Indian School Education – The Barriers to Private Enterprise Jan25

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Indian School Education – The Barriers to Private Enterprise

“Uncertainty has gripped 2,235 unrecognized private schools in the city as they might shut down by the end of this academic session. As per MPD 2021 (Master Plan Delhi 2021), recognition will be granted only to those schools that have 8,000 sq mt of land per 5,000 people.” – Times of India report dated 17th January.

Libertarians have long argued that the government has no business being directly involved in the education sector. Lack of incentives, accountability and performance based evaluation have led the government to create a largely ineffective primary education infrastructure. Liberals have suggested that the government withdraw completely from the primary education sector and allow the private sector to take over. There are 2 aspects to consider in this argument. Demand side: Whether the children will have the purchasing power that allows them to be a part of the market mechanism and supply side; whether the private sector will be able to deliver affordable and efficient services. With regard to the demand side, the idea of a coupon system has been gaining currency for a while now (whereby the government gives the child a coupon for a fixed amount that can be redeemed at ANY school). Do check out the brilliant School Choice Campaign by the Centre for Civil Society for more information on this. However the focus of this article is the supply side. The private sector has the potential to supply affordable and quality education to most Indians provided the government adopts a supportive policy framework.

There is much that is wrong with the government’s education policies, this article seeks to bring into focus one of those points. The average price of 1 sq metre of land in West Delhi ranges in the region of Rs 1 – 1.5 lac. For the sake of this analysis, we take the figure of Rs 1 lac (which we shall assume to be the average rate for Delhi since the rate ranges from Rs 50,000 per sq metre to 7,00,000+ per sq metre). At Rs 1 lac per sq metre, 8,000 sq metre of land costs Rs 80 crore. That amount invested in fixed deposits and similar conservative investment options can yield Rs 8 crore a year. The owner would need to charge at least Rs 25,000 per child (adding on the cost of teachers, electricity and upkeep for a school of this scale) to get returns that can match hassle free fixed deposits and gold securities. It is important to understand that in the private sector, return on investment is a crucial factor. The investor will take into consideration the opportunity cost of alternative investments and unless he is driven by the philanthropic motive, he will probably choose to avoid investing in schooling. To meet the challenges facing the rising population and to yield the demographic dividend, it is essential for the government to make investment in the primary education sector both viable and profitable. For this, the government needs to lower the barriers to entry.

It is essential to examine the issue from the right perspective. Does the child (and her family) want a school that has vast lawns, huge classrooms, a big playground but charges Rs 25,000 per annum (as per our calculations of a private sector investor not driven by the charitable motive) or does the family want a smaller school with somewhat cramped classrooms (yet one that tries to compete with its neighboring schools to attract students)  that charges Rs 6,000 a year? The answer is clear. The child and his family must have the right to choose. Both schools exist even now and the child’s family has the option to choose where the child studies. However, the policies under Master Plan Delhi 2021 may take away this choice from the child’s family and leave in place expensive establishments that will reduce the enrollment rate and exclude the poorer strata from the private sector education system.

This is an example of a bad policy. The government needs to reduce the barriers to entry for the private sector in all parts of economic activity and gradually reduce its own involvement from these sectors. The profit motive incentivises the private sector to deliver services that combine quality and affordability.

Thus lets recap. If the government wishes to participate in the education sector, it must supply the underprivileged section with coupons (which essentially gives these children the purchasing power that will allow them to participate in the market) and it must lower barriers to entry for the private sector (which will allow them to provide services at an affordable rate).

PS: The Right to Education Act stipulated that each school must have a playground of a specified size. However the Ministry of Human Resource Development realised that this was unviable and withdrew this clause through a circular. In Delhi also, reports suggest that the rules will be diluted to allow these schools to continue functioning. This is heartening to note. However many such policies exist across India (in a variety of states) that discourage private investment. Thus the government needs to create a policy framework that allows private education to become a profitable business. Only then will we be able to meet the challenges of a rising and demanding population.