The Economics of running a private School in India

Since it’s children’s day we thought we could look at private institutions educating the young minds of this country. Because why not?

The Story

For all the negative press that private schools often court for themselves, they’re a godsend in many ways, especially the low-cost private schools trying to make a difference. Here’s the thing. Government schools spend more money per pupil* and often times produce a far inferior outcome when compared to their private counterparts. In other words, private schools are value for money, can do more with fewer resources and often times produce kids that are as educated if not better educated than the government ones**.

In fact, empirical evidence shows in great detail how government schools are emptying at a pace never seen before. This, despite a substantial increase in the primary-school-age population of 6–10-year-olds in India (2009–2014 period). So clearly there’s a migration happening — from government schools to private institutions.

But here’s the pressing question? How are private schools being so efficient at managing resources? How are they getting these things done at all?

Well, simply because private teachers aren’t paid as well as government ones. Whereas government teachers’ pay is dictated by a ‘minimum wage’, which is often driven by political compulsions and teachers unions. Private schools pay their teachers the market-dominated wage i.e. salaries as dictated by demand and supply. Add to this the fact that private schools often demand greater accountability from their teachers, you can see how they produce better results.

So the bottom line is this — The lakhs of public schools dotting the country are failing to provide their students with quality education and most households are now preferring to enroll their kids in private schools.

Now, none of this would have been a problem if private schools were simply allowed to flourish. But there are hurdles and the biggest hurdle is that private schools are not allowed to pursue profits, at least legally. The idea here is that greedy capitalists who only care about their bottom line won’t really want to spend on education. So you stop them from taking surplus money out of the institution and declare them as charitable public trusts. This way you can be certain that people running these schools are doing it out of goodwill and not out of aspirations to amass untold riches.

However, this is a moot argument since most private schools get around this obstacle rather easily.

Since you’re not allowed to take surplus money from schools, entrepreneurs simply employ a twin structure model. The first half of the corporate structure is the trust, in all its social-service glory, and the other half is a for-profit company which provides the cash and other services required to run the school. This allows for the transfer of money from the school trust to the company in the form of payments for services. Ahem, at a mutually agreed rate, of course.

Think Infrastructure. Running a school is a capital intensive affair. You have to provide for land, equipment, classroom, technology services, and school buses among other things. So companies simply buy these assets and lease it to the school for an annual fee. In other cases, aspects of the school’s operations such as deciding the curriculum, hiring the teachers, providing transportation to the students, and maintenance are taken up by the company, in exchange for a fee. So even though technically you can’t take surplus money out of schools, the trust can simply pay out most of the extra cash to another company, which of-course can pursue profit motives.

So we are not sure if the non-profit charade even does anything.

And once you get around this hurdle, private schools are often mandated to adhere to strict infrastructure norms. “Build it this way and offer that facility or we won’t recognise you”-the government says. And the low-cost schools that often fail to meet these requirements are sent closure notices. So if government schools aren’t doing well and the low-cost private schools are being sent notices, how on earth is education in India supposed to improve at all?

We don’t know. But there’s some need for serious consideration here because if we are going to celebrate children’s day with so much passion and vigor, we might as well start caring about what’s happening to our children, yeah?

Also, listen, we need to get the word out. There are so many people out there who should probably be following all this so that they can lead the discourse shaping India’s future. We need people to be better informed and we think our stories are as easy as it gets. So if you agree with us go ahead and share this story on WhatsApp. Ask them to subscribe :)

Plis :P

References

*Just under 80 per cent of the private-school-going children study in those private schools where the fee is below the government schools’ per-pupil expenditure — From Geeta Gandhi Kingdon’s Paper, “The Private Schooling Phenomenon in India: A Review”

**Children’s learning levels in private schools are no worse than, and in many studies better than, those in government schools, after controlling rigorously for the differing home backgrounds of the children in these two types of school. — From Geeta Gandhi Kingdon’s Paper, “The Private Schooling Phenomenon in India: A Review”