Indian Edtech To See Foreign Capital Inflow As China Tightens Its Rules

With new restrictive edtech policies in China, scales might gradually shift towards India, and edtech entrepreneurs can see a substantial capital influx.


The Chinese government recently unveiled new rules for the country’s private education sector that prohibit after-school businesses, including education technology (edtech) companies, from making a profit, raising capital, or participating in IPOs. 

Central government agencies have issued instructions to “reduce the burden on students enrolled in compulsory education”. The administration requires private teaching and coaching companies to re-register as non-profit organisations. The new rules prohibit authorities from approving new businesses and puts previously registered online education businesses under review.

Why does this move by the Chinese matter? 

At a time when India is witnessing some of its biggest tech start-up IPOs, including Zomato’s recent listing and Nykaa’s upcoming IPO, the new Chinese regulations have ended the hopes for an IPO for the country’s biggest online education start-ups like Yuanfudao and Zuoyebang. These rules also limit fundraising for educational tech start-ups that are already listed publicly.

China has called for transforming its for-profit after-school educational institutions into non-profit educational technology institutions. It aims to prevent edtech start-ups from raising funds and going public.

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With the hopes of cashing in on this new development, Indian edtech companies are already hiring public policy executives to weigh options.

Indian edtech market and possible impacts on it

The education sector in India is highly controlled. Most of these laws and regulations apply to traditional educational institutions that offer education up to class 12th or higher. However, some states such as Telangana, Andhra Pradesh, Karnataka, Uttar Pradesh and Goa have recently begun to pass laws to regulate online education service providers and edtech companies. States like Maharashtra and Rajasthan also have formed committees to pass legislations concerning edtech. 

As the Indian edtech sector continues to grow, governments may seek to regulate education technology platforms in specific ways for many reasons, but primarily to protect students’ rights.

The new Chinese laws certainly benefit India in the short term. The main reason for this is that venture capital financing has to go somewhere as it is deflected from the Chinese edtech sector. For this, India is a good and profitable opportunity in investors’ eyes. In the long run, however, the results of these events have no certainty.

India can anticipate more public-private collaborations in education in the coming days, similar to what Unacademy announced with the Government of Karnataka. Unacademy has signed a memorandum of understanding with the Karnataka government to offer free education to 4,500 students wishing to take the competitive exams. The three-year programme is part of the edtech giant’s corporate social responsibility (CSR) programme and offers tuition, scholarships and free Unacademy Plus membership through online testing to select qualified students.

What can India’s edtech players and new entrepreneurs take advantage of?

Considering that the fourth or fifth largest edtech firm in China is more extensive than BYJU’S (India’s biggest edtech player), the possibility for India to make the most of China’s policy disruption is immense. In the future, there will undoubtedly be much collaboration and cross partnerships between edtech companies, other industry segments and the government. 

As edtech gets bigger and holds more weight to impact policy-based decisions, edtech start-ups will want to be in the government’s good books. These changes will further help attract a chunk of the foreign capital earmarked for China to India.

As scales gradually shift towards India via the massive demand, large talent pool and regulatory support from the government, edtech entrepreneurs are bound to benefit. It is high time for entrepreneurs and every stakeholder to put themselves out there and utilise the benefits that come with the capacity to submerge into the global stage as a free-market superpower, using education and technology as tools for success.

Aakash Sharma
Aakash Sharma
Aakash writes on Startup Ecosystem, Policies, Legal and Regulatory aspects of business planning. An alumnus of Delhi University, he is assistant editor at Dutch Uncles.

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