Monday, November 22, 2010

For-profit legal structure for higher education in India

The 1986 Indian National Policy Statement on Education states as follows: "In the interests of maintaining standards and for several other valid reasons, the commercialisation of technical and professional education will be curbed. An alternative system will be devised to involve private and voluntary effort in this sector of education, in conformity with accepted norms and goals". The Indian Government and the policy makers are wrongly interpreting the Indian Constitution in stating this policy. The Indian Constitution states that the State shall, within the limits of its economic capacity and development, make effective provision for securing the right to education. This duty does not extend to the State preventing any private entity from delivering education, in any format, especially when the State's economic capacity is exhausted.

In implementing this policy for "non-commercialisation", the policy makers are opposed to the setting up of higher educational institutions as a for-profit entity adopting the Limited Joint-Stock Company format under the Indian Companies Act. Commercialisation of education can happen even in the non-profit format as has been happening now by educational bodies set up as a Society or a Trust. The Government and the task force that has been set up is confusing "commercialisation" with the "for-profit" legal structure of an organisation to deliver education. More importantly, the policy does not define "commercialisation". If the Government means "profiteering" as a definition of commercialisation, then the current system of education under non-profit societies and trusts are profiteering blatantly.

Commerce happens once there is a buyer and a seller irrespective of their legal form. In higher education, the student pays money to buy education from the institution that sells or delivers education; so commerce happens here, even in Government Institutions such as the IIT or the IIMs.

A main reason given by the policy statement to avoid "commercialisation" is to maintain standards. This assumes that commercial organisations cannot maintain standards and that only non-commercial organisations can deliver quality. Again, something that has been proved very wrong, going by the quality of higher education delivered by scores of government or government-approved private institutions that are run by Societies or Trusts.

The policy statement also states that "an alternative system will be devised to involve private .. effort in this sector of education". However, this alternative system has not been discussed nor proposed so far.

The Supreme Court of India has established very clearly that the private sector and any individual has the fundamental right to set up educational institutions. The Constitution does not deny the private sector from setting up a for-profit educational institution. It only makes it a duty of the government to provide education. It does not make the Government the sole provider.

The task force that is examining and proposing the current legislations in the education sector should bear this in mind. Any proposal to deny any segment of the society the right to offer education in any format will be subject to protracted legal action.

It may actually be better for the Government to allow the for-profit format in higher education and derive revenues from service tax on tuition incomes and income tax on surpluses made by the institutions. Currently, the Government is foregoing that share of the revenue from these society or trust run institutions who anyway profiteer. In the present set up, the AICTE restricts the number of students that an approved educational institution can admit and thus creates an artificial shortage of seats, enabling these so called non-profit educational institutions to charge enormous fees, that put higher education out of bounds. Instead, if the Government recognizes the right of the private sector to provide education under the for-profit format, then the fees will automatically be market determined and become affordable. The income that the Government makes from these for-profit entities can then be reploughed into education at the primary and secondary levels, which is where the Constitution makes it a duty of the State to provide free education.

National Management B School, India