Maharashtra Self-financed Schools Act: Harming the Poor in the Name of Public Good

The essence of regulation is the idea that regulations are required to safeguard constituencies a free-market fails to care for. The idea that market or private players when left to themselves will be unable to serve the needs of the people or public interest has been the long standing Brahmasthra for justifying government intervention in the education sector. But what if the government does the very thing it wasn’t supposed to do? What if the government instead of adding to the supply of private schools, reduces the supply of private schools? What if these private schools spend much less money than the government schools and provide similar or better education than the latter? What if these private schools cater to the needs of not the upper middle class and the rich but the lower middle class and the poor? What if government made regulations that stop the entry of such schools into the market and force parents to choose either costlier private schools which they cannot afford or the government schools whose lack of quality impelled them to chose the low-budget private schools in the first place?
Well, the government of Maharashtra is doing precisely that. But before turning to how it is doing this in detail, we need to understand what they are doing it in principle.

Economists have a useful term called ‘entry barrier’. This term is used to denote the obstacles faced by a new person wanting to enter a certain field of business. Delivering education is a service and like any other object in the market it has a cost—somebody has to pay for it. If you don’t pay for it directly, someone else must as in the case of government schools which are funded through taxes. At the end of the day money has to be spent by someone to buy things and hire people to run the school. Artificial entry barriers add additional costs and restrict competition. And less competition allows existing businesses to dictate higher prices (‘school fees’) and deliver lower quality. Even though there are a lot of possible entry barriers to a new entrant, government policies remain one of the strongest deterrent to new business in the sector. Given that the time, money and effort involved in dealing with red tape is so huge, a lot of potential businessmen turn away. When people turn away, opportunities for better quality education at lesser cost are lost. In such a scenario, it is poor people who suffer the most—in the name of the public interest.
The Maharashtra Self-financed Schools (Established and Regulation) Act, 2012, is an excellent specimen of “innovative” regulation to improve education which creates such harmful barriers.

The Act calls for self-financing schools of local authorities and private sector to deposit a certain amount of money in the nationalized banks (only) in the form of National Security Certificates or Fixed deposits under the name of ‘endowment fund’. This is just one aspect of the act but it is difficult to imagine the utility of such funds except as a means to increase the liquidity of banks. Some of the area requirements fail to convey the rationale behind their formulation. Secondly, paragraph 12 of Schedule A of the act mandates that the school should have at least 0.5 acre of land area (2000 sq.mtr approx.) in Mumbai or in suburban-Mumbai. In today’s prices, the cost of such a piece of land in the city of Mumbai runs into couple of crores. To expect low-budget unaided private schools which charge mostly less than Rs. 300 per student per month, pay in crores of rupees in land and related costs imposes a significant obstacle for new schools to come up in the private sector. Ultimately only the government which has significant amount of tax payer money or very rich private individuals who have large money at their disposal would be able to start new schools or upgrade the existing ones. This, instead of making education more accessible will make it less accessible by increasing the cost of education for the student.

Thirdly, let us take examples of two transitions, the movement from class VIII to class IX (upper primary to secondary school) and class X to class XI (secondary to higher secondary). According to the SES data from the website of Ministry of Human Resource Development for the year 2010-2011, the number of students in class IX was 1,610,138 and that of class VIII was 1,805,165. The average number of class VIII kids per upper primary school is 65, this is including the various single teacher schools. For the PTR (Pupil-teacher-ratio) to remain at least 32 we will need at least 3000 more schools (1805165-1610138/65). This is in the secondary school division where nearly 85.7% schools are private out of which 29% are private unaided schools. The issue becomes much more pronounced in the case of transition from secondary to senior secondary. Following the lines of previous case, the number of students in class X is 1,465,538 and in class XI is 1,213,314. Given that the numbers of senior secondary schools are 5019, the average number of Class XI students per school is 241. But their PTR is approximately 40. If the same number of students have to be at the RTE mandated PTR, 303,329 students from class XI will have to be removed, hence adding this number to the difference between class X and XI, the new number of students entering class XI would be, 555,553. This number will require 2305 more schools. And even in the case of senior secondary schools nearly 89% of them are private out which nearly 19.4% are private unaided-schools. As observed above, with such a large deficiency in terms of government’s capability to provide access to education, increasing the entry barriers to private players will only end up hurting the students and their future.

We haven’t even accounted for the severe teacher shortages across the country which plagues the situation further. Are those making these regulations aware of the ground scenario in the education sector? Given the above data, it is hard to fathom the reason behind Maharashtra government’s regulation to increase the cost of entering the education market to new players. As shown above, the largest and worst impact will be on students who will have to drop out due to increased costs or won’t get quality education due to the excessive difficulty of the system to absorb the excess strength. The tragedy is that many people judge these regulations by government’s fair intentions but fail to recognize the cost to a huge portion of the future of a generation of children.