomy is restricted, leading to weak finances and credit indiscipline. In India Ratings' opinion, the upcoming regulatory changes could possibly provide autonomy and enhance the credit quality of the issuers.

The stipulation to keep education as a not-for-profit structure is seeing evolution of new structures. "Although the institutes were formed as 'not-for-profit', they plough back profits through associates. Associate companies provide facilities management and charges management fees, lease rentals and other fees. India Ratings views the structure evolvement as a positive," said the report.

Although, foreign investment is allowed under automatic route in education, there are regulatory issues. Nevertheless, twining programs with foreign institutions are recognised by the regulators.

The other key positive for the sector is the federal government's 12th Five Year Plan to propel the gross enrolment rate across levels, establish new entities, liberalising the sector (allow private universities and foreign players) and take other measures including access enhancement, might revive the demand for the sector. These measures, combined with adherence to contractual provisions, would result in a positive outlook.

Education, Training and Consultancy also looks promising. One of the major factors influencing this sector is the expansion by private players to Tier II & Tier III cities. This sector is expected to add 84,200 jobs and grow at a rate of 1.1 per cent.

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