As the farmers’ protests in Maharashtra captured the attention of the nation, another brewing crisis - the rise in education loan defaults went unnoticed by many. The student debt crisis, which was often perceived to be a crisis restricted to the US and the UK, has now hit the Indian economy.
The ministry of finance in December last year admitted in the Lok Sabha that defaults of education loans increased by 47 per cent between March 2015 and March 2017. To put things into perspective, the non-performing assets in the education sector stood at Rs 2,615 crore in March 2013 and soared to Rs 6,336 crore at the end of December 2016, according to an estimate by the RBI.
With close to 90 per cent of the education loans being borne by state-owned banks, which are already grappling with defaults by large corporates, the lending to students has come down over the past couple of years. While the banks maintain that they are not discouraging education loans, there has been an increase of a mere 3.4 per cent in lending to students during the year 2016-2017 as opposed to an increase of 5.6 per cent in the preceding year.
This sudden increase in the defaults of education loans is an indication that there are too few jobs available in the market. This should be a cause for worry as India’s median age is 25 years, and close to 65 per cent of our population is below the age of 35. With demonetisation slowing our economy down and the government’s inability to create adequate jobs, our country looks at a bleak future.
Developing countries have often shied away from investing in human resources, due to the high costs as well as the risk of the investment being lost in the form of brain drain when highly skilled people leave the country to pursue greener pastures.
For various reasons, India has spent abysmally little on education accounting for about 3.7 per cent of the GDP in 2017, which was a decrease from about a decade earlier. The Indian Education Commission (popularly known as Kothari Commission) recommended that about 6 per cent of our GDP should be spent on education. Indeed, most developed countries spend about 4.5 per cent to 6 pe rcent of their GDP on education.
With government schools and colleges becoming moribund, students are left with no option, but to look towards private colleges, which are a lot more expensive. As such, there is a great demand for education loans to finance higher education. According to a survey by HSBC, close to 71 per cent Indian parents are willing to undertake debt to finance their children’s higher education while parents with a child at college spent about Rs 2,05,000 per annum on their education.
With such large debts, when students enter the job market, to be faced with scarce opportunities or at best poorly paid jobs, the country risks entering into a vicious cycle of unemployment.
As loan defaults increase, banks become wary of lending. This would translate into students not being able to study further and, hence, cannot upgrade their skills. The non-availability of qualified professionals, doesn’t augur well for businesses and they will also be reluctant to invest where there is scare quality labour.
With fewer employment opportunities, there will be another spurt in the defaults of education loans, thus perpetuating the cycle. While such a situation itself is a cause for us to worry, what is compounding the problem is that the government is unwilling to accept the reality and take remedial action.
Instead of cerebrating on how to create more jobs and employment opportunities, the government seems more interested in berating the Opposition and discrediting any criticism directed against the ruling party. That said, the wisdom of the ruling party in solving problems of our society has been under cloud given their track record.
The attitude of the ruling party can be summed up by their refusal to intervene in Uttar Pradesh, where a group claims that performing a yagna by burning 500 quintals of mango wood, over nine days would reduce air pollution.
With the incumbent government’s solutions being worse than the problems, it would be interesting to see how they will solve the brewing crises on many fronts. The Modi government, which came to power on the promise of creating two crore jobs a year, risks going down in history as India’s biggest non-performing asset.