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(Mis) Trust in Education- An Agenda for Reform

Setting up an Educational Institution in India is a social cause at the surface but purely business at the core. Can unrelated but interested people come together to form an institution?

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Education is a sacred activity and institutions are the place of worship. Broadly schools are either set up by governments or by private individuals through Societies/Trusts under relevant statutory provisions. The insistence on the Society/Trust route for private sector participation derives from a fundamental belief that Education is a Charity. I would like to argue for a complete overhaul of this logic and the architecture that governs this vital sector.

Investment- The Beginning

It takes around Rupees 5 to 8 crores to set up a decent school anywhere in the country. More than 90% of the costs in setting up a school go into land and building. How does one raise resources for such a venture? I have not seen even one such society or trust where unrelated but interested people have come together for the purpose of setting a school. In a Society/Trust such a sum has to be contributed by members/trustees and all are treated equal. Their contribution in the Society/Trust (monetary or otherwise) is of no consequence. This arrangement is blatantly unfair to members who by virtue of their financial contribution or genuine interest in the venture may like to contribute more. This equality to find a group of people that will contribute in equal measure, is a mirage. It is thus no surprise that we hardly find any society/trust that is not made up of close family members. This should be a wake-up call to policy makers.


Foreign Nationals in Social Sector- No Way!

Another major lacuna is about NRI’s/PIO’s/Foreign nationals unable to make normal contributions to any Society/Trust. While all the above can form companies/become owners/directors etc. in for-profit entities, they must first comply with FCRA guidelines if they wish to contribute to any Society/Trust. For all practical purposes the laws discriminate against NRI’s/PIO’s from any participation in the social sector.

The Vicious Circle of Mergers and Acquisitions
Consolidation through mergers and acquisitions provides an effective way for increasing the overall efficiency of use of resources in any sector.Since schools must be structured as trusts/societies and not as companies this process is complicated and non- transparent.
For example, Trust B wishes to acquire the financially troubled school owned by Trust A. The money paid to Trust A can't go to the trustees but will have to remain locked in the trust. Consolidation through mergers and acquisitions therefore, is very unlikely since the trustees of Trust A do not stand to benefit financially by transferring the assets to Trust B and so have no incentive to agree to any transfer of assets.
In some cases, the Govt. can step in to take over Trust A if it is being mismanaged and the Govt. can then hand over the running of the Trust A to any other trust, but this rarely happens. Moreover the Registrar of cooperative societies and his staff is not equipped to understand the managerial, financial and legal issues involved in such a transaction. Mergers and Acquisitions of companies is overseen by a High Court. Thus the process is transparent for all concerned.

Mushrooming of family owned enterprises across India is the consequence. These Societies/Trusts balance their balance sheets as they should, and show little or no profit. After all, this is not-for-profit sector.


I Recommend

Why make decent and well- meaning Indians to adopt measures that demean themselves and the noble sector they represent?

I would strongly suggest allowing private sector participation though the Companies route. Smart, well intentioned people should be able come together to form a company and own shares proportionate to their contributions. Profits, if at all, can be shared as dividends, if the shareholders so wish, as laid down by the fairly established Companies Act.

Education is no doubt a sacred activity. If some groups still desire to set up not for profit ventures they should be given automatic exemptions under the Sections 80G and 12A of the Income Tax Act. Government should also facilitate such ventures by giving them expedited or automatic approvals in setting schools/institutions.

The demand for treating Education sector as a priority sector under bank lending is an old one. As of now only loans to individuals up to a sum of Rupees 10 lacs is covered under the Priority Sector lending under Education. There are no avenues for entrepreneurs to avail cheap and timely credit to set up and run high quality schools/institutions. Including setting up/running educational institutions under Priority Sector lending norms will go a long way in helping banks get some credit worthy projects to lend to and education entrepreneurs access to credit on favorable terms.

Our children are one third of our population and all of our future (Select Panel for Child Health 1981). We need to make policies and programs that encourage the best, the brightest and most caring amongst us to set up and run educational services. After all a child spends more hours in his schools, colleges and universities than he ever spends with his parents and family. Government agencies need to focus on the quality of education provided. There need to be clearly defined criterion to measure outcomes. These criterion need to be modified regularly and assessment done objectively by a small group of eminent Indians (not necessarily bureaucrats). There are highly qualified professionals keen to work towards the betterment of the country. Such individuals should be tapped for such assessments.

Let us move Education from a Non Profit Sector to a For Change Sector.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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