The conventional idea of schooling has undergone a drastic change over the last century. Schooling has evolved with the integration of technology that has enhanced both learning and teaching experiences. The prevailing Covid-19 pandemic has only accelerated this trend by further embedding technology into the learning process. The result has been that tech savvy students now use engaging apps and attend online courses; seamlessly enhancing education despite the lockdown caused by the pandemic. This fast-emerging sector is better known as education technology (EdTech). The essential aim of EdTech is to make learning more fun by using interactive methods of teaching and in the bargain improving the standard and quality of education. This article analyses the regulatory regime that applies to the EdTech sector in India and the emerging opportunities for investors in this space.
Today, top educational institutions are expensive and often commercialized. The growing population has further made it difficult to develop quick and sustainable infrastructure to meet increasing demands. However, EdTech has made knowledge accessible, affordable, reduced the need for relocation for studies, helped save on accommodation expenses, etc.
There are various business models within the realm of EdTech. One such successful and trendy model is online tutorials for school children and entrance exam preparations (eg: BYJU’S, Unacademy, Toppr, etc.). There are also platforms which connect students with universities (eg: UpGrad). Another EdTech model is degree courses offered by institutions by way of distance learning or online programs that provide short certification courses. A fourth example which has recently become popular is gamification (eg: Cuemath). While parents might be perplexed by this business model, EdTech players have creatively used the medium of games to impart knowledge. Similarly, there are various other business models such as knowledge sharing platforms, e-discussion forums where ideas are exchanged, applications which help in making videos for educational purposes, etc. It is only natural that given EdTech’s rapid growth and adoption across the masses, regulators would also be watchful of its implications. There are various laws applicable to the education sector that EdTech businesses must be mindful of.
As is common with all tech enabled businesses, data protection laws and intellectual property aspects are crucial to the EdTech business too. Additionally, ancillary regulations within the consumer protection law framework have also been introduced to specifically cover online businesses.
The government has recently notified the Consumer Protection (E-Commerce) Rules, 2020 (E-commerce Rules), which would be applicable to EdTech start-ups, as well, which are in essence an e-commerce service. The E-commerce Rules apply to all goods and services bought or sold over digital or electronic network including digital products. There are penalties for violation of these rules, which could include imprisonment or fine.
100% Foreign Direct Investment (FDI) under automatic route is permitted in the marketplace model of e-commerce. FDI is not permitted in the inventory-based model of e-commerce. However, all services other than specifically regulated ones such as insurance, finance etc., are all permitted to receive FDI under the automatic route up to 100%. To that extent, EdTech businesses offerings online education through e-commerce will be allowed 100% FDI under the automatic route.
In addition to the general laws, there are also sector specific laws that apply to EdTech businesses. Currently, start-ups are not allowed to provide online programmes (degrees or diplomas), which are limited to universities or institutions deemed as universities. As a step in the right direction, the University Grants Commission has recognized the validity of online education vide the University Grants Commission (Open and Distance Learning Programmes and Online Programmes) Regulations, 2020 (UGC Regulations). These regulations lay down the minimum standards of instruction for the grant of degrees at the undergraduate and post graduate levels, and grant of post graduate diploma, through online mode. Under the UGC Regulations only universities or institutions deemed to be universities are permitted to offer such courses. However, only non-technical courses can be offered online. Courses or programmes in the field of engineering, law, medical, physiotherapy, etc. are prohibited under these regulations.
The Government has also recently published the National Education Policy 2020 (NEP 2020) which stresses on integration of technology across classrooms. It also proposes the creation of an autonomous body, the National Educational Technology Forum, to provide a platform for the free exchange of ideas on use of technology to enhance learning etc. The Policy calls for investment in digital infrastructure, development of online teaching platforms and tools, creation of virtual labs and digital repositories, training teachers, implementing of online assessment and examination, etc.
Most of the courses usually provided by start-ups are not regulated by education sector specific laws. Start-ups usually offer online tutorials, online coaching classes or certificate courses that do not qualify as a degree/diploma. But now that the Government is taking initiatives to develop EdTech, these start-ups may soon find new opportunities. The Government or educational institutions may collaborate with upcoming EdTech platforms to develop the required digital infrastructure to increase reach among students. That said, the EdTech sector has already gained traction due to the pandemic.
The pandemic has positively affected the EdTech sector which has flourished during the lockdown. Certain market examples that have done well include BYJU’S, which recently acquired WhiteHat Jr, Aakash Educational Services and Scholr. A Report by Inc42, titled ‘The Future Of Education: Indian Startups Chase $10 Bn Edtech Opportunity’ states that EdTech market is estimated to grow 3.7x in the next five years, from $2.8 Bn (2020) to $10.4 Bn (2025). Further, a survey done by 100X.VC India Sentiment Outlook Survey has noted that 87% investors are looking at industries which are positively impacted by the Covid-19 crisis. Not surprisingly, as per this survey, EdTech industry is one of the top 3 sectors that investors are looking to invest in.
The EdTech market size is only bound to grow, especially post Covid-19. Even recent market examples have shown positive indications. Additionally, recent government policies and regulations also indicate the government’s support for the EdTech sector. Hopefully, the adoption of technology in the education space will offer affordable and quality education to all.
Ajay Joseph | Partner, Veyrah Law; Pooja Agarwal | Associate, Veyrah Law
Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.