Monday, January 3, 2011

Educational Reform

The announcement by the HRD Ministry on the possibility of educational institutions incorporating as Corporates under Sec. 25 of the Companies Act , fine as far as it goes sidesteps the issue of financial autonomy and reform for the sector.

To begin with there is nothing which stops any body from setting up a Section 25 company for research and or education. In fact there are instances of profit making research companies. Presumably HRD Ministry announcements will influence the accredition bodies and other regulators.

To what extent they will lower their guards is an open question. In the unlikely event of this announcement succeeding in a big way the existing education bodies will actually be placed under greater handicaps, not having the freedom of operating under the Companies Act.

The reason why educational institutes incorporated under the Societies Registration Act or the as Trusts under the Charities Commissioner, are not allowed to approach financial institutions like banks and term lending institutions for loans is not very clear.
It would make sense for example to stop them from using land given to them by the State as collateral or such other restrictions may be imposed. Also they may be restricted or borrowing from the public sector financial institutions and banks to ensure that the due diligence is carried out. But otherwise there are no obvious reasons for restricting borrowing for viable projects initiated by them.

It is interesting that MHRD has a one size fits all approach for example for deemed universities.It sis true that some institutions of this kind were not good, but many were. In fact in economics the Indira Gandhi Instititute of Development Research or in social work the Tata Institute of Social Sciences are both deemed universities, have a global standing and yet were subjected to the same inspection specially carried out by the UGC at the behest of the Ministry as all other deemed universities.
When a thousand institutions are inspected the quality of inspectors and reports tends to vary. A more selective approach was possible since the Ministry would have their annual reports and audited accounts but was not preferred. This led to adverse court rulings and much confusion amongst students and others.

The least that can be done is to let well managed institutions have greater financial autonomy including for borrowing for viable innovative schemes. It maybe noted that institutions engaged in foreign investment in education in India are not subject to such restrictions in their countries. Also they work in countries with a strong long term lending institutional structure in the private sector. Private sector companies investing in education will also have that freedom.

They will account for less than five percent of the student population. The dead hand of control will stifle the others and make them relatively worse off.

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