Economic architecture for higher education
Mar 19 2013
Few core decisions need to be taken. At present, providing education is treated as a non-profit activity. This approach, which was essential immediately after independence, is not the only solution now, as the government has limited resources to meet the ever-increasing demands. The creation of self-financing affiliating institutions has done more harm than good. We should accept education can exist as dual entity; ‘merit good’ activity to be done predominantly by the government and ‘non-merit good’ activity to be done by the corporate sector. For the past six decades, the government has been supporting higher education and our access ratio is around 16. Let us now bring education also under Companies Act allowing one to establish a company that is run professionally with a principle of ‘fair profit’. Companies Act does have few defects and it is also true that all is not well with the way companies are run and hence adopting it in totality may not be advisable. ‘Educational Companies Act’ needs to be formulated that incorporates good principles of Companies Act and facilitates establishment of educational companies that work only in the domain of education. Such an approach is needed because ‘education’ is a different type of business; one produces value added intelligent and skilled humans. Here students are ‘customers’ and look for ‘product’ that is relevant in a given time space and that of quality. One can think of adding special set of rules in the existing Companies Act to take care of these aspects.
We also need to take a bold decision that getting educated need not always be through charity. Higher education cannot be fully subsidised. Students must also be made aware of the full cost of higher education. There are standard ways for estimating the full cost per student by considering capital, running and future expansion expenses. We need to work out full cost for every degree programme for a full time student. Partial cost, the knowledge commission recommends not less than 20 per cent and the MHRD says not more than 20 per cent, could be recovered from students in the form of fees. The aided institutions could charge 20 per cent of full cost as fees (and even 20 per cent could be waived for socially and economically backward communities), while the government could subsidise the rest. Indeed, the government should abandon the present method of funding to aided institutions and switch over to grant-in-aid worked out on the basis of ‘unit cost for full time active students in an institution. The institutions created by educational companies could charge fees worked on the principle of recovering full cost of education. These high fees structures, as is happening at present for professional disciplines, may become hindrance for meritorious but socially and economically week students. Fee waiver concept, in percentile form that is linked with merit of student and social and economic status of parents, could become an integral part of such educational institutions. In addition, we should create an appropriate mechanism for awarding scholarships and soft loans to deserving students through a special instrument funded both by government and private sector. The right approach would be to create higher education finance corporation (HEFC), an independent financial institution, to support higher education on a long-term basis. This concept has been discussed for several decades, but no government has ever implemented its creation. HEFC should be a professionally managed financial entity. The government only needs to make a bulk investment initially, introduce investor friendly opportunities for private sector and create a continuous flow of revenue by introducing employment tax for employers. Each employer (private and public) should be levied a tax equivalent to the first month’s salary for addition of every new employee. There could be many other ways to expand the flow of money to HEFC coffer. HEFC should make provisions for giving soft loans to students (3 per cent interest rate) and institutions (30 per cent lower than the commercial loan rate) for development of academic and other infrastructure. This could maintain the balance between accessibility for students, social equity, competitive quality education, and the governments’ responsibility of retaining education as a public good identity.
The participation of the private sector, with fair returns for investors in for-profit institutions, will only enhance growth and competitiveness in higher education sector. The Indian education system would only gain by a dual identity as both ‘public’ and ‘private’ good. Consequently, there is need to address issues related to the new economics of education, which demand a clear approach for raising and deploying finances. We need to come out of the non-responding rigid ‘educational cocoon’ that we have woven for past six decades and start thinking positively.
(The writer is former chairman of UGC, former vice-chancellor of University of Pune and founder director of NAAC)