China's clampdown on edtech firms may benefit Indian startups

China's clampdown on edtech companies is likely to be a boon in disguise for Indian firms operating in this space. Indian edtech majors, be it Byju's, Unacademy, Vedantu or others, are expected to tap the void created in emerging edtech market globally. Announcing a slew of sweeping regulations over the weekend, State Council - China's highest governing body - has mandated after school tutoring companies to go non-profit, apart from banning them from going public or raising foreign capital.

Chinese authorities have imposed caps on tutoring hours during weekends and vacations, in their bids to reduce the learning burden on young students. Now, even listed entities in the edtech sector in China have been restricted from investing in or acquiring online education firms engaged in out-of-school teaching. According to reports, high fees burden on private education is discouraging young families to have children, which in turn is impeding population growth. The Asian economic giant has recently revised its two-children policy to three per family in order to address the concerns over ageing population. However, the ban on edtech firms has threatened to destroy China's $100 billion edtech market. Shares of edtech majors have crashed on the US and Hong Kong stock exchanges.

However, the loss of China can be India's gain in the short to medium term. Firstly, many of the VC & PE fund houses will look beyond China to invest their money. Giant investors like Tiger Global, SoftBank, Temasek, and many more are deeply entrenched in the Chinese education ecosystem. With the new regulations, their funding prospects have gone down. Therefore, these funding institutions will look at Indian edtech ecosystem for investing money.

Edtech major Byju's, which is valued at around $16.5 billion, has acquired companies worth around $2 billion in the last six months. Similarly, Unacademy is currently valued at more than $2 billion and has been acquiring small firms to provide better offerings. These companies will definitely get more funding from PE firms if they wish to raise more rounds. Not only bigger entities, but also smaller edtech companies will receive the critical growth capital for driving expansion.

India is a huge nation where the education needs of students may not be fulfilled by the government institutions alone. However, commercialisation of education with astronomical tuition fees creates imbalance in social strata. Therefore, public-private participation for building up skills of Indian students may be the way forward. Against this backdrop, the future of Indian edtech ecosystem seems bright with opportunities to tap the overseas markets in coming years.

However, sustainable growth of Indian edtech ecosystem requires a fine balance between profit motive and non-profit initiatives. Because education is the biggest equaliser in any society and its restriction to certain set of people may not augur well for Indian society. So, edtech startups should thrive to make their digital platforms open for most students with only certain restrictions. Otherwise, Indian society at some point of time will take notice of the unequal opportunities, leading to regulations like Chinese ones.