Not allowing the private sector to participate in education as the private sector has real and dangerous consequences.

ANYBODY who believes that the for-profit private sector does not already play a large role in Indian education is either living in a cave or is delusional. The belief that the non-profit private schools and colleges are wholly distinct and separate from the for-profit private sector is an interesting play on the letter versus spirit of the law. More importantly, it is dysfunctional and ineffective because 90% of the schools and 85% of the higher education set-up in the last ten years is for-profit in spirit but non-profit in letter because they are organized as trusts or non-profit foundations. Does this legislated non-transparency matter? I argue that this ideological fixation garbed as idealism and a lack of pragmatism in public policy which does not recognize entrepreneurial motivations and structures for what they are, is costing Indian education dearly.

Personally I wish all government teachers came to school every day, that district collectors would stop requisitioning government teachers for other work, that we could create a fear of penalization for not working alongside hope that performance will be rewarded among government teachers. I also wish state governments would release money to government schools in tune with the academic calendar or in time to make a difference. Even more that we could stop the multi-grade teaching that batter the majority of our children and teachers. I wish public transport in rural areas made teachers’ commute less impossible. I wish there was a non-profit body that ran 500 schools. I guess, deep inside, I also wish that socialism worked because it is a fairer way to organize society.

The case for legitimately allowing profit in education is simple – India is facing an education emergency. Not because the private sector provides better quality – in many situations it does not – but because we need all the schools we can get. And, before the howls of protest, let me clarify that an argument for profit in education is not an argument against the expansion of state or non-profit initiatives. We need all the capacity we can get in the war against illiteracy and unemployability.

Yet today public policy mandates that accredited school and higher education can only be delivered through a non-profit trust. But India’s charitable or non-profit sector has neither the resources nor capability to meet India’s education challenge and consequently, most of India’s private sector is for-profit masquerading as non-profit. This transmission loss between how the law is written, interpreted, practised and enforced has many deadly and undesirable costs.

Lower Transparency and Entrepreneur Adverse Selection: Our education trust and accreditation structure creates a need for massive regulatory arbitrage capabilities and consequently most education entrepreneurs (edupreneurs) today are criminals or politicians or individuals with doubtful credentials. Regulatory requirements are satisfied so long as teachers show up and consequently these edupreneurs do not need to make investments in teachers, curriculum, teaching resources, infrastructure and the other components of a vibrant learning environment. This creates an interesting but self-referential claim that prohibiting profits in education will keep fees low.

But effective control on fees does not lie in issuing regulatory fatwas – that’s like treating obesity by mandating a small size – but in competition. This year we are finally seeing supply cross demand in engineering (100 colleges in South India received less than 10 admissions) and MBA schools (200 of the 2000 schools in the country received less than 10 admissions). So, unlike the past, an engineering or business school is no longer a piece of land with an ATM machine sitting on top of it. This propagation of oversupply to other parts of the education ecosystem – K-12, medicine, law, and so on – will force goofy edupreneurs out and attract legitimate and professional schools that will reinforce the circle of quality.

 

Lower Capacity, Competition and Inclusiveness: India’s higher education gross enrolment ratio of 11% is half the world average and a fifth of developed countries. Of the eight million who pass the class 12 exam every year, only five million enter higher education and three million disappear. Most importantly, the 100% cut-off for institutions like Shriram College of Commerce – I joined this college in 1987– can only have three explanations. First, these kids are smarter than us; highly unlikely. Second, 90 is the new 70; possible. Third, this is the price of a bag of rice in a famine; only 10 lakh students took the Class 12 exam in 1987, but this year the number exceeded 1.2 crore. Yet, the number of seats has remained fairly stable. No democracy has faced the ‘fire hose’ of people that India’s demographic dividend represents – one million people will join the labour force every month for the next 20 years. So while we can learn from excellence models of developed countries, these places grew rich before they grew big and were young before they were big.

But we are big, poor and young and face the impossible trinity of cost, quality and scale. We need a massive increase in classrooms and teachers. But the trust structure creates substantial limitations on first generation entrepreneurs or teachers being able to raise money from financial investors, both debt and equity, to invest in creating legitimate quality at scale. So, while there has been a reasonable quantitative expansion by the government, runaway demand has been serviced by illegitimate private capacity. And this illegitimate private sector capacity, while a useful supply side response from a perspective of quantity, cannot be advanced as an argument against legitimizing a professionally managed, well regulated and quality-mindful for-profit private sector. The current license raj in higher education means that the key skill for education entrepreneurs to get ahead is regulatory arbitrage and, building on the point made earlier, this leads to an adverse selection among education entrepreneurs because it biases the field in favour of politicians, criminals and land mafia.

 

This means that first generation entrepreneurs backed by third party capital are unable to create organizations that would add to capacity. Also that the low quality of so-called private education and private entrepreneurs becomes a self-referential argument against private education. Finally, because of lower capacity and increased competition, the current higher education system is not inclusive when one unpacks the gross enrolment ratio from a geographic, gender or disadvantaged group perspective. More than 330 of our districts have a lower gross enrolment ratio than the national average. The ratios for women and scheduled castes and tribes are between 25-35% lower than the national average. While the case for reservation of seats in higher education is complex, the most important antidote to a lack of inclusiveness will be a massive expansion of capacity.

 

Lower Employability: The lack of employability is pervasive among youth entering the labour force. This low employability arises for many reasons – lower competition, centralized setting of curriculum, no modularity, a lack of employer involvement and a lack of credit for formal apprenticeships. India only has 2.5 lakh apprentices while much smaller countries like Japan (10 million) and Germany (6 million) have shown how integrating on-the-job training into learning can greatly improve employment outcomes. We estimate that about 58% of India’s youth suffer some degree of unemployability – last mile, interventional or structural. The policy agenda around skills is not impossible or unknown. Employment exchanges need to become public-private partnership career centres that offer counselling, assessment, training, apprenticeships and job matching. The Apprenticeship Act of 1961 must be amended to view an apprenticeship as a classroom rather than a job and shift the regulatory frameworks from push (employers under the threat of jail) to pull (make them volunteers).

The National Vocational Educational Qualification Framework must be agreed to by the states and the ministries of labour and HRD as the unifying open architecture tool for recognition of prior learning and vertical mobility between school leavers, certificates, diplomas and degrees. Delivery systems are in the hands of states and every state must create a skill mission or a vocational training corporation, tasked with building capacity and quality. States should also create asset banks to make existing government real estate available for skill delivery. All schools must teach English because English is like Windows, an operating system that creates geographic mobility and improves employment outcomes.

Schools and colleges must selectively embed vocational subjects – particularly soft skills – into their curriculum. The regulatory cholesterol around national distance education (mail order, e-learning and satellite) must be reviewed to offer flexible options for workers already in the workforce and the geographically disadvantaged. We must create a national network of community colleges offering two year associate degrees; these colleges, rooted in the local ecosystem, will serve the informal sector (92% of employment). This missing mezzanine layer – their two years programmes are not normal degrees on a diet but vocational training on steroids – would bridge the gap between vocational education and training but make the system more inclusive.

Finally, we must create skill vouchers that allow financially disadvantaged students to get trained wherever they want at government expense. Such vouchers would shift the system to funding students rather than institutions and should be funded by money carved out of the MNREGS budget. But it is unclear that this agenda can be implemented by pure regulatory reform; it will need to be complemented by an explosion of entrepreneurship – capital, innovation and energy. This is unlikely to happen without allowing entrepreneurs and third party capital to work together legitimately.

 

Regulatory Capture: The lack of transparency and divergence between the spirit and letter of the law in the birthing of an education institution creates a difficult balancing act for education regulators. Unfortunately, and predictably, this creates corruption. This allegation is probably best illustrated by the case study of Medical Council of India (MCI). MCI is interesting not only because it involved an evil genius but the lessons apply to all education regulation. MCI was an ‘academic terrorist’ where the entire noble profession of doctors remained silent as a few individuals ravaged their Hippocratic Oath. I am not willing to let doctors off the hook and believe there was huge wisdom in ancient Indian kings who reserved half the punishment for a crime for those who kept silent about it. But I also understand how pragmatic calculations may have kept them silent. The MCI’s absolute powers made it judge, jury and prosecutor with no venue or authority for higher appeal and it used ‘de-recognition’ notices – often verbal – to create an ATM machine that never ran out of cash. The MCI ferociously defended its monopoly by not allowing doctors with the Diplomat National Board degree to teach, even though this is awarded by the National Board of Examinations and is equivalent to other degrees like MS and MD according to a gazette notification by the Ministry of Health.

 

In 1998, MCI transferred powers to appoint inspectors from the executive committee to the president, thereby allowing the selective hiring of individuals willing to play by the new rules. It not only terrorized private colleges but also ensured that the state government nominees on their board were pliable, mainly because of its control of seats and inspections of government medical colleges. The biggest lesson from the MCI is that absolute power corrupts absolutely. Those responsible for the MCI mess have already been found guilty in the court of public opinion. But this time the law must take its course and the punishment must be commiserate with a crime that has caused needless human suffering and tainted a noble profession.

 

Politician Teacher Nexus: The pass rate for Uttar Pradesh Board High School students fell to 15% in 1992 from the 40% average for the 25 years before and after. Why? That year the chief minister, upset with government teachers because of political calculations, ordered the police to check identity cards and supervise exams to prevent cheating. Corruption and incompetence can exist anywhere, but I like to make the case that the performance challenges in government schools – teacher attendance, learning outcomes, performance orientation, student employability – may be a child of the close relationship between politicians and teachers in government and government ‘aided’ private schools. This relationship sabotages the ‘thought world’ shift of education policy from student enrolment to learning outcomes because this shift needs effective performance management–the fear of falling and hope of rising – which is currently missing for government teachers largely because of their importance as politicians or for politicians.

This nexus is clearly highlighted by Geeta Gandhi Kingdon and Mohammed Muzammil in their work ‘Teacher effort and accountability; some political economy determinants’, which looks at the Uttar Pradesh government and government aided schools. Government teachers are the only government employees exempt from the ‘office-of-profit’ provision and have used their job security to contest elections at all levels; over the last twenty years they have accounted for 17% and 6% of the total seats in the UP legislative council and assembly respectively. Over 40% of government teachers in UP have ‘met’ or ‘know’ a legislator. Politicians are useful and effective in helping government teachers in undermining institutional accountability measures such as attendance, school inspections, character books, transfers, suspensions, salary increments withheld, and much else.

 

The acceptance of the Sixth Pay Commission means that most government teachers get paid three times their private sector counterparts – an entry level government teacher in UP now earns Rs 21,000 per month – besides a generous index-linked, last-drawn salary based defined benefit pension for life. Unfortunately, this pay recalibration was not linked to performance parameters around attendance and learning outcomes. In fact, the lack of political will to confront powerful teachers and teacher politicians in government schools means that there are no adverse consequences for teachers, who don’t show up for work every day (around 25%) or fail to ensure that half the students who start school do not drop out before they finish.

Since politics will always be local and vocal, the only way to get systemic, sustainable and scalable change in education is a large dose of competition, deregulation and entrepreneurship. But the difference is that in 1991 the economic emergency was acute and obvious but today’s education emergency is chronic and benign because it arises from both quantity and quality. But experience with engineering colleges, international schools and MBA institutions is that quantity is leading to quality. Competition is leading to higher standards, lower prices and better paid teachers. Eliminating the admission wait list for all kinds of schools will shift students to being clients rather than hostages.

 

Lower Government Resources: The education sector operates as a legitimate tax-exempt for profit industry. This is unfair, unnecessary and irrational. The formal incorporation of education enterprises as normal companies will not only reduce the lack of transparency between ownership and management but also formalize surpluses as a revenue generating taxable base that can be ploughed back into making our education system more inclusive by generating money for capital expenditure and scholarships. In fact, replacing the current service tax on education – which in effect raises fees for users – should be replaced by an income tax on the surplus generated by the operating entity. These income taxes should be earmarked for education vouchers which can be given to children from economically and socially disadvantaged families.

Our current education regulatory structures do not recognize the diversity of human motivations – fame, fortune, family, friends, impact, curiosity, creative expression, recognition, inspiration, competitiveness, and much else. Reviewing the ‘scratches on our mind’ to allow for-profit education will ensure a level playing field for creating quantity and quality in the profit, state, religious, ethnic, or not-for-profit sectors because ‘it does not matter if a cat is black or white as long as it catches mice.’ My grandmother runs nine schools with more than 8,000 students as a non-profit enterprise. My wife runs an education institute as a not-for-loss enterprise. I recently visited a residential for-profit school that starts IIT coaching in class six. The Bharti Foundation wants to set up bottom-of-the-pyramid schools. The Azim Premji Foundation is setting up a school for teachers. Gyan Shala as a non-profit is trying to ‘develop and implement institutional solutions to provide low cost but assured high quality basic education to children from poor urban and rural families which do not deteriorate on large scale replication.’

 

The Government of Gujarat is experimenting with performance management for government teachers by using technology (RFID or GPRS) and a mix of carrots (incentives for learning outcomes) and sticks (penalty for absence). These represent what India’s kids need. Rabindranath Tagore has a wonderful story called Kartar Bhooth where guessing the perceived and static wishes of an effective but dead leader stifles current life and kills innovation. The ghost of non-profit in education has similar consequences, where low quality private sector capacity creation becomes a self-reinforcing argument against legitimizing a professionally managed, well-regulated and quality-minded for-profit private sector.

But we must remember that the most expensive school is no school and that the primary case for private sector is not merely capacity and cost but also quality. We should not care whether a school is government, not-for-profit, not-for-loss, for-less profit or for-profit. All that matters is quality. Let biodiversity explode. It is not too late to change the tragic reality that the two variables that most affect a child in India are the parents/family and the pin code. Mughal Emperor Jahangir told his gardener in Kashmir that if a tree takes 100 years to mature, that’s all the more reason to plant it as soon as possible. In other words, the best time to start changing our education system was 1947, but the second best time is today.