Currently, private education
in India generates a significant amount of black money. It is an open secret that school owners make money — at times hand over fist — but maintain that they are not for profit.
The demand of school owners is being conveyed to the highest level: the chief economic advisor, the CEO of NITI Aayog, Amitabh Kant, and eventually, to the Prime Minister’s Economic Advisory Council.
However, since education is a concurrent subject, the Centre can at best request the states to bring in legislation that allows schools to register as a corporate body with a for-profit structure. At least two states — Haryana and Maharashtra — have already indicated their willingness to do this.
Says Manit Jain, co-founder of Heritage school and chairman of FICCI ARISE (Ficci’s Alliance For Reimagining School Education): “There is currently no incentive for large corporates with deep pockets to step into this sector.” According to Jain, the huge demand for funds for the sector needs a clean structure that allows for profit. This single move can pave the way for credible and trusted names to invest, allow foreign investment to come in, banks to lend and energise the whole sector. It will also allow existing players to expand as they gain more access to capital, he adds.
At a meeting of FICCI ARISE in the capital last December, school leaders asked the chief economic advisor and other senior government officials who claim they want foreign investment to come in, why anyone would invest in a sector where there would be no legitimate returns.
According to sources, while there is a growing acceptance of the proposal at the bureaucratic level, it may be harder to push politically as many politicians and their kith and kin are deeply vested in the sector.
Currently, most schools or chains operate through a trust or society that is not for profit. However, the trust enters into several related party transactions with entities that supply services or products needed by the school. These entities are usually owned by the promoter or founder of the school. For instance, an entity owned by the promoters may own the land on which the school is built and enter into a lease agreement with the trust. As and when desired, the rental charged to the school is increased. This is one way for the promoter to earn while maintaining the garb of not-for-profit.
Similarly, almost anything required by the school — computers, hardware, software, desks, chair and so on — is sold to it by a company belonging to the founders or promoters of the school. At times, these transactions are at market rates and sometimes at inflated rates. In many private schools, almost all contracts handed out are inflated by 15-20 per cent, which is the promoter’s cut.
As a paper submitted to the government argues: “The present structures drive adverse selection. The general human need is to make a return on investment. Thus, while there are many genuinely service-minded folks in the sector, on average, the people who will come into the education sector will be willing to break laws to make an under-the-table profit.”
The proposal to declare school education a for-profit sector is likely to meet with resistance also because there is a deep ideological schism over the issue. There are those who strongly argue that quality education should be publicly funded and free for all. They say that if private education is given free rein, there will be no incentive for the government to improve its own offering.
The opposing lobby argues that free, publicly-funded, “quality education for all” is an “ideal world” scenario. For example, in the last four years, the increase in the number of private schools
was 4 times that of public schools, leading to a fall in government school enrolment by 11.1 per cent. As against this, the total enrolment in private schools
rose by 16 million students in the last four years.
T.V. Mohandas Pai, chairman of Manipal Global Education and former director of Infosys, argues that if the government wants to be a provider of education, it must meet the “same standards, be as accountable, and adhere to all the norms that a private player has to.” Moreover, he argues, all government servants should be asked to educate their own children in government schools.
This, he says, will be the quickest fix. Currently, the playing field is not level and private schools
are hamstrung while government schools
get away with murder.
Sridhar Iyer, who heads EY India foundation, echoes Pai's views, but adds that the stipulation that government servants educate their own children in state schools should be accompanied with a dismantling of the Kendra Vidyalayas and Navodaya Vidyalayas (considered better than regular government schools). Else, the bureaucrats will send their own children to these and the rest of the schools will continue to languish.
“As long as someone is providing quality education at a reasonable cost, why should the government care whether it is for-profit or not-for-profit?” asks Pai. He also says that once the sector is opened up, competition will come in, there will be less scarcity of quality education, and market forces will take over.
Pai feels that the “ideological blinkers” need to be shed and reality must be accepted. He advocates a “voucher” system in school education, one in which the government gives vouchers to parents and they are free to use them to opt for a school of their choice for their children.