Inflation in the Education Sector - Time to Think & Plan • RoboAdviso | Best Blog for Mutual Fund and Investment in India

Inflation in the Education Sector – Time to Think & Plan

Roboadviso     Asset Allocation,Financial Planning     Posted On, Mon 8th August, 2016     No comments

Education Inflation

While the country’s middle-class reels with soaring prices of vegetables and pulses, there is another kind of inflation that has a greater impact – the services inflation comprising education, housing and healthcare. Though the government is trying to put a rein on food inflation, the service inflation continues to gallop as a product of structural changes in the economy.

In June 2016, the CPI or the Consumer Price Index (metric to measure changes in the prices of household goods) was up at 5.7 percent (a record 22 month high) but the cost of services was much higher. In the education sector, the admission fee for top institutes is rising at 11 to12 percent per year.

Inflation in the education sector

Inflation is growing at more than 10 percent every year in the education sector. It is now extremely important that you plan well for your children’s higher education. A study by Assocham Social Development Foundation in May 2016 made a sample survey of 1600 working parents and showed that more than 70 percent of parents spend 30 to 40 percent of their salaries on their children’s education. The tuition fees and other miscellaneous school related fees have doubled in the past ten years, with the average annual fees ranging between Rs. 65,000 and Rs.1,25,000.

[ctt template=”1″ link=”vXOU6″ via=”yes” ]Plan and invest properly to protect against spiraling Education inflation @RoboAdviso[/ctt]

The above was just the cost of school education. The costs of higher education and vocational courses have shot through the roof, touching 13 to 15 percent per annum. Four years ago, the cost of an MBBS seat in a city-based private institution was Rs.23 to Rs.26 lakh, today the cost has nearly doubled to Rs. 40 to Rs.46 lakh; that too without capitation fee. There is not much solace for students studying in government-based institution because there is a regular revision of tuition fees. While the annual IIT under-graduate course fees were hiked from Rs. 55,000 to Rs.90000 in 2013, they have been hiked to Rs.2 lakh in 2016.

Reason for rising cost in the educational sector

The spiraling costs in education sector is due these reasons

1. The widening of the supply-demand gap
2. Increase in the infrastructure costs of building an educational institution
3. Increasing salaries for teachers and trainers.
4. The center has limited funds to subsidize education
5. Increasing dependency on the private sector for education, who set their own fees and are not obliged to follow the government’s directive on the limit for fees.

The ground reality

The National Sample Survey’s Office (NSSO) showed that 70 percent of students and their parents preferred private institutions over government-based ones. The gross enrolment ratio (GER) is a metric that expresses total enrolment in terms of percentage in educational institutions; it is calculated for the age group, 18-23. The GER for higher education in India is 23.6 percent; it is 26 percent in China and 36 percent in Brazil. The college density scenario is widely disproportionate; there are only 6 college in Bihar per lakh students while Pondicherry has 60 of them. The all-India average is 26 college per lakh students.

The center aims to increase the gross enrolment ratio to 30 by 2020, and hopes to do so by increasing the number of institutions and admissions. However, the ever increasing population and a tight fiscal situation limits the government from attributing a higher spend on education. The demand-supply gap is only going to increase in the next few years; the population in India which was 1.3 billion in 2015 is all set to reach 1.4 billion in 2022, according to data by United Nations.

Plan of action
As we saw the cost of education is going to balloon in the years ahead. it is important to plan wisely for your child’s future education. Invest in a planned manner for his/her education by investing in a mutual fund which will give inflation-adjusted returns in the future. For instance, if the goal for higher education for your child is more than 5-7 years away, invest through an SIP (Systematic Investment Plan) in an equity mutual fund. Speak to your financial advisor on the best way to build a corpus that will aid your child’s education to the fullest, without putting a strain on your future savings.

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