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Should Higher Education be made for Profit?

A couple of weeks ago when Mr. Narayana Murthy Chairman Emeritus of Infosys made a passing observation about the quality of students joining the premier courses like IITs, there was an uproar in the media and the students too. Before that when one of the central ministers passed some disparaging remarks on the quality of the teaching staff in these institutes, there was an even more significant outburst of disapproval! While the choice of words to describe the situation could have been different, the underlying concerns cannot be brushed aside.

Last week there was this media report on the cabinet passing the amended Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010, now renamed as Higher Educational Institutions Act, 2011! The Act has purportedly doubled the penalty that institutions will have to pay for demanding a capitation fee. The penalty has been raised to Rs 1 crore. Prima facie, the penalty, would appear to be deterrent to many of the educational institutions that have created a very strong business model out of the higher education but then if we reckon the size of the business and the amount that they charge as “donations”, or such other diplomatic variants to describe it, towards admission in the professional courses in engineering and medicine, the amount would appear to be irrelevant.   It would make business sense of these institutions to pay the amount towards penalty as that would in effect legalize the collections.

Discipline No. of Seats % based on Capitation Rs. In Lakhs per Seat Collections in Crores – Rs.
Engineering 1486000 40% 5 29720
MBBS 22000 50% 25 2750
Post Graduate 4920 30% 50 738
33208

I tried to cull out some information on the total number of seats only in these two courses to figure out the quantum of “donations” that these institutions would be collecting.  The table would put discussion in better perspective. These figures do not include the lesser fortunate cousins like courses in dental and the like where the unofficial figures vary anywhere from a couple of ten thousands to a lakhs. These are annual figures and it will be seen that over a period of time the total amount collected would actually put even the “presumptive loss” of 176000 crores under the 2G scam to shame!

One of the key reasons for this is the ostrich like approach of successive governments refusing to allow “for profit” educational institutions in the higher education sector.  If the money, excluding the tuition fees, is indeed being collected then what is the rationale for opposing the “for profit” educational institutions in the private sector.

It is not that all these educational institutions are producing top of the line products.  If that was the case then the industry would not be raising a hue and cry about the lack of the employability in the students being offered.  If the quality was indeed so good then software companies would not be having large in-house training academies to make the students more employable!  Would it not make more sense of these companies to even start their own undergraduate courses to ensure captive source of employees?  It would be a back integration of sorts for the country that boasts over 50% of its GDP from the service sector!  They may be permitted to obtain a “bond” in lieu of the admission. If a country like Singapore can mandate a minimum service in the country in lieu of subsidized education, what is wrong for companies asking for it?

This could also potentially save the country’s precious foreign exchange as close to 8 billion dollars is being remitted every year by parents educating their children abroad!  It is not to suggest that we will end up saving all of that.  Even if we are to save portion of that we would have achieved a lot!

The other part is that a significant part of the money that paid as “donations” to the educational institutions is invariably in cash and would perpetually remain outside the tax system!  This could provide an opportunity to increase the tax revenue and bridge not only the fiscal gap in addition to the knowledge gap.

The privatization of the higher educational process would also have the potential to increase the flow of quality of teaching staff and create a better platform for interactions between the industry and the educational institutions.

Even in the case of the “not-for-profit” institutions it is high time that the governments changes the requirements and make it mandatory for all of them to convert themselves into corporate bodies, the section 25 companies as they are popularly known.  That would ensure better governance and reporting.  Most of them are currently registered as either trusts or societies that are so poorly regulated with little or no transparency in administration.

In the ultimate analysis it would appear that the case of the permitting “for profit” institutions in the higher education is very strong but then it would require a lot more courage and out of the box thinking.  There is no point in just tinkering with existing legislations that probably are ill equipped to deal with the problem.

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About carvkco1
A professional Chartered Accountant based in India with 30 years of experience in finance and management.Keen to mentor A keen Rotarian with sense of humour.