On development and growth of private markets

The conventional wisdom is that with the right kind of regulation, markets can respond to demand in reasonably quick time and deliver good quality service. As the cliche goes, entrepreneurial energies should be released from the shackles of government regulation. And all will be well! 

But this narrative endures despite little evidence and also numerous evidence to the contrary. 

Ashok Thakur and SS Mantha have an excellent summary of the evolution of India's higher education and the challenges facing it.  

Private entrepreneurs took the lead to meet the growing demand of the country in technical education in the mid-Eighties, but with little idea of the subject. As a result, the faculty of these institutions drove the agenda of their management — and sometimes their own. When the management’s agenda entered academic bodies of various universities, the first casualty was the curriculum. Important courses... were the first to be jettisoned since they were both tough to teach for the teachers and tough to pass for the students. Subjects like materials, applied physics and thermodynamics became dispensable. Several universities merrily revised their curriculum at the expense of these courses. This softening of subjects coupled with unfettered expansion in the early and mid-2000s, though it ensured that everyone who aspired to technical education could find a seat commensurate with his/her abilities, resulted in real dilution of the overall standards in the country. At its peak in 2014-15, AICTE-approved institutes had almost 35 lakh seats, mainly due to the increased employment opportunities in the country. However, a series of reports by this paper in December 2017 revealed no takers for at least 51 per cent of the 15.5 lakh seats in 3,291 undergraduate engineering colleges in 2016-17. These reports laid bare the regulatory gaps, poor infrastructure, lack of qualified faculty and the non-existent industry linkage that contributed to the abysmal employability of graduates from most of these institutes.

Some consolidation is bound to happen in every expanding system, but that also calls for intelligent interventions to connect with the available employment opportunities if the fruits of expansion are to be enjoyed. Since 2015-16, at least 50 colleges have closed each year and this year, AICTE approved the closure of 63 institutes. However, 54 new colleges were approved for the academic year, 2021-22 in backward districts. Similar statistics rule every year... Not a single industry body, be it CII, FICCI or ASSOCHAM has managed to effectively inform the education planners on the growth in different employment sectors. Nor has the government taken any tangible steps to set up an independent body to advise AICTE on this vital aspect. In the absence of any credible information on demand side numbers, investments made by institutions will only be based on perception...

Lack of adequate number of teachers, lack of quality in those available, inability of the management to make adequate investments in a dynamic environment, lack of employment opportunities, shelf life of skills coming down with every technology-related intervention and a constant experimentation with curriculum have all been the bane of quality in technical education... The corrective measures for these shortfalls are technology intensive, are experiential, and need investments in teaching. Colleges are unwilling or not in a position to make those investments resulting in serious decline in quality... A constant fiddling with the curriculum, reducing total credits, giving multiple choices in the name of flexibility, dispensing with mathematics and physics at the qualification level, teaching in local languages may all be good arguments, but one must assess their utility and their effect on technical education in the long run. An IT-heavy curriculum in every specialisation is not called for. Reducing total credits has not only reduced the rigour of engineering education, but also meant loss in jobs for several faculty streams. National pride may be non-negotiable, but then will teaching in Marathi or Tamil increase employment opportunities besides causing several pedagogy and copyright-related issues?

There are some important takeaways from this.

1. Development and growth takes time. From supply of qualified and trained teachers to support staff, systems for accreditation and monitoring, and even the numbers of students who meet the qualifying norms without any dilution, the requirements to support expansion of the market takes time. If the time is compressed and growth becomes purely driven by market considerations, then, especially in a large and complex (from political economy) country like India, it's inevitable that norms and standards get compromised and quality suffers.

2. The inherent nature of market participants is to maximise returns. No matter all theories on repeat games or signalling that are supposed to discipline and incentivise markets, the innate preference to maximise profits prevails when the rubber hits the road. This is especially so in large countries like India. There are far too many examples of deregulated markets either generating sub-optimal outcomes (airlines, telecommunications etc) or failing to create markets (solar cells etc).

3. In the circumstances, the nature of regulation has to go beyond the minimalistic approach of putting in place enablers and letting markets take over. It has to also involve disablers to market abuse and manipulation that seeks to maximise profits by externalising costs. Regulation will have to be reasonably intrusive. 

4. The point that supporters of markets make about the need for good regulation for markets to work is a bit like physicists assuming frictionless surface or economists assuming rational human beings. If the assumptions are unrealistic, the outcomes cannot be realised and it's prudent to avoid the course of action. In this case, especially given the weak state capacity, effective regulation (of the reasonably intrusive type) becomes impossible.