India’s education sector is set to witness 6% year-on-year (YoY) growth in FY26, backed by increasing enrolments, rising tuition fees, and sustained government funding, according to India Ratings and Research (Ind-Ra). The sector’s expansion will be driven by a surge in demand for higher education (HE) courses, particularly in medical, health-allied, and technology disciplines.
The Union Budget’s proposal to add 75,000 medical seats over five years, including 10,000 new seats in FY26, will play a crucial role in shaping the higher education landscape. Simultaneously, digital learning, skill development, and infrastructure expansion remain key focus areas, with both public and private institutions expected to step up investments.
The overall value of India’s education services stood at ₹13.7 trillion in FY23, growing at a 9.72% CAGR between FY19 and FY23. At the projected growth rate, the sector is expected to reach ₹16 trillion by FY26. Beyond traditional schools and universities, non-formal education—such as pre-schools, coaching institutes, and vocational training centers—will play an increasingly important role. Additionally, international collaborations and foreign universities setting up campuses in India are expected to further accelerate growth.
Private Final Consumption Expenditure (PFCE) on education, a key indicator of household spending, surged 18.88% YoY in FY23, reflecting the rising prioritization of quality education. The demand for premium education services from middle- and upper-income families is expected to fuel infrastructure investments and the adoption of advanced learning facilities.
Financial Outlook: Strengthening Profitability, Liquidity Challenges for Low-Rated Institutions
Ind-Ra has maintained a positive rating outlook for educational institutions, expecting a steady rise in enrolments in both school and HE segments. The increase in medical college seats is expected to enhance revenue visibility and support profitability.
Despite an overall comfortable operating profitability, high-interest costs continue to impact net margins, particularly for institutions with aggressive debt-financed expansions. Investment-grade (IG) institutions are expected to maintain a net surplus of around 10%, while non-investment grade (NIG) institutions may see net margins at or below 5%.
Liquidity remains a concern for lower-rated institutions, especially those expanding without adequate financial backing from trustees or promoters. However, well-rated institutions (IND A and above) are better positioned to manage financial challenges due to rigorous liquidity monitoring. Additionally, monetary easing and RBI’s liquidity measures are expected to support institutions with high leverage.
Student-Teacher Ratios and Profitability Trends
Ind-Ra’s analysis highlights a significant variation in student-teacher ratios across different types of institutions. Investment-grade school institutions reported ratios between 17 and 20, while HE institutions stood at 12 to 15. In contrast, non-investment grade institutions had lower ratios, leading to higher staff costs due to unfilled seats.
With enrolments expected to rise steadily in FY26, institutions are likely to achieve a student-teacher ratio of 18 (schools) and 14 (higher education), improving operational efficiency. The profitability of institutions in Ind-Ra’s portfolio remained strong in FY24 and is expected to improve further in FY25-FY26.
Sector Outlook: Growth Opportunities and Risks
While the education sector remains on a strong growth trajectory, challenges persist. High operating costs, rising debt, and liquidity constraints could put pressure on low-rated institutions, while premium institutions with strong financial backing are expected to thrive.
The government’s continued push for digital education, skill development, and medical education expansion will be key growth catalysts. Additionally, private sector participation and international partnerships will further strengthen India’s position as a global education hub.
With both public and private investment on the rise, FY26 is set to be a transformational year for the Indian education sector.