Opinion: How Indian Tutors Are Making Millions Off Anxiety

Sixteen-year-olds going crazy over their favorite Bollywood actor is one thing, but teenagers behaving hysterically on seeing a science tutor on stage? That's the kind of superstardom that Alakh Pandey, the 30-year-old co-founder of Physics Wallah, has built up in India's small cities and villages, starting eight years ago with nothing more than a white board and a YouTube channel, which has since been viewed 1.4 billion times.

With more than 5 million downloads on Google Play Store, Pandey's low-cost tutoring app - now known as PW - became a unicorn last month with a $1.1 billion valuation. It raised $100 million in its first institutional funding roundfrom WestBridge Capital and GSV Ventures. Pandey needs that cash to replicate his online success in the chaotic world of Kota, the hub of India's unique test-preparation market.

Kota is a city of 1.5 million in Rajasthan where high-schoolers gather from across the Hindi-speaking northern belt and spend two years of grueling 18-hour days with one goal: cracking the highly competitive entrance exams for engineering and medical schools. PW's splashy entry with its own campus to teach as many as 20,000 kids in two shifts is forcing the industry to slash its high fees. When Pandey showed up in his brand-new classroom, screaming teenagers thronged the online celebrity - at least according to the promotional YouTube video, which has been seen 3 million times in three weeks.

The Indian test-prep market has always been about turning anxiety into cash. More than 1.5 million hopefuls scramble for a little over 100,000 medical and dentistry placements nationwide. Meanwhile, the contest for the prestigious Indian Institutes of Technology, among the keenest pre-university competitions anywhere in the world, involves a brutal two-stage effort - a "main" test followed by an "advanced" exam. The 23 campuses of the IIT open their gates to only 16,000 aspiring engineers a year.

Right now, however, the industry built on monetizing adolescent angst is itself gripped by a frenzy. With the economy having fully reopened, the pandemic-era investor enthusiasm for online problem-solving is giving way to a renewed preference for physical lectures. PW's bigger rival Unacademy, backed by Singapore's state investor Temasek Holdings among others, has also shed the confines of mobile devices and stepped into the "Kota Factory." (There is a Netflix Inc. series by that name - a coming-of-age story about greasy food, budding romance and frustrations with inorganic chemistry - set against the backdrop of industrial-scale tutoring.)

Teacher pay is going parabolic. Allen Career Institute, expected to enroll 125,000 students this year (70 per cent of the market in Kota), is unhappy that Unacademy has poached about 40 of its tutors, it says in a recent Livemint article. "We hear of annual salaries of 20-crore plus are being offered," Naveen Maheshwari, a director at Allen told the newspaper, using the local convention for 200 million rupees. That's $2.5 million, a princely sum for a Tier 2 city.

Not all tutors are getting paid that much, but the business case is definitely shifting offline. Chasing profitability in its core online offering, Unacademy laid off about 1,000 employees in April; the app is now cutting food and travel expenses, according to the Economic Times. With COVID-19 lockdowns no longer bolstering remote education, expect the shift to gather momentum. PW, which offered online courses for as little as $45, can make nine to 17 times as much in a real classroom, according to a profile of Pandey by the news website Ken in May.

Traditional tutoring has a faster path to profit because its success is rooted in demographics and India's post-socialist economic structure. The industry took off in a big way in the early 1990s, just as India began to unshackle private industry from licensing straitjackets and trade barriers. The onus of providing jobs shifted from the public to the private sector. But there was a mismatch. The more industrialized western and southern regions hogged private investment. Outside of capital New Delhi and its outskirts, good jobs are scarce in the Hindi-speaking north where - thanks to a slower decline in fertility - the population is a lot younger than in the aging south.

Which explains the improbable success of a place like Kota that has nothing to offer except teeming multitudes of desperate youngsters. While some of them truly desire to become engineers, most just want to stand apart - in the market for jobs, social prestige and marriage - from hordes of unemployed university graduates. In June, Vedantu, another online tutoring unicorn, set up its first offline test-prep center in the boondocks of Muzaffarpur, in the poor, overpopulated eastern state of Bihar, where the fertility rate will remain in excess of population-replacement until 2039. When it comes to producing a steady supply of teenagers, Bihar has a 40-year "advantage" over Kerala down south.

Those regional differences matter. While the nationwide unemployment rate among college graduates is 18 per cent, it's 54 per cent in Rajasthan, and 34 per cent in Bihar, the Hindu Business Line reported last week, citing data from the Center for Monitoring the Indian Economy. The worse the job scene, the greater the exam stress in middle-class families and the bigger the opportunity for startups like Byju's, Unacademy, PW and Vedantu to compete in classroom settings. But then, the brick-and-mortar institutes like Allen can also create apps and retain their better-known teachers with stock options. In May, Allen sold a $600 million equity stake to a new investment vehicle founded by media mogul James Murdoch and Uday Shankar, the former India chief at 21st Century Fox Inc. The competition for hybrid tutoring - a mix of online and offline - is only going to intensify.

In the first episode of Kota Factory, the protagonist's father is having second thoughts about uprooting the 16-year-old from his family, school and town and transplanting him in an alien surrounding. The odds of success are dismal: Although Kota produces one out of five IIT entrants, only one in 50 of the city's aspirants manages to secure a place. "But your child - he needs only one seat," the coaching-institute boss says. The parent writes the check, a bet the global PE industry is hoping career-anxious Indians will keep taking for decades to come.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)