The supply-side problem in education

This blog has consistently held the view that merely addressing governance issues will not be enough to resolve India's numerous development problems. It requires addressing the fundamental requirements of massive capital investments and enhancement of the ability of citizens to purchase those services.

Conventional wisdom would have it that if certain conditions are fulfilled - local government administration is made more professional and accountable, effective enabling policy framework is established in infrastructure sectors, and there is more transparent regulation of standards in education or health care - then private investments would flow in.

A recent editorial in Mint pointed to the extraordinary 100% marks cut-off in a Delhi College for admission to undergraduate course and argued that it is a reflection of the lack of adequate number of quality colleges. Its prescription,

"What we need is more private and public investment, and the end of the licence raj."

In this context, an op-ed in the same newspaper on the same day highlights how hard it is to "run a high-quality, financially self-sustaining school". Regarding a school adhering to a basic set of standards - the number of teachers in school, their compensation, their professional development and that of other staff, improvements in curriculum, curriculum support material and infrastructure - he writes,

"The cost structure built up by the basics demands that he charges a price in the market (school fees), which is unavailable. The size of that segment of the market that can pay that fee is so small that the costs are unsustainable."

From the inputs side, a good school (one that fulfills all the aforementioned basic requirements) needs a market that can supply good quality teachers, effective school managers and principals, training facilities and resources, land and other infrastructure etc. And all this has to come at reasonable prices, so that demand is not choked off.

Unfortunately, the market for all these inputs is severely constrained in India. Good quality human resources, whether teachers or managers, are scarce and those available come with a rapidly increasing premium. Land and infrastructure in urban India is prohibitively expensive. The result is that schools are forced into compromising heavily on personnel and infrastructure standards.

Even assuming that an entrepreneur gets all this right, as the Mint op-ed suggests, he runs into the reality that only a small sliver of the population can afford the high fees that are essential to sustain such schools.

So we have the classic problem - it is costly to run a good quality school, therefore owners have to charge higher than desirable fees, which in imposes prohibitive entry barriers for most children, and in turn makes the school commercially unviable!