India must consider allowing For-profit education

Traditionally, education in India has been under the purview of government and private non-profits. It is based on the theory that fundamental purpose of an educational institution is to educate, not to make profit.

However, for-profit education-or proprietary education, is also gaining traction in the world at present. As per the data by National Conference of State Legislatures at USA, enrolment of for-profit institutions has increased 225 per cent in the past two decades. Currently, about 2.2 million students attend for-profit colleges.

For Indian perspective, we can only envisage by looking at the enrolment trend in unaided private institutions which increased to almost 60 per cent of total in 2013 against 33 per cent in 2001. Supporters of the for-profit model make a point that these institutions operate more efficiently which leads to better services at lower cost.

These institutions also provide lot of comfort to students through various distinguished features in their service delivery and product offerings. On the other side, for-profit model is also at the receiving end of the mass criticism. Opponents of for-profit arrangements say that profit-seeking institutions exploit and commodify education degrees.

They argue that for-profit institutions often compromise with quality in education for their own economic benefit. In an analogy, some critics call for-profit education as 'subprime education' which results in to higher default rates for students who pass out from these institutions.

Ideal model

I presume, both for-profit and non-profit systems have their pros and cons. Excellence, innovation and evolution are claimed by both groups.

Disputes over various aspects including social vs economic, acceptance vs expansion, transparency vs accountability need to be resolved between the two models. The latest entry of the UK in the list of countries allowing for-profit education has further fuelled the debate.

After the for-profit status to University of Law and BPP University, the Conservatives even tipped-off to allow state-funded schools to be run for profits through dividend paying 'Co-operatives'. In US, the controversy has given a birth to new model of corporate organisations known as 'Public-Benefit Corporation". However, a solution to solve the puzzle of excellence, expansion and equity in this sector is still undiscovered for India. We certainly need a refined look with explicit conclusions to make this noble profession-education-more meaningful and effective for diverse stakeholders including students and society at large.

Comparison

A number of studies have been completed by various regulatory committees i.e. US Senate's HELP (Health, Education, Labor and Pensions) Committee, Center for College Affordability & Productivity and global education consultants i.e. Noel-Levitz, Eduventures, Pathenon, World Education Services etc.

The studies, whilst majority of them are focused at US, have reasonably complimented and commented to both - non-profit and for-profit education systems. However, a comparative study for India with other emerging nations i.e. China, Brazil tend to favour for-profit system - at least to address the issue of low enrolments ratio.

As per a research by The Parthenon Group, both China and India had approximately 8 million students enrolled in higher education during 2000. Then, China allowed for-profit education. Since then, the higher education enrolments in China grew by average growth rate of 15 per cent against 7 per cent in India. Total higher education enrolments are now more than 30 million in China compared to about 15 million in India. The Brazilian government passed legislation in mid-1990s and allowed for-profit companies to enter the education marketplace. Today about three-fourths of all Brazilian students in post-secondary are enrolled at private institutions.

A report by London-based IEA (The Institute of Economic Affairs) titled 'The profit motive in education' also supports the profit motive in education. Of course, we need to understand various technical, operational, social and legal aspects with specific reference to India where for-profit education is still not legally acceptable for formal degree courses offered at schools, colleges and universities. Hence, a check-up of on-ground realities may help to better conclude.

What's happening on the ground?

Despite supportive demographic dividends i.e. availability of human capital and economic energy; reforms in this area are critical to unleash sustainable development. In the higher education sector, India's GER (Gross Enrolment Ratio) is less than 20 per cent and the country aspires to achieve it 30 per cent by 2020. However, the social objectives in this sector are not aligned with market incentives. At present, private investors are confined under regulations of not-for-profit model. Apparently, the crony-capitalist model is under major influence of politicians and businessmen with untaxed money.

The existing cronyism of this pseudo-not-for-profit system makes this profession an unviable option for many educationists and serious entrepreneurs who wish to build a genuine business and add value.

The solution

For-profit model to incentivise the investments can be a game-changer, if executed. The private investments will meet the industry demand and bring better access to education. Private capital is required to expand the sector and the market forces will care rest of the things, as the case with other industries. Competition among institutions would verify tuition fees and foster a culture of quality. For-profit does not guarantee excellence and efficiency.

Hence, introduction of a credible industry regulator such as TRAI (Telecom Regulatory Authority of India) for telecom, IRDAI (Insurance Regulatory and Development Authority of India) for insurance; could be a step in the right direction. Similar to College Navigator in US, setting-up of a high standard national database may further improve the transparency and assist students for taking informed decisions.

The icing on the cake will be the taxes on profits from educational institutions, which can be used for further development in the sector, such as research grants or scholarship programs for underprivileged students.

The writer is Vice President and Head of Corporate Strategy Career Point. Views expressed are personal.