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RTE declares war on education entrepreneurship, feel PE investors-Ahona Ghosh & Saumya Bhattacharya

Entrepreneurs and investors , who had only recently found innovative ways to invest in education as a business , are concerned about the financial impact of the Supreme Court ruling last week upholding the Right to Education Act. All schools, except minority unaided ones , will now have to set aside 25% of seats for poor students . 

While most investors welcome the move , they also worry about funding the gap between the government subsidy for these seats and their actual costs will hurt them. "The Act poses two concerns to investors , especially those who are investing in schools. 

One is the financial impact of the Act on the institution and two, the impact on the quality of education ," says a PE investor who does not want to be named . The concept of schools as a business is at odds with the government's stated position on the issue . The government mandates a not-for-profit 'trust' structure for all schools from kindergarten till class 12, or K-12 schools, saying schools shouldn't be run like a business . 

The non-profit structure is not mandatory for international schools, education services providers and school management companies . Investors and entrepreneurs run the latter two as for-profit companies that provide consulting to not-for-profitschools . 

PE investors pumped in an estimated $544 million in the education business since 2009, according to Venture Intelligence , a firm that tracks investments in satart-ups . The ruling will have an impact on such investments. 

Says Manish Sabharwal , chairman , Team LeaseServices : "Just as government subsidies do not reach those who need it , 25% of seats will not go to the poor . RTE will not get our kids educated ,but declares war on education entrepreneurship ." Agrees Vishal Jain , president , Wealth Management at Nadathur Investments . 

"The idea of RTE is noble is but the implementation is probably not appropriate ." Investors are worried the government will not be able to fund the fees private schools charge , besides such a system may have a psychological effect on children from underprivileged backgrounds ,he adds . 

Besides , according to Sabharwal , getting children into school was the battle of 1990s. Today the issue is preventing dropouts , which RTE doesn't ensure . Vishal Vasishth a venture investor and former MD of Song Investment Advisors , says , "With the implementation of the Act, the trust's ability to pay school management companies will godown . 

The school's ability to outsource management and technology services will decrease as well ." Another investor who did not wish to be named said that the move will hurt class 3 and class 4 unaided private schools that cater to low and middle-income groups . 

According to promoter and director of Pathways Word School, Prashant Jain , the main concern is funding the gap between the government subsidy and their actual costs. "We need to work out a cross subsidisation model ," says Jain . He is talking to corporates to give scholarships to students as part of their CSR activity . 

Pathways World School, the Delhi-based IB curriculum group of K-12 schools, raised its only round of equity of a little over Rs 100 crore from Anil Ambani's Reliance Equity Advisors .