Sunday, 13 February 2005

The Dilemma of Regulating Education

On February 11, the Supreme Court struck down the Chhattisgarh Private Sector Universities Act, 2002, specifically Section 5 of the Act which does away with the role of the University Grants Commission in the setting up of universities, and cancelled the registration of over 100 private universities which had come up in the state. It was acting on a public interest litigation filed by a former UGC chairman, Prof. Yashpal.

My immediate reaction to the order was one of dismay. Then as I started to ponder over the various facets of the issue, I realised that this order will pose a dilemma for all those believing in a free market in education. Well, maybe not all, because there will be a group who will be very clear in their opposition to the judgement and see it as an unpardonable restriction on the free market. I don’t think it is as simple as that.

Prof Yashpal and the Court were both acting with very honourable motives, no doubt. The Act had been passed by the then Congress government in Chhattisgarh, headed by Ajit Jogi and had led to the mushrooming of private universities in the state, some run on sound business principles (there’s nothing wrong with managing educational institutions on such principles) but many of them hole-in-the-wall kind of establishments and fly-by-night operators taking gullible students and their parents for a ride. Things were bound to come to a head sooner or later.

What I find disturbing with the Supreme Court order is the fact that it is throwing the baby out with the bathwater. And like another judgement two years back banning capitation fees, only treats the symptoms of the disease and not the root cause – the fact that demand outstrips supply of education.

There is no denying that there is an `education market` where the forces of demand and supply work just as they do in other markets. Right now, it is a seller’s market because of the restrictions on setting up of educational institutions by private parties.

The number of students in the higher education system (estimated at 8.8 million) is only 6.7 per cent of the population in the eligible age group. Raising this to even 10 per cent will mean bringing 14 million students into a State-domnated education system which is barely able to cope with the current burden. In such a situation is it right to restrict choices available to students by creating entry barriers for private players? Or by making higher education a State monopoly? Clearly not. The State has no business running educational institutions or creating conditions where the market gets restricted.

But how is one to deal with the phenomenon of unscrupulous operators? Sure, market forces will deal with them and will weed out the genuine from the fakes. But that’s little comfort to those whose hard-earned money the crooks have run away with. Yes, there are laws against cheating and fraud and not honouring contracts and commitments which these people can take recourse to, but we all know the way the law and order and justice system works – or doesn’t work – in India. Sure, this is something that India needs to work on since a sound law and order and legal system is the bedrock of a free market. There’s also immense weight in the argument that the lack of a sound system of justice shouldn’t be an excuse for government intervention in various activities.

But even if a sound legal system were in place, would it be absolutely wrong to have some minimum norms for setting up educational institutions? The libertarians would say, yes, it would be. They also have some case when they say that prescribing such norms and having some organisation to enforce them only results in corruption and doesn’t ensure that the norms are met. The regulatory capture argument cannot be ignored. But I’m not entirely sure that a scenario of not having any norms at all at all is necessarily desirable.

In 1995, the then Congress government at the Centre introduced a Private Universities Bill, which enables the establishment of self-financing universities with their own curriculum, fee structure and degrees to supplement the efforts of the state-run universities. The Bill allowed registered societies, public trusts and companies to set up universities and design the curriculum. The UGC was to vet the proposals and monitor the functioning of the universities. The Bill got put on the backburner thanks to misplaced outrage – from the Left, obviously – that the state was withdrawing from the education sector. Nothing came of the Bill, eventually.

That Bill, I think, struck the right balance on regulating education. Where the Chhattisgarh Act erred was in doing away with the role of the UGC in the setting up of universities. The latest Supreme Court order tries to correct that, but it has ended up tarring all the private universities with the same brush. It will also result in any new initiatives to involve the private sector in education and get the State out being put on hold.

The trick will be to find a way of weeding out the bad eggs (some will still slip in, but the scope will be reduced significantly) without heavy-handed government regulation.

Like I said, this is a real tough one.

2 comments:

Naveen said...

More than the crooks who would swindle money of students, I am worried about the nature of training imparted in professional courses (Medicine especially) which could have hazardous effects in the short term when the market is evolving its way.

But what strikes me is that legislative intervention might be more harmful than market design! Am trying to look up how markets have dealt with professional courses (medicine etc), if you know any approaches, would like to see them on your blog.

K. Satyanarayan said...

You said: What I find disturbing with the Supreme Court order is the fact that it is throwing the baby out with the bathwater. And like another judgement two years back banning capitation fees, only treats the symptoms of the disease and not the root cause – the fact that demand outstrips supply of education.

------- The Supreme Court can only pass judgement on the symptoms (which was what the petitioners had prayed for) and cannot and indeed should not be expected to address the root cause. The job of finding ways of increasing the supply of higher education by allowing private investment in education is that of the legislature and the executive. I think the Supreme Court has done well in this case by coming down on the poorly and hastily drafted Chattisgarh legislation and declaring those universities that were flouting the basic norms as illegal. It is important to note that the Supreme Court has not said that states can't pass legislation to allow incorporation of private universities - it has only required that all such private universities must adhere to regulations and norms specified by the UGC.

The Supreme Court in an earlier judgement by a 11 member consitutional bench on October 31, 2002 has clearly stated in no uncertain terms that "While education is one of the most important functions of the Indian State it has no monopoly therein. Private educational institutions - including minority educational institutions - to have a role to play." See my blog post titled Why should education be run purely as a charity and not for profit in India?.

You said: There is no denying that there is an 'education market' where the forces of demand and supply work just as they do in other markets. Right now, it is a seller’s market because of the restrictions on setting up of educational institutions by private parties.

------- In principle there are no restrictions as such on setting up of educational institutions, only regulations to be adhered to. But in practice there are lots of problems that private institutions face due to the fact that the Regulator and the Accrediter/Rating Agency are one and the same organisation, the UGC. If these roles can be split, as has indeed been done by a progressive regulator (the Directorate General of Shipping) in the context of maritime education in India, the market control would kick in. See my blog post titled Rating of educational institutions in India by private companies - a working model to follow

You said: The number of students in the higher education system (estimated at 8.8 million) is only 6.7 per cent of the population in the eligible age group. Raising this to even 10 per cent will mean bringing 14 million students into a State-domnated education system which is barely able to cope with the current burden. In such a situation is it right to restrict choices available to students by creating entry barriers for private players? Or by making higher education a State monopoly? Clearly not. The State has no business running educational institutions or creating conditions where the market gets restricted.

------- Higher education isn't a State monopoly, but that doesn't necessarily mean that the State shouldn't be running educational institutions. If private parties don't show interest in setting up educational institutions in some regions, the State will have to step in to ensure that educational opportunities are available to people in those regions, at least till the point that private parties choose to set up insititution in such regions.