A robust governance structure should have been established to prevent the company's attempt to dominate the EdTech sector.
EdTech firm Byju's is in the midst of a financial crisis. (X)
When the pandemic forced our economy to shut down, one particular sector in India experienced significant growth. It transformed into a prosperous business venture. The EdTech industry flourished as physical interactions were gradually replaced by hybrid and online platforms.
The increasing demand from India’s Tier 2 and Tier 3 cities, coupled with the convenience these platforms offered to provide the same quality of education as metro centres, contributed to their immense popularity. This industry catered to kindergarten to postgraduate level students and even beyond. Numerous certification courses emerged, creating new opportunities for professionals and others to equip themselves against the demands of the industry in the comfort of their homes.
In 2020, the EdTech industry was valued at $750 million, and it is projected to surpass $10 billion by 2025, with a Compound Annual Growth Rate (CAGR) exceeding 30 percent. Given this rapid pace of expansion, it is evident that this industry will significantly contribute to the country’s economy.
Today, over 5,500 recognised start-ups are in this sector, as acknowledged by the Department of Promotion of Industry and Internal Trade (DPIIT). A report by Redseer Consulting reveals that Indian EdTech start-ups generated revenues worth $2.2 billion in 2020 alone. These companies have consistently targeted the affluent private school market to establish partnerships with coaching institutes.
Unfortunately, many of these start-ups have transformed school premises into commercial institutes for financial gain. When such alleged malpractices occur under the guise of education, they infringe upon the fundamental rights of children. Furthermore, due to their significant financial resources, these online platforms threaten equal access and often undermine fundamental rights.
Additionally, these EdTech firms handle large amounts of personal data, which can be misused for user data profiling. The rise and fall of Byju’s serves as an example of why government regulation and increased oversight are necessary in this sector.
Byju’s, founded in 2011 by Byju Raveendran and Divya Gokulnath, transformed the landscape of online education. Initially focusing on offline coaching sessions, the company later introduced an app featuring video lectures and interactive tests. As the app gained popularity among students and parents, it attracted significant investments. Extensive advertising campaigns further boosted its reach.
However, Byju’s faced financial challenges, failing to repay a $300 million loan from Redwood Global Investments in 2021 and violating the terms of a $500 million loan in 2022. The departure of Deloitte as its auditor in June 2023, along with the resignation of board members from Prosus, Sequoia, and the Chan Zuckerberg Initiative, signalled a loss of confidence in Byju’s management.
Legal troubles arose from Redwood Global Investments’ lawsuit over breach of contract and fraud related to the loan default, damaging the company’s reputation. Additionally, salary delays and a default on payment of ₹150 crore to BCCI led to further legal challenges, undermining employee trust.
At its peak, Byju’s employed more than 58,000 individuals in 2022. However, by May 2023, this number had decreased significantly to 24,000 due to massive layoffs that sparked protests among the workforce. The company’s funding also drastically increased from a modest $4.6 million in 2013 to a staggering $1.7 billion in 2020. On 17 June, 2022, the Government of Andhra Pradesh signed a memorandum of understanding with Byju’s to enhance the quality of education in public schools.
Subsequently, the company embarked on an aggressive acquisition spree in both domestic and international markets, aiming to dominate the educational technology sector. Despite being previously valued at $20 billion, Byju’s worth has plummeted by more than 90 percent. Numerous legal battles have been initiated against the company in both Indian and American jurisdictions, largely attributed to its pursuit of monopolistic control through exploiting legal loopholes.
Byju’s could have prevented all these problems if adequate checks and balances were in place within the company. The accounting system should have been more transparent. Byju’s was engaging in numerous partnerships, even going as far as selling its own tablet computers with pre-installed sessions at a high price. Instead of focusing on such partnerships, the company should have emphasised the core of its business — online education.
A robust governance structure should have been established to prevent the company’s attempt to dominate the sector. Given that India is the second largest market for educational technology, Byju’s should not have expanded into foreign markets. Their aggressive business practices have contributed to their downfall. With the current pace of events, it is unlikely that the founders will avoid legal action.
Various agencies, including SFIO and ED, may scrutinise the company’s financial records in the coming months. In this crisis situation, investors are unlikely to show interest in further investing in the company. Byju’s rise and fall is a valuable lesson on how uncontrolled spending and poorly calculated decisions can lead to a company’s downfall.
Today, the government must support innovations in the education technology sector. There is also a greater necessity for increased regulation within the education technology sphere. These education technology giants handle a vast amount of personal data. The new Digital Personal Data Protection Act has established effective guidelines requiring verifiable consent from parents or guardians regarding the use of children’s personal data. The act prohibits data profiling. Educational institutions should be prohibited from entering into agreements with education technology start-ups.
The Enforcement Directorate has issued lookout notices for the founders of Byju’s for violating FEMA guidelines involving over ₹9362.35 crore. It is crucial to restrict the Indian education technology sector from accepting foreign investments through the automatic route. Furthermore, there is an urgent requirement for an investor protection mechanism in this sector.
The National Education Policy 2020 advocates for using digital learning methods but sufficient safeguards are to be placed to ensure that children can expand their knowledge without external interference. Therefore, in order to ensure that the full benefits of the digital learning environment are realised without negatively impacting any stakeholders, the government should establish a regulatory body in this field. As education is a fundamental right of every child and education technology should not be used to favour the privileged class, only such a regulatory body can guarantee equality in this sector.
(The author is a parliamentary and policy analyst. Views are personal.)
Apr 15, 2024
Apr 15, 2024
Mar 29, 2024
Mar 29, 2024
Mar 28, 2024
Mar 04, 2024
