The Centre plans to allow the (for-profit) private sector to set up educational institutions and tap the capital market, thus aiming to plug the funding gap in the education sector. In this regard, the Human Resource Development (HRD) ministry has asked Max India Chairman Analjit Singh to prepare a feasibility paper.
HRD Minister Kapil Sibal did so during a roundtable in New Delhi with Singh and other members, including Sunil Alagh, chairman of SKA Advisors, Hari Bhartia, co-chairman and MD of Jubilant Organosys, and Rajendra Pawar, chairman of NIIT.
Singh is one of the founder supporters of Indian School of Business (ISB’s) second campus at the Knowledge City, Mohali and has donated Rs 50 crore for the campus. Other founder supporters include the Bharti, Hero and Punj Lloyd groups.
MHRD sources confirmed that the government wanted to plug the funding gap in the education sector and the private sector’s participation is being perceived as one such method that could go a long way in bridging the deficit.
The resource gap in higher education identified by Planning Commission stands at Rs 220,000 crore, according to a recent Ernst & Young report.
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“At present, education in India needs huge funding and this cannot come from the central and state governments alone. We are discussing various options and private participation is an obvious one,” said an MHRD official. He, however, added that issues relating to for-profit privatisation of education were still being debated.
Economists say there is a larger “private” benefit in the higher education sector as it allows students to be placed in the employment market and thus it should charge accordingly and for-profit private players should be allowed in the sector.
The issues in permitting the entry of for-profit entities in education pertain to educational institutes being an “enduring” entity as compared to a company.
“A company can close today but if an institute shuts down, the future of students is at stake. Once the student enters the institution he is locked in and does not have a place to move out. We need to deal with such issues and this is being debated,” added the MHRD official.
Also, at present, profits cannot be taken out of the education institution and have to be reinvested. There is no concept of payment of any dividend to its members. Educational institutions enjoy all the privileges of charitable trusts, but are scrutinised by the Income-Tax Department and not Charity Commissioner, unlike limited companies.
Incidentally, the MHRD is also considering if to permit corporate houses to set up higher educational institutions — like multi-disciplinary universities and colleges — by floating a separate not-for-profit entity under Section 25 of the Companies Act 1956.
Currently educational institutions in India can be set up only by trusts, societies or companies, and it is not possible for non-profit companies, like industry associations, under Section 25 of the Companies Act, to set up institutions and get recognition from the University Grants Commission. In the primary and secondary education space, however, the Central Board of Secondary Education allowed companies registered under the Act to start private unaided schools last year.
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