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Profitable Education

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Five experts discuss what ails higher education in India, and what could be the possible solutions, including what measures can be taken to attract more private funding into the sector. While Montek Singh Ahluwalia and Kaushik Basu represented the policymakers, B.B. Bhattacharya and Pritam Singh represented academicians, and Rakesh Bharti Mittal was the face of the private sector. The discussion was moderated by Prosenjit Datta, editor of Businessworld.

Prosenjit Datta: Thank you for being here. The topic we are debating today is should for-profit institutions be allowed in higher education. Will it improve quality and solve many of the current problems such as lack of enough good quality institutions?

Montek Singh Ahluwalia: There are several strands of thought to be disentangled. One line of argument is that education is the only area in which profit-making activity is not allowed. It is allowed in health, it is allowed virtually everywhere else, so why not here? Those who take this view also argue that there are many students going to universities abroad, and some of them to for-profit universities. So why not allow profit-making universities here? The opposing view is that the majority of good colleges — the Ivy League and top level universities — are not for-profit (Harvard, Yale, among others).

I feel that the for-profit versus not-for-profit distinction is not the most important; there are many other crucial issues. For example, since private institutions are allowed, one should perhaps get rid of the many regulations.


If you ask me, I would say that we definitely need private sector institutions in education. And across the board — in schools, colleges, higher education. Next is, what is the set of circumstances under which private sector activity can actually flourish. Here, we should consider freedom from price control. We should start by allowing private institutions to charge fees transparently. What is happening today is that first we regulate the fees, then naturally the fees go ‘under the table', then we police this practice — that is not very sensible.

One reason why there is reluctance to let  private sector education be free from control over fees is the feeling that they will be able to pay higher salaries and take away teaching talent from existing institutions. The quality of the private sector institutions will go up and that of the existing public sector will go down. This is probably a valid argument but perhaps the answer lies in paying more for high-quality academic faculty in public sector institutions. The problem there is that faculty salaries are uniform. If you have to pay more for faculty who are in demand, you have to extend that to everybody.

There is also a concern that poorer students will not be able to afford the fees. But they could always go to public sector institutions, which are affordable, or be given scholarships.

Pritam Singh: I would like to point out some facts regarding attracting private players in higher education. In India, we spend about 4 per cent of our GDP on elementary and basic education. If we are going to make elementary education compulsory, we will have to spend a lot more. India spends just about 0.37 per cent of GDP on higher education, which is inadequate. We also want to increase enrollment. To achieve these twin objectives, we will need Rs 2 lakh crore by 2016.

Where would such an amount come from? There is no option but to get private sector players to invest in higher education. But what will attract them? How can higher education be an economically viable proposition? We are assuming that private players are just waiting to pump money into higher education.  

"The main purpose of regulation should not be to set limits on professor salaries or student fees, but to prevent misinformation and contractual obfuscation. – KAUSHIK BASU

"Instead of funding universities, let us fund students. Let universities compete for students. – MONTEK SINGH AHLUWALIA

But there are some critical barriers deterring the private players. We need to examine the prevalent procedures and practices of AICTE (All India Council for Technical Education) and UGC (University Grants Commission), which are draconian, outdated and insensitive.  

Our universities have become vestiges of the past. Many committees have recommended drastic reforms, but nothing of significance has been done in the past 50 years. We only go on appointing committees with very poor implementation of recommendations.

At present, we have about 3,900 B-schools, both in the university system and the AICTE-approved category. If we take the 25 top ranking b-schools in India, except for the Faculty of Management Studies, Delhi University, none from the university system feature among them. Schools such as the IIMs, IMI, MDI, XLRI and some others, do not belong to the university system. They are autonomous.


Unfortunately, there is some kind of stigma attached to autonomous institutions. I understand that there is a move to annex them into the university system. What a retrograde effort! Imagine, for instance, if schools like XLRI, MDI, S.P. Jain or IMI are affiliated with some of the state universities, what will happen to their academic standard, quality and innovations?

The other thing we must realise is that for high-quality education, we have to pay higher fees. If we want to build excellent institutions like Harvard, we have to charge that kind of fee. And this can be possible only when institutions are allowed to charge fees commensurate with the quality they deliver. I completely agree with Mr Ahluwalia that institutions should be free to charge any fees, and market forces should be allowed to determine the fee structure depending upon their reputation and quality. Institutions that fail to provide a high quality of education at reasonable prices will automatically die down. 

I must also highlight that poor-quality management schools are mushrooming. In UP and Maharashtra, about 70 per cent seats are still vacant in 40 per cent of such schools. It is high time that we restrict the entry of new institutions, and focus more on promoting high-quality institutions by allowing them to increase their intake. We should identify institutions of excellence and the government should try to create an enabling environment so that they can become schools of global standard.
Ahluwalia: If you want market forces to work in this sector, you should change the present system where public sector universities get state funding but charge very low fees, and move to a system where anybody eligible is given a government scholarship directly paid to the university. If we do this, universities will look for students. They may also get some funds directly. We could give extra funds. The main point is: if you do not attract students, you do not get funds.

If this scholarship can be used in a private university, then students can choose between public and private universities. I realise that this is a radical suggestion since it would mean government funding could go to private or public universities. There are 18-20 million students in our system at present. If you give Rs 20,000 for a year's scholarship to 20 million students, you need about Rs 40,000 crore for higher education. One could work out a way of sharing this between the Centre and the states.


Instead of funding universities, let us fund students; let universities compete for students.

Kaushik Basu: The quality of higher education and research is critical to a nation's development. Because the impact comes with a long time lag, it is easy to overlook its importance. World history shows that if you want the economy to flourish, you need higher education — literature, culture, mathematics, science — to flourish. There are examples galore, from Greece in around 300 BC, through Italy in the 15th and 16th centuries, Britain in the 19th and early 20th centuries, and the US since then.

There is no hiding from the fact that our higher education system, from being outstanding by emerging economy standards, is now trailing. A good example is the Presidency College of Kolkata. It used to be one of the great colleges, but crashed into ignominy in 30 years.

China has overtaken us in terms of gross enrolment ratio, and even in PhDs. India produces around 6,000 PhDs per annum, China produces around 18,000. Why? Are we doing badly now because we are doing something differently? My view is, no; we are doing badly precisely because we are refusing to do anything differently.

I want to set out a four-point agenda for India. First, quality education cannot be provided through licensing. We learned that when the industrial licensing system was abolished in 1991 and the economy flourished. I am not saying that you need no form of regulation. You do need some, but not the kind of draconian centralised control that we now have.

"Politically, it is difficult to charge rational fees. There is too much subsidy for quality education. – B.B. BHATTACHARYA

"If we want to run nearly 600 universities, as India does, largely through government funding, we will either have 600 mediocre universities or a fiscal meltdown. – KAUSHIK BASU

Take, for instance, the US. It has the best universities, but also some of the worst. If you want a completely flat system of universities — with centralised standards through a licensing system — you will not have the worst universities, but you will not get the best ones either.

Second, if we want to run nearly 600 universities, as India does, largely on government funding, and want to treat all on par — similar salaries, tuition fees, and so on — we will either have 600 mediocre universities or a fiscal meltdown. It is simply not financially feasible for the government to run 600 top-class universities.

It follows that we allow more room for private sector in higher education, give universities more financial and regulatory autonomy, and recognise different standards for universities.

It is important to understand that there can be private non-profit and private for-profit universities. What people do not often realise is that in the US, the best universities are mostly private but non-profit — Harvard, Princeton and Cornell, for example. Then, there are the profit-making universities; most of you would not have even heard of them. The best-known is probably Phoenix University. In India, private universities are allowed, though the restrictions are so severe that there are only few of those. But profit-making private universities are not allowed.


I am completely in favour of permitting private non-profit universities. Once permitted, and with clear rules, private sector players will put up money, create trusts and foundations, and set up universities. This is crucial for India's higher education and research to prosper.

So, should we allow for-profit universities? The answer is not quite as obvious but if I had to give a short answer, it would be ‘yes'. From experience, I feel such universities will be mediocre. However, that is no reason not to have them. In India, as in any country, there are many mediocre students with fairly wealthy parents. The for-profit universities can pick up a part of this category of students. This will also allow other universities and the government to provide for the more cutting-edge ones.

Of course, there has to be a regulatory set-up, especially for for-profit universities. The main purpose of the regulation should not be to set limits on professor salaries or student fees, but to prevent misinformation and contractual obfuscation and cheating. It is better to have open privatisation than privatisation by stealth.

Third is the need for differentiation. The US broke the flat system. It began to cut deals with professors, literally by swooping down on wherever they were in the world, and offering special deals. Since I was chairman of a department at Cornell, and also ran the Center for Analytical Economics, I know how this worked. Soon Britain started doing the same, and recently China. My point is simple. Given that the rest of the world is doing this — whether or not it is a good practice is irrelevant — we have to compete in the same globalised world and have no choice. And now with Indian private sector salaries having gone up and being talent-based, if we want to retain talent in frontline research and academics, we have no choice but to play by the new rules of the game.

On tuition fees, I second what Dr Ahluwalia said: allow the fees to float up, but there has to be a system of government scholarships.
Finally, a word on India as a hub of global education. This is ours to take. India has all the natural advantages — strength in the sciences, in engineering, finance and business education, and a historical advantage with English.

In America, top universities charge a tuition fee of roughly $50,000 per annum. One year's accommodation or living will cost about $30,000. So an American parent spends roughly $80,000 on a student going to an American university. In India, if we charge these students $20,000 fees instead of $50,000, we can make a profit and provide good education. Decent accommodation cost will be no more than, say, $10,000. Hence, a student, by coming to India, will save $50,000 per annum.

This is not just true of American students. Currently, students from Africa, Latin America, Canada, and the Middle East go to the US. Many of them know that they can get good jobs no matter where they have got education.

But for this to happen, we will need to make small changes, which, given our bureaucratic propensity, may not be that small. For instance, we will have to change our visa rules and give a four-year upfront visa to an undergraduate student. We also have to make changes in accommodation (that is not too expensive), provide Wi-Fi connections, etc. — these little things make a big difference. Once you get these students coming into India, there will be better faculty coming.

"If the right people get into education, they will bring the right partners from across the world. – RAKESH BHARTI MITTAL

"Market forces should be allowed to determine the fee structure depending upon (the institution's) reputation and quality. – PRITAM SINGH

Quite apart from the financial gains, this can enhance India's global status and soft power. And frankly, if one had to choose between different kinds of the power, the soft one is best.

B.B. Bhattacharya: Let me begin with a counter-view. I do not know of any country that has developed higher education with profit as an engine for private investment. Even China, which allows so much of private investment in education, does not do it with the profit angle in mind.

So, my submission is that even if some private players want to make profit, let it be. But that should not be considered as the model. The whole world is attracting private investment in education, but a very tiny fraction of that is coming for the sake of profit. The majority — 90-95 per cent — come in because higher education itself is going to give them the returns.

Returns may come in two forms. First, getting educated employees, especially skilled-workers. Second, a company investing in research in, say, Harvard or MIT, may benefit from innovation and cost-cutting technology. Often, the company gets the first right to use. This is perfectly justified. But such investments cannot be guided by pre-judged profits.   

In India, we have an abysmally low gross enrollment ratio in higher education, 13-14 per cent. The 11th Plan wanted to raise it to 15 per cent by the end of the Plan, and to 30 per cent in the next decade. To achieve this quantum jump, a lot of funds are needed. Most of the central universities, the IITs, the IIMs, as well as other science universities, were set up by the mid-1960s. Since then, only a handful of new universities have been established. The total number of universities in India — about 500 — is too less for a country of a billion-plus population.  

Meanwhile, generations of Indians have gone without quality higher education. No wonder, many Indian students seek admission abroad. Those who cannot, seek admission in private universities and technical colleges in India, many of which are run with a profit motive. This has probably created an illusion that only profit motive can lead to investment in education. But the quality of education in for-profit private universities and institutions is abysmal.


Recently, the central government created many new central universities, IITs and IIMs. These institutes will have many teething problems before making a mark.

In the past couple of years, the HRD ministry has set up nine committees on higher education reforms. I chaired some and was a member in some others. Many of the issues we are talking of today were discussed in detail. However, before these could be put in action, the country's attention got diverted to the 2G and other scams.

It is true that many universities are charging minimum user fees, and often rich and middle-class students get undue social subsidy. For instance, in JNU, which I headed, 97 per cent students during my time had fellowships, and 95 per cent were in the hostel. But the fees were very low. Every time we tried to raise it, there was stiff resistance. Politically, it is very difficult to charge rational fees. There is too much subsidy for good quality education in India.

Another problem is that everybody wants to get educated in the few good quality central universities. Or students prefer to join not-so-good or even shoddy engineering, medical or infotech colleges, simply because they think that will give them better job opportunities. 

Rakesh Bharti Mittal: I will give my perspective of a few things. Whether it is a public or a private institution, we are asking everyone to deliver excellence with both their hands and feet tied.

Second, the universities, the IITs and the IIMs should be given freedom to charge fees from students who can pay, charge foreign students even more, and then subsidise the others.

Third, the focus needs to shift to quality. When we speak of gross enrolment ratios, whether it is 96 per cent in schools or 14 per cent in colleges, the question is: are these children being educated properly? No. Of all the graduates, only about 26 per cent are employable.

The current policies are being misused by the private sector to create personal wealth. The regulation needs to be put in a very transparent, simplified manner so that institutions do not charge capitation fees under the table. 

While the cost of education has gone up God knows by how many times, faculty salaries are guided by rules and regulations. We set up the Bharti School of Tele-communications, Technology and Management at IIT-Delhi. I was surprised that getting the right faculty was a big challenge because of the low salaries on offer.

Subsidies in education need to be stopped. We should do what Dr Ahluwalia has said: give a scholarship.
The government needs to focus on regulations and policies at creating capacity. We need 1.5 million doctors; we have 600,000, and half of them are not qualified. Your total intake is 40,000 doctors a year. The private sector wants to invest, and we are sort of reining them in with the current policies and regulations.

Of course, when the private sector comes in, they want to come for profit. But then they bring world-class infrastructure. If the right people get into education, they will bring the right partners from across the world.

Bharti Enterprises is supporting Bharti Institute of Public Policy at ISB, Mohali, and has partnered with the Fletcher School at the Tufts University. We will be attracting the best-in-class faculty.

Singh: But they charge surreptitiously. I hear that in certain colleges, medical seats go for up to Rs 2 crore.

Mittal: That is what I am saying. Why are people getting into education? It is a good way to create personal wealth using unethical means. 

Ahluwalia: We should take a broader look at the challenges and the prospects. One issue is low gross enrollment rate; it must be increased. I can guarantee that we will achieve this objective. But this could be achieved by simply building a campus, calling it a university, recruiting some teachers, enrolling students, and giving them a degree. That will produce what Rakesh has just said. Instead of 74 per cent being unemployable, 85 per cent will be unemployable.

So, the improvement should also be associated with better quality. We can ensure an increase in standards by bringing the lower-end institutions nearer the top.

The really difficult objective is achieving excellence. Of course, part of the problem is that the experts themselves do not have a single view on this. Personally, I feel having world-class universities as a separate category is not the way to go. We need to separate public and private sector universities. We should be clear that the private sector has to have a big role in creating new universities, and in improving quality.

In the public sector, if we want excellence, we will also have to recognise that they need more resources and flexibility. Some of the resources will come from higher fees. We also need systems that encourage high-quality faculty who are also interested in research.

Bhattacharya: Can I take this issue of profit in a little broader perspective? Look at the whole funding of American universities — both state and private. A big chunk of their research spends is mobilised from the private sector. The understanding is that if any new idea or innovation comes of it, the company can profit from it. Why cannot the same model be tried in India?

I went to a number of Indian corporates to mobilise funds. Only Ratan Tata Trust gave money for pure research without any conditions of profit. All others wanted to know how fast they could get back the capital with profit.

In JNU, too, all MOUs are signed with foreign companies, not Indian. Why? They want immediate results, which we cannot guarantee.

Mittal: Well, Bharti gave a grant of Rs 20 crore for Bharti School of Telecom at IIT-Delhi, without any return. We have committed a grant of Rs 50 crore for Bharti Institute of Public Policy, and have given a grant of a million dollars to Bharti Centre for Communication Research in IIT-Mumbai. So it is not that the companies and corporates are not moving. On the research side, I do not know whether any weighted average deduction is available under the income tax (laws) when you give money for educational research.


(This story was published in Businessworld Issue Dated 07-11-2011)