K C Chakrabarty: Indian education system - issues and challenges
Address by Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at the JRE
School of Management, Greater Noida, 5 August 2011.
* * *
Assistance provided by Shri S. Arunachalaramanan in preparation of this address is gratefully acknowledged.
"Plants are shaped by cultivation and humans by education"
Mr. Shantanu Prakash, Chairman and CEO, Educomp Solutions Ltd., Mr. Harpreet Singh,
President, JRE Group of Institutions, Prof. Stephen Rawlinson, Academic President, JRE
Group of Institutions, Mr. Siddharth Mukherjee, Director of Corporate Relations, Prof. Pankaj
Gupta, Director, School of Management, Dr. Ramesh Agarwal, Director, JRE Group of
Institutions, members of the print and electronic media, students of the pioneer batch of MBA
Programme and their parents, distinguished invitees, ladies and gentlemen.
It is my pleasure to inaugurate the campus of JRE Group of Institutions, in particular the
opening of JRE School of Management, which is an outcome of an academic partnership
between Educomp Solutions Limited and Raffles Education Corporation Limited. I also take
this opportunity to congratulate all those associated with this venture and warmly
congratulate the students of the first batch (2011-13) of the JRE School of Management.
Need and importance of education
Education, as you are aware, is vital to the human resources development and
empowerment in the stages of growth of a nation. In any education system, higher education
encompassing Management, Engineering, Medicines etc., plays a major role in imparting
knowledge, values, and developing skills and, in the process, increase the growth and
productivity of the nation. While the Government is committed to providing primary education
and certain facilities/subsidies for higher education, given the higher cost involved in the
establishment of higher education institutes, we are witnessing the entry of private sector to
run educational institutions.
On the need for education, I wish to quote our Father of the Nation, Mahatma Gandhi, who
once said that education not only moulds the new generation, but reflects a society's
fundamental assumptions about itself and the individuals which compose it. The famous
philosopher Einstein while discussing the need for education has projected the following
fundamentals:
a. To educate the individual as a free individual; to understand and use critical thinking
skills.
b. To educate the individual as a part of society - virtually all our knowledge, our
clothes, our food is produced by others in our society, thus, we owe Society and
have responsibility to contribute back to Society.
c. Through education, knowledge must continually be renewed by ceaseless effort, if it
is not to be lost. It resembles a statute of marble which stands in the desert and is
continually threatened with burial by the shifting sand. The hands of service must
ever be at work, in order that the marble continue to lastingly shine in the sun.
While discussing the importance of education, I must state that schools have become the
most important means of transforming wealth of knowledge and skills from one generation to
another. However, the role of institutions becomes more challenging in the modern world
with innovations and technological developments. Investment in education and educational
institutions should be viewed as an investment for economic prosperity.
In India, there are about 26,478 institutions providing higher education and accounting for the
largest number in the world. In comparison, according to a report1, in 2010, the U.S. had only
6,706 higher education schools and China had 4,000. It is important that given the large
number of schools of higher learning in India, we must target to bring more students under
the system. Investment in human capital, lifelong learning and quality education help in the
development of society and nation.
Demographic contour
According to the National Commission on Population, it is expected that the age profile of
population of India will experience changes in the coming years. By 2016, approximately
50 per cent of the total population will be in the age group of 15-25 years. It is projected that
a vast population would enter the working age group in the next 15 years, leading to increase
in productive activities and also savings rate as witnessed in Japan in the 1950s and China
1980s. In other words, there would be a tremendous rise in the number of employable work
force in the job market which would demand commensurate investment in education. In the
literature, Demographic Dividend refers to population "lump" in the working age group of
15-60 which can be described as a major advantage for pushing the economic growth. It
suggests that the major challenge before India is how this advantageous demographic profile
can be harnessed to reflect in the macro-economic parameters of the country.
Given the demographic profile advantage, the average Indian will be only 29 years old in
2020 as compared with 37 years for China and the U.S., 45 years for West Europe and
48 years for Japan.2 The global demographic profile, in future, would, therefore, lead to
shortage of productive workforce globally but India will experience a surplus. We need to
realize that this advantage for us will not be automatically transformed into higher economic
growth. Strategic interventions and foresight in terms of encouraging investments in
education and skills development by policy makers are needed to reap maximum benefits of
demographic dividend.
Issues and challenges
Expenditure on education
In terms of expenditure incurred on education, particularly on higher education, during the
year 2010-11, the government spent around Rs.15, 440 crore which is about 85 per cent of
the revised budget estimates for the year. The recent 66th round of NSSO survey reveals
that between 1999 and 2009, spending on education in general jumped by 378 per cent in
rural areas and 345 per cent in urban areas of the country. The survey further reveals that
spending on children's education underlines sharp increase - 63 per cent for rural and
73 per cent for urban families. However, if we measure the expenses on education as a
percentage to GDP, India lags behind some developed/ developing nations (Table 1). We
recognize that the gap in investments in education in India can perhaps be filled by private
sector playing a crucial role.
Table 1:
Expenditure on education
Spending on education Spending on education
Country Country
as a % of GDP as a % of GDP
Switzerland 5.8 South Africa 5.3
U.S. 5.7 Thailand 5.2
France 5.6 Chile 4.2
U.K. 5.3 Brazil 4.2
Malaysia 8.1 India 4.1
Mexico 5.3 Russia 3.8
Note: Government education expenditure as a percentage of GDP (2000-2002).
Source: United Nations Human Development Programme.
Gross enrolment pattern
At present, in India, there are about 1.86 crore students enrolled in various streams of higher
education including Business Management.3 Despite the large number of students studying
in various streams, we have not seen any major shift in the productivity as skills and talents
are deficient to support economic activities and, hence, there is a serious concern on
employability of these educated persons. The gross enrolment ratio (GER) for higher
education in India was 12 per cent in 2010. However, the enrolment level varies across
states. We also need to recognize that our enrolment level is far below several other
countries. For example, according to a Report, GER is 23 per cent for China, 34 per cent for
Brazil, 57 per cent for U.K., 77 per cent for both Australia and Russia and 83 per cent for the
U.S (Annex 1). In this context, the attempt of Government authorities to increase the number
of students by 2020 so as to reach GER of 30 per cent becomes a big challenge. No doubt,
the launch of new institutes like JRE School of Management can play a catalyst role in
addressing the challenge of increasing GER in India. As a positive step, for the remaining
duration of Eleventh Five Year Plan, the Government has taken initiatives to incentivise
States for setting up/expansion of existing educational institutions, establishment of
8 universities, expansion of colleges to achieve a target of 1 lakh students enrolment and
schemes for setting up model colleges in regions which are below national average of GER.
Capacity utilisation
Another challenge to be addressed in strengthening the Indian education system is to
improve the capacity utilization. For example, a recent study4 on capacity utilization in India
for higher education indicates that the capacity utilization in case of MBA is about 57 per cent
in Maharashtra and 72 per cent in Haryana (Annex 2). In case of certain states, there are a
lot of unfilled seats in institutions. On the one hand, we need to improve our GER, and on the
other, we need to ensure that institutions/ colleges/schools created for providing higher
education fully utilize the capacity created.
Infrastructure facilities
One of the factors why the capacity utilization is low in upcoming/new institutions/colleges
(both in private and public sectors) is their inability to provide necessary physical
infrastructure to run the institutions. The infrastructure facilities desirable to rank the
institutions of better quality include real estate, state of the art class rooms, library, hostels,
furniture, sports facilities, transport, commercial buildings, etc. We need to ensure apolitical
private sector participation in the establishment of colleges for providing quality physical
infrastructure.
PPP model
The Government is making efforts to improve the education system in terms of various
parameters like GER, quality, investments, infrastructure, etc. But we need to recognize the
constraints for the Government to make a big turnaround with huge investments in
education. I believe that private sector has started playing a distinctive role in improving the
education system in India. In this context, it is useful to explore the possibility of public
private partnership (PPP) model in education. This is not only going to reduce the burden of
the Government in incurring high cost of providing basic infrastructure facilities but also lead
to construction of state of the art buildings, labs, libraries, hostels etc. Besides, the
collaborative efforts between universities/colleges and corporates would help in organizing
joint research and development, students getting exposure to industrial activities in terms of
internships, corporate training during vacations and issuing of certificates by corporates for
attending internship/training etc. and, thus, facilitating in image building and branding of
institutions and making the students more job-worthy.
Student-teacher ratio
Another challenge for improving the Indian education system is to improve the
studentteacher ratio. In India, this ratio is very high as compared to certain comparable countries in
the world. For example, while in developed countries this ratio stands at 11.4, in case of
India, it is as high as 22.0. It is even low in CIS (10.9), Western Asia (15.3), and Latin
America (16.6) (Annex 3). This brings the necessity to recruit quality teachers and strengthen
the teachers required to handle classes. I also feel that like in developed countries where
students are given part-time teaching assignments, we can also explore such possibilities in
technical/higher education to handle lower level classes. It is also expected to help the
students in meeting their education expenses partially.
Accreditation and branding - quality standards
In order to improve the skills and talent of our large populace, there is a need for raising the
quality and standards of our education system. It is well-known that many of our
professionals (engineers/doctors/management professionals) remain unemployed despite lot
of opportunities being open in the globalised world. One of the major factors is the lack of
quality education resulting in qualified but not employable category. We need to
introduce/activate the mechanism for rating and ranking universities/colleges. At present,
there is no compulsion for institutions/colleges to get accreditation in India. Government has
already mooted a proposal to introduce accreditation. We, therefore, require standard rating
agencies to give accreditation to universities/colleges/schools. In a recent ranking of
Business Schools by Financial Times at global level, in the top fifteen, only two of the Indian
premier Business Schools appeared at rank no. 11 and 13 for the year 2011. Most of the top
ranking business schools were from the U.S. In this ranking, even China was ahead of India.
In the same reporting, in respect of value for money of these two Schools, it is observed that
it is not that high when compared with some of the best U.S. Schools. However, a positive
development is that these high ranked Indian Schools possess faculties with doctoral
qualifications and of global standards who can deliver quality education to the students. In
the world ranking of universities by Quacquarelli Symonds in 2010, out of 200 world
renowned universities, only one Indian educational institution appears in the list, while
53 institutions are in the U.S. According to Webometrics ranking for 2011, while no Indian
university appears in the list, there are 99 U.S. universities included. This essentially shows
that we need to develop Centre for excellence of global standards. Given the increasing role
of private sector in the recent years in the development of higher education standards, we
need more such institutions that meet certain global rating standards to come up in those
areas where low GER prevails. I understand that the JRE School of Management has been
established in collaboration with the largest private education group in Asia-Pacific and,
hence, striving for quality education of global standards would be its principal aim.
Students studying abroad
As mentioned in the beginning of my address, India has the largest number of higher
education institutions. Despite that, we find the number of students interested in pursuing
higher studies abroad is on the rise. In the year 2006, according to a Wikipedia report,
1.23 lakh students opted for higher education abroad, of which about 76,000 chose the U.S.
as their destination, followed by U.K., Canada and Australia. However, in 2010-11, about
1.03 lakh students got admission to study in the U.S. In regard to Australia also, the number
is on the rise. During 2004 to 2009, the number of students joining different courses rose
from 30,000 to 97,000. Likewise, in the other sought after destination of U.K. for higher
education, students studying abroad doubled between 1999 and 2009. In 2009, about
19,205 students were studying in U.K. Various factors encourage Indian students to seek
admission abroad by taking loans from financial institutions including (a) quality of education,
(b) increasing prosperity and aspirations and (c) social prestige and also exposure and
experiences gained. We have to recognize these short-comings while building our
educational institutions for reversal of trend.
Role of RBI and commercial banks
Now, I would like to dwell upon the role played by Reserve Bank of India (RBI) and the
banking system in India in strengthening education system. Realizing the importance of
education for the economic development and the overall living standards, the RBI is involved
in formulating progressive and proactive policy guidelines for lending to education by the
banking system.

The RBI, in view of the importance of education and the need to bring more students
under the category of "education loans", has classified such loans and advances
granted to individuals for educational purposes up to Rs. 10 lakh for studies in India
and Rs. 20 lakh for studies abroad, under "priority sector".

In June 2004, the scope of definition of "infrastructure lending" was expanded to
include construction of educational institutions. Accordingly, schools and colleges
can now avail bank finance for improving their infrastructure. The available figures
(covering about 63 per cent of banks under the category of "infrastructure"), indicate
the share of outstanding loans to educational institutions in the total infrastructure
lending of commercial banks was 1.5 per cent for end-March 2011.

RBI has been liberalizing foreign exchange rules for acquiring education from
institutions abroad. A student can draw foreign exchange equivalent to USD 10,000
under private visit quota at the time of going abroad. The limit of USD 30,000 for
education abroad on declaration basis was enhanced to USD 1,00,000 since
July 17, 2003. In addition, a student can also draw foreign exchange equivalent to
USD 2,00,000 for education purposes under liberalized remittance scheme before
leaving the country i.e. before he/she gains the status of non-resident. Students can
avail loan from a bank abroad for study purposes on the basis of counter guarantee
given by an Indian Bank under approval route.
 With a view to facilitate banks, the Indian Banks' Association has brought out a
model scheme for educational loan in the year 2001 which was again revised in
January 2010 and got circulated to all member banks for implementation. This would
facilitate economically weaker sections of the society to avail educational loans from
scheduled banks with modified easier norms. In recent years, there has been a
remarkable spurt in the disbursal of educational loans by commercial banks. The
educational loans outstanding amounted to Rs.27,709 crore as at end March 2009
which increased to up to Rs.42,808 crore as at end-March 2011 Table 2).
Table 2:
Educational loan of scheduled commercial banks
Particulars Mar-09 Mar-10 Mar-11
Amount outstanding (in Rs Crore) 27709.5 36359.7 42808.1
No of accounts (in Lakh) 16.3 19.7 22.8

We have nominated a nodal officer at the Central office of the RBI for the purpose of
all educational loan issues/grievances.

Apart from policy formulation, as an institution also, RBI undertakes activities to
educate students relating to central banking, banking and financial system.
Illustratively, to educate young scholars, a scheme has been introduced in which
every year RBI selects a good number of scholars from different region of the
country. In addition, RBI has set up research and training institution for banking
technology.
Way forward
Innovations required
The challenge of educating millions of young people implies that we need to scale up our
educational efforts multi-fold despite having the largest number of higher education institutes
in the world. Mr Shantanu Prakash has established one more institute today but we need to
create many more such centres. Scaling up is not possible unless the students become
successful, create value in the society and contribute back to their alma-mater or, better still,
start new institutes of global standards themselves.
The curriculum of some of the colleges/universities is more or less obsolete and do not equip
students with the necessary skills or impart latest knowledge. If a student passes out of a
chosen course, he or she should be employable as a work force. Unfortunately, given the
phenomenal share of lack of technical knowledge in the courses of education, students are
found wanting in the desired skills and technical soundness. To address this issue, we may
think of strengthening the vocational streams in schools/colleges. I urge the
universities/schools/colleges to regularly revisit their curriculum by involving experts from
different fields so that the curriculum can lead to knowledge development. Further, why can
we not use the available infrastructure more intensely? For instance, why cannot a second
stream of courses, say vocational, be run in the evening/night so that the available /created
infrastructure is better utilized.
Teachers are the most important factors for any innovative society because teachers'
knowledge and skills not only enhance quality and efficacy of education, but also improve the
potential for research and innovation. Given the higher level of GER to be achieved by 2020,
a large number of teachers would be required to educate the growing young population.
Maybe, students could be used as teachers, especially good students coming from lower
income groups so that they can be partly be compensated. Further, barring some leading
schools/universities/autonomous educational institutions, many of the teachers of
colleges/universities need to hone their skills/talent. There is a need to encourage teachers
to participate by presenting research papers in seminars/workshops/conferences and receive
periodic trainings for updation of knowledge/skills. It is equally important that a feedback
mechanism from students is introduced in universities/colleges to assess and evaluate
teachers' role in the institutional developmental process.
Quality of education
Given that we need to compete globally in the 21st century, our education system should
adopt certain benchmarking techniques for improving instruction models and administrative
procedures in universities/colleges to move forward. I suggest that we need a thorough study
and evaluation of models implemented elsewhere and work out strategies to adopt such
models in our system. Benchmarking in my opinion would provide benefits to our education
system in terms of reengineering, setting right objectives, etc.
The country is showing consistency in economic growth pattern, leading the world in terms of
information and technology, modernization various economic activities and pushing for
higher share of industries and services sectors of the economy but there is one area which
needs reform is "education system". While it is true that some investments are taking place in
the country's higher education system, we are yet to establish world class research facilities,
recruiting profound academicians in universities/colleges/research institutions, etc. to sustain
and forge lead in economic development. It is important to understand that countries like
China, Singapore, South Korea, etc. are moving fast in investing in education system.
Therefore, it is imperative that our educational institutions are equipped with the desired
quality and standards which are essentials for transforming the younger workforce into
productive ones. Needless to reiterate that in the higher education system focus on use of
technology for effective learning by students also need to be encouraged to have cutting
edge over our competitors in the globalised world.
Making education affordable
In India, if education has to reach all deserving students, it should be made affordable. The
fee structure in Government owned/sponsored institutions is inexpensive in India. However,
in some private sector institutions, which have the freedom to prescribe fee structure and
despite broad guidelines from certain state governments, fees are beyond the capacity of
poor and deserving students. Ideally, the fee structure should vary for such economically
weaker students. I would urge the educators to keep in mind that education should not
become prohibitively expensive and ensure that no deserving candidate is denied admission
just for the fact that he or she does not possess the necessary financial resources.
Ethics in education
In my opinion, the most important objective of any educational institution is to equip the
students with ethical values besides imparting knowledge and skills. Today, I find that this
basic human quality is slowly eroding. Illustratively, while the RBI as well as Government of
India is formulating progressive policies to ensure funds do not pose a major problem for
education, I observe some disturbing trend in respect of repayment of loans by students. It
may be noted if the loans are not repaid after it falls due, the non-performing assets of banks
will increase and in the process, banks are likely to be skeptical in sanctioning educational
loans. It is, therefore, important that the repayment schedules are adhered to by those
students who have taken loans. It is understood that to encourage banks to give educational
loans to all deserving students, the Government is looking into the issue of setting up of a
system of insuring educational loans. To reduce default of education loans, I strongly feel
that the School Alumni Association of students can become active in inculcating ethics and
values among students. They can provide the required synergies and linkages in addressing
challenges relating to non-payment of outstanding education loans.
In the same coin, as education has to be made affordable to all deserving and poor students,
there is a strong need for educational institutions not to over-commercialize education but to
uphold ethics in the business of education as well. It is not anyone's case that the business
has to be run unprofitably but the business must be carried out with ethical values for
sustenance of educational institutions. Over exploitation should be avoided. Profit cannot be
the sole motive for undertaking this business. It must be driven by an unflinching commitment
to society which in turn will benefit the business in the long run.
Conclusion
To sum up, we need to recognize that the knowledge, skills and productivity of our growing
young and dynamic work force forms the backbone of our economy. To reap the benefits of
such a young work force, we need to implement the reforms in the education system and
also bring forth new factors of production, namely knowledge, skills and technology which
have the ability to unleash the productive frontiers of the economy in the most efficient and
dynamic way. Besides, taking a leaf from the western hemisphere, India should try to
become "knowledge economy" to promote inclusive growth. I, therefore, would like underline
three major areas to be focused to ensure that our education system is sustainable and
meets global standards:
i. Quality of Education - in terms of infrastructure, teachers, accreditation, etc.
ii. Affordability of Education - ensuring poor and deserving students are not denied
education.
iii. Ethics in Education - avoiding over-commercialization of education system.
Let me take this opportunity to again wish JRE Group of Institutions in establishing JRE
School of Management which I am sure will play an important role in the 21st century in the
Indian education system by providing world class education at an affordable cost to the
young students and achieve success in all frontiers of educational activities.
Thank you.
Annex 1
Gross enrolment ratio (GER) for higher education
Source: chinaeducenter.com, UNESCO Global Education Digest 2009; EY Analysis
Annex 2
Capacity utilization
Source: Maharashtra DTE, AITCE; EY Analysis
Annex 3
Student-teacher ratio (2008)
Source: "Higher Education in India", UGC Report, 2008; UNESCO Institute for Statistics 2010; EY Analysis