An education scandal years in the making

This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

Cram schools are a well-known phenomenon in India.

Each year, thousands of aspiring students, mostly from middle-class families, move to Kota, a city in the desert state of Rajasthan, where they spend two years rote learning to pass competitive entrance tests to a handful of universities.

Yet, the system has also exacerbated the social divide between the haves and have-nots, who are confined to the largely abysmal state-run education system.

Competition is fierce in India, whether for jobs or admissions to elite institutions. For the millions entering the labor market each year, the government has been unable to develop policies that will create jobs fast enough to absorb them all.

That means entrance tests and examinations are a high-stakes juncture in a person’s life. They open doors to dreams or often close them shut permanently.

So, many do whatever it takes — including cheating — to get ahead.

Last month, for instance, the government canceled the tests determining admissions into elite medical schools in India after reports of widespread cheating. The government said its cybercrime enforcement agency had indicated that the “integrity” of those “examinations may have been compromised.”

The head of India’s National Testing Agency, the body that conducts the medical entrance test, was sacked following protests by students and opposition political parties.

However, it wasn’t an isolated incident.

In 2015, the Reuters news agency revealed that one out of every six of the country’s 398 medical schools had been accused of cheating, citing government records and court filings.

Cheating has also not been limited to university tests.

The same year, parents and friends of students were caught on tape climbing school walls to pass on answers during school exams. That blatant case of cheating led to the arrest of about 300 people, in addition to the 750 students who were expelled.

Incidents of cheating had shot up after a local government introduced a reward with seemingly good intentions. Students from lower castes, a form class system in India, were offered 10,000 rupees ($120) to get at least half the questions right. The financial reward meant teachers and supervisors colluded with students to rig the system. Supervisors took bribes to allow others to help test-takers, and teachers looked the other way since cheating inflated grades in their classes.

To fix this system, the Indian government passed a law to deter individuals from cheating with three to 10-year prison sentences earlier this year.

But perhaps the fault lies in the quality of education in the country, which leaves many unqualified despite holding qualifications.

India has not taken part in the Programme for International Student Assessment, more commonly known as PISA, since 2009 when it ranked 73 out of 74 participating countries, beating only Kyrgyzstan. A half-hearted attempt at testing the country’s education system in 2021 was aborted when the Covid-19 pandemic hit the country.

Could tech solve testing woes?

In 2011, a startup named Byju’s saw a gap in the market and wanted to capture a slice of the multi-billion-dollar education market.

The company, which offers services ranging from online tutorials to offline coaching, attracted billions of dollars from investors worldwide during the pandemic when online education services were in high demand. In 2022, the firm was valued at $22 billion, enabling it to sponsor the FIFA World Cup.

With a lofty valuation, Byju’s went on an acquisition spree. One of the companies it bought was an offline test preparation service called Aakash Education Services, which is still expected to IPO this year.

All of their gains are now being undone by what shareholders say is “financial mismanagement and compliance issues” at the company, leaving it at the risk of bankruptcy. However, the company’s remote learning services, enabled by technology, has provided education at lower cost to the masses.

So more broadly, tech can hold the potential to provide a more affordable alternative to India’s cram school system.

But a word of warning. Technology could just as easily enable further cheating, just as it has in the case of a Turkish student who was reportedly caught using artificial intelligence software to answer questions during a university entrance exam.

Power firms to reportedly invest $33 billion this year to boost coal output. India’s government has asked its electricity generators to order equipment worth billions to grow its coal-fired power in the years ahead, the Reuters news agency reported citing sources. Major power firms such as state-run NTPC and SJVN and private companies like Adani Power and Essar Power will reportedly put tenders out to add 31 gigawatts of capacity in the next five to six years.

Stampede at Hindu religious event leaves 116 people dead. At least a hundred people were killed in a stampede at a Hindu religious gathering in northern India this week, many of them being women and children. It’s one of the country’s worst such tragedies in years.

India becomes a major market for Meta’s Threads as local upstart Koo goes bust. Facebook-parent Meta Platforms said its social media network Threads, a competitor to Elon Musk’s X, has gained 175 million users worldwide, with users in India being one of the most active. The revelation from the tech giant comes as a local social media network, Koo, shut down after a partnership deal failed to emerge.

The Nifty 50 index closed at an all-time high of 24,302 points and is headed for a more than 1% gain this week. The index has risen 11.8% this year.

The benchmark 10-year Indian government bond yield is just shy of 7%. Bond prices sold off last week after being included in a JPMorgan emerging market government bond index, in a case of “buy the rumor, sell the news.”

On CNBC TV this week, Rajat Kulshrestha, chief executive of Space Machines Company, said the firm is getting “very strong demand signals” from customers and capital markets in India when it comes to investing in the “future of space.”

Meanwhile, Feroze Azeez, deputy chief executive of Anand Rathi Wealth, a broker, said earnings at Indian companies have kept up with their share price gains over the past year. He also noted that fund flows from foreign investors have picked up since the election results last month, which is expected to support stock momentum.

Prime Minister Narendra Modi is expected to visit Russia early next week, while a NATO summit is underway in Washington, D.C. The Kremlin has said that deepening trade and economic cooperation will be one of the key themes of the Modi visit.

On the data front, the U.S., China and Russia report their inflation rates, and the U.K. is due to reveal its economic growth next week.

Shares of stainless steel wire manufacturer Bansal Wire Industries and drug maker Emcure Pharmaceuticals debut on the stock market on July 10.

July 7: France’s second-round Parliamentary elections

July 8: Modi to visit Russia

July 10: Inflation: China, Russia

July 11: U.K. GDP, U.S. inflation