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Friday, November 27, 2009

The rise of private sector education service producers in India

In India, in the fields of health and education, an impressive rise of a private ecosystem has come about. In these fields, the State has tried hard to get back in the game, particularly after the UPA won power in 2004. But the unwillingness of the State to undertake deeper reforms has meant that ultimately, government facilities generally work badly. CPI(M) ideologues send their children to private schools.

The CMIE Consumer Pyramids data shows the fraction of household expenditure on school/college fees. Households that spend nothing are those that have no children, or those that are fully served by government schools/colleges. The CMIE data separates out expenditures on stationery, books, private tuitions, etc., so what is observed here is just the pure payment to the school/college. It shows:

Income class
Fraction of expenditure
Rich 1
Rich 2
Higher Middle Income 1
Higher Middle Income 2
Higher Middle Income 3
Middle Income 1
Middle Income 2
Lower Middle Income 1
Lower Middle Income 2
Poor 1
Poor 2

The overall average expenditure per household in the survey is Rs.86,228, so 2.82% of this is Rs.2400 a year or Rs.200 a month. This, of course, reflects a split between some households who use government facilities (who spend nothing) and others who use private facilities (who spend more than Rs.200 a month).

An incipient academic literature shows that learning outcomes from the weakest private schools broadly replicate learning outcomes from government schools even though the resource outlay of government schools is 3x to 10x bigger. If this evidence was correct, private schools would not have gained market share. Poor people have been spurning government schools with zero tuition fees and free meals, and choosing private schools where significant payments have to be made. There are two possible explanations: either the parents are not understanding how best to take care of their interests, or the econometricians are not understanding what parents are thinking. I am biased in favour of the latter explanation.

Like all incumbents, public sector producers of educational services resent competition, and particularly competition that is gaining market share. With the Right to Education Act, the government has armed itself with new powers to force `unrecognised schools' to close down. This is similar to the Department of Posts trying to prevent private firms from carrying letters. This is going to shape up as one of the most important battlegrounds in Indian education. So far, the broad story was that the government floundered and spent ever larger sums of money, but did not prevent `unrecognised' schools from coming up. Now it is shifting gears from category 3 ("State Production But Do No Harm") to category 4 ("State Production While Damaging the Private Sector").

As Lant Pritchett has emphasised, countries like Chile which have a fully competitive framework, where parents choose between public and private schools, have a bigger market share of public schools as compared with India, where the main approach of the State is to pretend that private schools don't exist, or to try to force them out. This ought to trigger off fundamental rethinking about what we are doing in the government. This rethinking has not begun, and the customers are quietly voting with their feet, switching their children to private schools. Despite the huge increase in funding to public schools, the market share of private schools is rising every year.

In this setting, it is worth attending the School Choice National Conference 2009 which will be held in Delhi on 16 December. And, do read The Beautiful Tree by James Tooley.


  1. Govt funded schools in India are unnecessary except in the most remote areas where it might be unremunerative for a private school system to function. Unlike the post office where the network has a fixed cost, running schools are largely variable cost. There is no reason to support public funded education in schools or colleges in India or to favour it over private education which does very well around the world.

    If we aren't careful, the Indian school system could become like California public schools - ineffective and impossible to change because of strong unions.

  2. There is a strong body of evidence now emerging that the private "unrecognised" school sector provides in many cases, better services that government schools are able or willing to. While it is generally accepted that the State should have responsibility for ensuring basic education, it is not clear why this responsibility cannot include the use of non-State actors like these private schools that are definitely more accountable to parents, and in which teachers actually can be found in class. The questions of their being trained/untrained, etc are matters that can be addressed; there is no evidence to show that trained teachers in government schools perform significantly better than their untrained counterparts in unrecognised schools. A system that encourages private investment in education yet regulates it to make sure that it is not exploitative would in my view, give much better results than a system which compels investors to bend the rules in order to ensure a reasonable return.

  3. That should read "Amit Kaushik" not "SRF Foundation". Not sure why Google changed my used id here.

  4. The reason why government expense is higher is the salary which govt. gives to the teacher (of course mid day meals also but we should not count that as expense because it is a necessity for under privileged kids)whereas the teachers at private schools won't get such high salaries rather they prefer to have high churning rate among faculties. Now for well being of society government should provide education however with corrupt systems and huge population it is not easy for the govt. to implement so all felt the need of private schools. Many private schools has taken land and other facilities at a subsidized price by promising govt. to reserve seats for poor people, and it is evident that no poor person has ever been admitted in these schools rather these institutions earned huge some pf money from education. Govt. should tax these schools and use that money for well being of poor kids. One more important thing is the absence rate of faculties in government schools which should be checked by revolving head of institutions regularly and surprise field visit by government officials and local police and also by active participation of parents.
    Unrecognized schools exist to earn money from education, its true that they can provide faculties and facilities but a young mind and there parents at home can not compare it by any means. We should made govt. school teachers accountable for there deeds and govt must educate poor through media to report complain on faculties absence in classes.

  5. i have a solution to track the absenteeism in government schools - both faculty and students and at a extremely modest price. i had even given a proposal to the district commissioner, but the state-centre fight consumed it! and the noon-meal fraud continues. if only government can check that, they can save a few hundred crores and build better class rooms, better teaching aids, better schooling! Unfortunate.


