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 2.88
Rich 2 3.25
Higher Middle Income 1 3.52
Higher Middle Income 2 4.16
Higher Middle Income 3 3.81
Middle Income 1 3.17
Middle Income 2 2.78
Lower Middle Income 1 2.43
Lower Middle Income 2 1.89
Poor 1 1.46
Poor 2 1.35
Overall 2.82

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.

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1 comment to The Rise of Private Sector Education Service Producers in India

  • Ajay, This is an awesome post. If you are in Hyderabad, do come by for a launch of Prof. Tooley’s book at the Old City on Dec 10th. I could give you more details if you share an e-mail address.

    Separately, one of the big issues with these private schools (whom my company works with) is transparency and inadequate information about both learning levels and business aspects. It is this that allows these enterprising schools to be a sitting duck for the government. Thoughts?

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