Existing schools could close down because they cannot meet running costs

India’s government schools are often mistaken to be the only option for children from disadvantaged backgrounds. However, private school enrolment has been increasing at rates comparable to government schools. The focus of private schools on English-medium education and the significance of English in the social mobility aspirations of the people is one of the primary reasons that poor parents prefer private schools. While parents increasingly send their children to private schools, they are also simultaneously affected by the increasing cost of living every year. Private schools charge fees based on demand and this serves as a method of eliminating competition to select students. This has created a situation wherein students from relatively better-off households get preference over children from economically weaker sections for school admissions. Since parents want their children to be educated in a private school, but cannot afford it, they have sought the help of the government to control the price of the service offered by private schools. It is in this context, that some states in India have started implementing laws to fix the maximum tuition fees that can be charged by private schools.

The imposition of fee regulation on private schools can be understood to be a reaction to the demands of some parents against large private schools charging high fees for their services. This can also be seen as a direct result of the assumption that these are the only types of private schools that exist, which is not the case.

While consumers are always seeking lower costs in any economy, the problem with the welfare state is that in its attempts to help the poor, it reduces costs at the expense of the producers. While this artificial reduction of price may be seen as a positive impact by the consumers in the short-term, in the long-run the effects will be disastrous for them as well. Producers, who see no chance of increasing prices end up having to cut costs, are unable to function efficiently and lose incentive to perform better. The regulation of fees therefore has the unintended consequence of lowering the standards of private schools, by destroying the competition in the market.

One of the problems with setting prices at a lower level is that it creates an entry barrier in the market, thus leading to a shortage in the competition. In this case, that would mean fewer entrepreneurs will be willing to start schools since it is not profitable. It is also the case that existing schools will have to close down because they cannot meet running costs, and/or due to a lack of demand because of falling quality as a result of lower fixed fees.

Advertisement

The intention of fee regulation is to decrease cost of education and therefore increase the access to education, the effect is that it creates a supply deficit which in turn ends up reducing the access to education for the very population it had hoped to help. The importance of education to a society is accepted and education is now seen as a necessary service. The attempts at increasing accessibility to these services, while justified, are misinformed. Schools are expected to offer services without expecting profits, as is made obvious from the legislation that requires schools to be registered as non-profit institutions. But the service offered comes at a cost and high levels of risk for the school management. With the imposition of the infrastructure requirements under the Right to Education Act 2009, potential investors are likely to find opening schools to be an almost certain loss. Existing schools have been closed down because they have not been able to meet infrastructure requirements at the low fees that they charge. Price controls on top of this, will make the situation more severe for the education market and ultimately, to the accessibility of a service that is fundamental to the growth of any society.

The regulation of fees collected by private schools would seem like a reasonable move considering the mainstream understanding that all private schools charge high fees. But the problem with the mainstream understanding is that there is a vast majority of private schools that charge low fees and cater to disadvantaged sections of India. What is also worth noting is that more and more parents want to send their children to private schools anyway but the supply does not meet the demand. This is why parents want the fees to be lowered. Private schools generate demand due to a variety of reasons from better learning outcomes, greater accessibility and English medium instruction to provision of extracurricular activities. Consumers want the price to be lowered because there are not enough private schools and the existing ones can charge higher fees and still attract enough demand. If, instead of taking measures to increase the supply of private schools and increase competition among private schools so that they lower the price by themselves to survive in the market, the government moves to force the prices down, it will only lead to a larger supply deficit which ironically ends up further from the consumer need that the supply should meet their demand. Once this scenario is understood, the regulation of fees seems puzzling, especially considering that private education across the world is autonomous and independent, while in India attempts are made to rein in the sector.

For the record, private unaided schools are already burdened with a plethora of taxes. This includes Commercial tax for electricity/water, Property tax, Permit for school buses, RTE, Reservation, Lease, Salaries as per 7^th Pay Commission, and land being given at commercial rates or auctioned. Over-regulations abound such as Regulation from education department, Regulation from CBSE, Regulation from Child protection commission and NGOs, Regulation from Income Tax department, Regulation from fee commissions and Regulations from the courts. The extra costs are not taken into consideration by the district committees which decide the fees to be charged by schools. What’s more, schools have to simultaneously fulfil several government regulations. In my belief, education, like health-care should see less of government interference. The government should function as a facilitator as opposed to a dictator.

I see the recent Gujarat government fee bill as a stunt to gain political mileage. Fact is that 90% of schools are not adhering to the fee ceiling. Additionally, it cannot be implemented across the country by the HRD Minister, as Niti Ayog is currently working on a 3-tier fee structure nation-wide. Readers may be aware that school promoters in Gujarat have also filed a petition against the Fee Regulation Act. They have formed a federation to together fight against Fee Bill. Unfortunately, in this battle, the real sufferers will be the parents. A majority of the parents whose children study in private schools are aware of the facilities provided and are not against paying the fees. The scenario has obviously added to the woes of schools struggling to fulfil all the regulations.

It is time to tread the middle path. My suggestion to parents would be to accept the school’s decisions provided not overly commercialized. If the maximum hike is not more than 10% in tuition fees and not in transport charges, and if parents are satisfied with the quality of academics, safety and security provided to their wards, it’s in the parents’ interest to support the school. Don’t forget, schools are working for the benefits of society, parents as well as scholars. Parents, on the other hand, need to review their attitude which justifies splurging lakhs on coaching while resisting paying for quality education to schools.

Advertisement

It is ironic that while private schools generate demand from parents because they meet their expectations of learning outcomes, the government continues to judge private schools based on input norms. Private schools will struggle to survive in an environment governed by policy, which is ill-informed of the causes and effects in the education economy. Artificially keeping prices low would result in less competition, leading to a reduction in the number of players in the market. The controlling of fees, compounded by other unreasonable regulations that private schools are expected to meet, has led to a scenario where smaller schools are labouring to reduce costs, even as they are hit by a drop in performance. They would, in all probability, close down leaving the market to fewer private schools. Consequently, even as the government’s control of fees was intended to help the parents, the move will end up leaving fewer schools to choose from.

About the author:

Raman Bansal is Director at Scholar’s Pride Sr. Secondary School, Dhuri (Punjab)

This article was originally published in the July 2017 issue of ScooNews magazine. Subscribe to ScooNews Magazine today to have more such stories delivered to your desk every month. 

Advertisement