India’s coaching industry is usually explained as a demand-side response: too many aspirants, too few seats, therefore coaching. That explanation is incomplete. A sector valued at more than ₹58,000 crore is not merely filling a market gap. It is drawing rent from a scarcity the state has helped create, and which the state has little fiscal incentive to remove. The Ministry of Education acknowledged in Parliament that India’s private coaching industry was valued at over ₹58,000 crore, based on NSSO 2022–23 data. It also acknowledged the growth of unregulated coaching centres, high fees, unsafe infrastructure, and malpractices.
The fiscal story is important. PRS Legislative Research noted that the Ministry of Education’s 2024–25 allocation was 7% lower than the revised estimate for 2023–24, while higher education was down 17%. The allocation towards the University Grants Commission was estimated to fall by 61%. The 2026–27 budget increased the nominal allocation for education to ₹1.39 lakh crore, and UGC’s allocation rose over the previous year. But education spending still remains structurally modest. PRS estimates that education’s share of the overall Union Budget would range between 2.4% and 2.6% during 2024–25 to 2026–27, far below the National Education Policy’s goal of public education spending at 6% of GDP.
READ | VBSA Bill sharpens Centre-state tension in education
The result is visible in classrooms. Public institutions are asked to deliver mass education without the resources to compete with a private examination economy. Faculty shortages, uneven teaching quality, weak mentoring, and curricula misaligned with competitive examinations leave students looking elsewhere. The coaching centre does not enter as a rival to a functioning institution. It enters as an intermediary in a vacuum.
Coaching centres and information asymmetry
George Akerlof’s insight on markets with information asymmetry applies neatly to coaching. Coaching is a credence good. Its quality cannot be assessed before purchase, and often cannot be assessed even after purchase. A student who fails after two years of coaching cannot know whether failure reflects poor teaching, inadequate effort, psychological stress, bad luck, or the brutal selectivity of the examination.
This asymmetry is not incidental. It is the business model. Institutes sell success stories, not reliable probabilities. They market toppers, not classroom outcomes. They imply causation where there may be only association. A student who attended several institutes can become the face of each. A scholarship student can be presented as proof of teaching quality. A test-series enrolment can be made to resemble full-time coaching. Since parents cannot observe actual quality, competition shifts towards the nearest available proxy: rank.
That proxy is easy to manipulate. It is also why examination integrity matters so much. Once the market is organised around proximity to the final test, the paper itself becomes the highest-value commodity. The NEET controversy is not just an examination failure. It is the logical endpoint of an education economy in which the exam has displaced education as the real object of investment.
READ | India’s education system faces a design crisis
NEET paper leak and the collapse of signalling
Michael Spence’s signalling model assumes that a credential works only when it separates ability from other attributes. An entrance examination is useful because it tells colleges something about aptitude, preparation, and discipline. It stops being useful when the signal can be purchased, leaked, coached into artificial similarity, or corrupted through insider access.
This is the deeper significance of the NEET paper leak cases. In 2024, the Supreme Court accepted that at least some students had benefited from the leak, though it did not order a full re-examination because it found no proof of systemic failure across the examination. The political and institutional damage, however, was already done. An exam that decides access to medical education cannot afford even limited loss of credibility.
The latest reported CBI action in the NEET-UG 2026 leak case sharpens the concern. Reports say the CBI arrested Manisha Mandhare, a Pune-based teacher, and P.V. Kulkarni in connection with the alleged leak, while a Delhi court granted CBI custody of accused persons in the case. The investigation is still unfolding, and guilt will be determined by due process. But the allegations point to the same structural weakness: when access to question papers, paper setters, evaluators, coaching networks, and aspirant desperation intersect, the exam signal is no longer clean.
A medical college cannot distinguish between genuine competence and purchased access if both produce the same score. That is the collapse of signalling. It is not merely unfair to honest candidates. It is a public health problem. The allocation of medical seats affects the future quality of doctors. A corrupted entrance channel imposes costs that no later inquiry can fully recover.
GST revenue from coaching and the state’s incentive
The state is not a passive bystander. It taxes the coaching economy. GST collections from coaching institutions rose from ₹2,240.73 crore in 2019–20 to ₹5,517.45 crore in 2023–24, according to data submitted in the Rajya Sabha and reported from the Revenue Department of the Ministry of Finance. Coaching services are taxed at 18%, while formal education is exempt.
This creates an uncomfortable political economy. The state underfunds parts of public education, generates demand for private coaching, and then taxes the private expenditure that follows. The household experiences this as compulsion. The exchequer records it as revenue. The coaching centre presents it as aspiration.
The Ministry of Education did circulate guidelines for regulation of coaching centres in January 2024. They cover registration, fee transparency, refunds, infrastructure, safety, counselling, grievance redressal, penalties, and cancellation of registration. But the guidelines were sent to states and Union Territories for action through an “appropriate legal framework”. They do not by themselves constitute a binding national regulatory regime.
This is not enough for a sector that now mediates access to medicine, engineering, civil services, law, management, and public employment. A market built on information asymmetry cannot be disciplined by voluntary disclosure alone. It needs audited claims, transparent outcome reporting, restrictions on misleading topper advertisements, conflict-of-interest rules for paper setters and exam-linked personnel, and criminal liability where leak networks are established.
READ | Digital internationalisation is reshaping higher education in India
Household risk and regressive transfers
The welfare losses are large. Coaching expenditure is not like ordinary discretionary spending. It is incurred under pressure, often by families with little capacity to absorb failure. A household does not spend on coaching because it has calculated a high expected return. It spends because not spending appears to close the door altogether.
That is the trap. When one examination controls access to a scarce credential, and when success rates remain tiny, average expected returns are negative for a large share of families. The winners justify the industry. The losers finance it. The more competitive the examination becomes, the more the failure of most candidates is treated not as evidence of structural scarcity but as proof that they should have bought more coaching, better coaching, earlier coaching.
This is regressive. Richer families can buy classroom coaching, test series, doubt-clearing modules, private tutors, hostels, mental health support, and multiple attempts. Poorer families buy fragments of the same promise at higher emotional cost. The market calls this choice. In practice, it is a transfer from anxious households to an industry whose success is built on scarcity.
The damage does not end with households. As examination preparation becomes more lucrative than institutional teaching, good teachers move towards coaching centres. Public universities and schools lose human capital. Coaching centres then advertise the same faculty as evidence of superior quality. The public system is depleted by the market created by its own weakness.
Reforming the coaching economy
The NEET scandals are not aberrations from a functioning system. They are the equilibrium output of an education economy that rewards scarcity, opacity, and proximity to the exam. Arrests matter. So do investigations. But they address the visible crime, not the incentive structure.
Reform must begin with the exam economy. Paper setting must have strict conflict-of-interest rules. Anyone involved in question design, moderation, printing, digital handling, logistics, or evaluation must be barred from paid coaching activity and related commercial networks for a defined cooling-off period. Exam agencies must publish audit trails after each major test, without compromising security. Leak investigations should not end with brokers and middlemen; they must trace the institutional points where information became monetisable.
Coaching regulation must move beyond safety norms. Fire exits, refunds, and counselling are necessary, but not sufficient. Institutes must disclose verified enrolment categories, actual classroom attendance of advertised toppers, fees, refund rates, faculty contracts, and audited success claims. Misleading advertisements should attract penalties large enough to deter the practice. A sector that sells probability must not be allowed to advertise certainty.
The harder reform is public education. If school and college teaching remain weak, coaching will remain the shadow system. Better-funded public institutions, updated curricula, credible assessments, bridge courses, and free high-quality preparation platforms can reduce dependence on private coaching. SATHEE, the government’s free platform for JEE and NEET preparation, is a start; the Ministry says it has more than 17 lakh registered students and over 10,000 hours of video lectures. But digital content cannot substitute for sustained institutional repair.
India cannot regulate coaching without confronting why coaching became indispensable. The problem is not aspiration. It is the conversion of aspiration into rent. A system that fails to provide credible public education, uses one-shot examinations to allocate scarce opportunities, permits opaque private intermediation, and taxes the resulting desperation cannot be fixed by another committee after another leak. The next reform must decide whether it wants to change the structure or merely manage its scandals.
Nihar Nalini Sarangi is an analyst based in Bhubaneswar, Odisha.