In 2023, the Indian preschool market was valued at $4.2 billion. According to market research firm IMARC, this sector is projected to grow at a compound annual growth rate (CAGR) of 10% until 2032, potentially reaching $10.2 billion. Key drivers of this growth include increased awareness of the importance of preschool education and rising disposable incomes. However, another factor contributing to this expansion is the minimal regulatory oversight to date.
Strategic investors are increasingly recognizing the opportunities in this sector. In March 2024, UK-based Kido Education acquired Indian preschool operator Amelio Early Education. Other international players, such as California’s Safari Kids and Norway’s Dibber International, have announced plans to expand into India. As large, organized operators enter the market, private equity firms are also eyeing investments.
Regulation of preschools in India has been inconsistent. At the central level, there have been efforts to introduce legislation, such as the Play Schools (Regulations) Bill in 2017. At the state level, while some states like Delhi, Karnataka, and Andhra Pradesh regulate preschools similarly to K-12 institutions, others like Tamil Nadu, Punjab, and Jharkhand have their own regulations. However, implementation is often lacking, and in many states, preschools remain unregulated.
As the risks associated with unregulated growth become more apparent, regulatory changes are expected. The government is moving towards regulating the sector, which could affect businesses as well as mergers and acquisitions (M&A) and investment activities.
Under Indian education law, only not-for-profit (NFP) entities, such as societies, public trusts, or Section 8 companies, are allowed to establish and sponsor educational institutions. However, many preschools operate as for-profit companies, a practice that contradicts India’s National Education Policy, which mandates that educational institutions, including preschools, adhere to the no-profit principle and similar standards of audit and disclosure as NFPs.
Recent regulatory changes reflect this shift. For example, Tamil Nadu’s 2015 code for private preschools allowed management by companies or partnerships, but new regulations issued in 2023 now require preschools to be sponsored by NFPs. Similarly, states like Punjab and Jharkhand have enacted regulations requiring preschools to be established and managed by NFPs.
Franchising is prevalent among preschool brands in India, where operators grant franchises the right to use their brand names, curricula, and teaching methods in exchange for fees. Unlike K-12 and higher education levels, where franchising is prohibited, preschools have continued to use this model. However, with increasing state regulations, there may soon be restrictions or prohibitions on franchising, necessitating a strategic shift for current operators.
Another area of potential regulation is the Right to Education (RTE) Act, which mandates reservation requirements for economically weaker sections (EWS) of students. Currently, standalone preschools are not required to comply with the RTE Act, but this may change. States like Rajasthan and Maharashtra have already started implementing reservation requirements from Class I onwards, even for schools that offer preschool education. Compliance with the RTE Act could significantly impact a preschool’s financial condition, making it an important consideration for investors.
In conclusion, while increased regulatory controls in emerging sectors like preschools may bring additional compliance burdens and costs, they can also create opportunities for well-managed businesses. Adapting to these changes can lead to a more stable and regulated market, ultimately benefiting investors and operators alike.