Archive for October, 2009

Book review – India After Gandhi

Just finished reading India After Gandhi by Ramachandra Guha, and loved it! In retrospect, it is surprising that we weren’t taught post-independence history at school… India After Gandhi: The History of the World's Largest Democracy My own exposure to last fifty years of Indian history has been through fragmented accounts (through books or otherwise) of specific issues. This book was a revelation in putting it all together.

More than anything, it made me fall in love with India again. In spite of all the imperfections, the very survival of this country is creditable – in fact, perhaps, a black swan outcome. The book traces back the beliefs and convictions that made it so, with due recognition of the failures that happened along the way and continue to happen. Guha concludes that the idea of India as a nation belies all conventional notions of what makes a nation (common values, language, religion and the likes) and by itself offers a model of what nations of the future may be held together by – not the least the inherent plurality and contradictions within it.

While this is claimed as history of India, it is really a political history – but a good one. I am glad the author resisted the temptation, almost till the end, to broaden the coverage to other fields like business and entertainment! What would have been great is to get a deeper view of the changes in society over past fifty years – would have provided a great context for what was driving politics. In any case, a must read.

Project Gurudakshina: Providing Free Education to all

Neither the Government nor the private sector can build capacity and infrastructure to fulfill the future needs of higher education in India and simultaneously provide quality education affordable to the poor. The ancient system of Gurudakshina can be adapted in modern times in the form of a transparent “future education tax” system. This will allow private as well as state players to provide affordable education while sustaining themselves without the need for Government funds or charities.

1. Higher Education in India: Drawbacks of Current Approaches

Providing affordable and high quality education to all Indians will require not only massive capital investments on infrastructure but also large amounts of spending on a sustained basis. The investments may come either from the Government or from private sector. There are two major issues that need to be addressed – accountability and returns on investments (not in the sense of capital markets).

Accountability in Government spending requires that the money spent for this purpose does not leak to reach corrupt hands. It also requires that the money is invested in avenues relevant to the present and future needs of the society, and the quality of education provided is commensurate with the amounts of investments made. Accountability in private sector requires that the capital employed ends up actually building the required expertise of students from all sections of the society without any discrimination, including those from the poor economic backgrounds. It also requires that the system of education is holistic and young minds are enabled to lead healthy, happy and meaningful lives.

Return on investment in government spending needs to ensure that the limited amount of public money spent has the maximum impact on the well-being of the nation. For example, one needs to evaluate whether spending public money on establishing an institution of excellence will bring a more benefit to the society as compared to spending the same amount of money on many vocational training institutes in the poorest of the poor neighborhoods.

Private investments on any endeavor searches for a return on investment as seen in capital markets. While the need of private investment in Indian educational sector cannot be denied, ensuring quality education and accountability while providing reasonable returns on investments remains a big challenge.

The Government and charities can provide affordable education accessible to all sections of the society. However, it is hard to garner resources needed to educate a nation of 1.2 billion people of which more than sixty percent are illiterate. On the other hand, the private sector has the potential to invest the resources needed to educate the entire nation, its return on investment constraint ensures that the education is inaccessible to economically backward sections of the society which constitutes more than seventy percent of the nation.

2. A Radically New Approach to Solve the Problem

It is possible to address the issue of capital investment, sustenance, affordability and accountability by some innovative thinking. The Yashpal committee report is a radical first step in this direction. It should be augmented by some more steps as outlined below.

2.1 Decentralization by giving freedom

A well accepted principle in design of any mission-critical system is the absence of a single point of failure. This principle is primarily responsible for the success of Internet where a distributed set of routers exchange data packets in a coordinated fashion. If some of the routers fail (which they inevitably do), packets can still be transmitted using the other routers.

In the same way, for success of our educational system we should not have a single point of failure. A mistake by small group of people (either intended or unintended) should not lead to any significant loss for the entire nation. Decentralization and distributed decision making is the key in achieving this goal. Autonomy, coupled with low cost of entry for educational institutions will encourage a large number of schools and Universities to be established and thereby decentralizing the decision making. Let a thousand flowers bloom — even if some wither, the garden can still look beautiful. The Yashpal committee report has already identified the importance of academic as well as administrative autonomy for our educational institutions. However, the cost of entry, finances required for their establishment and sustenance is left to be addressed by the proposed National Commission for Higher Education and Research (NCHER).

2.2 Sustenance and accountability by Gurudakshina

The private as well as the Government institutions can be made self-sustainable by the ancient concept of “Gurudakshina”. In ancient times students used to pay the dues after completing their education, which was generally offered for free. The dues paid were variable, and depended on the abilities of the student. In the present context, a student may be allowed to pledge a fixed fraction of his/her income in lieu of the fee, boarding, lodging and other education related expenses. This ensures that once admitted to an institution accepting Gurudakshina, the students have the option of getting free education in its true sense (i.e., all the other costs including boarding, lodging, meals, recreation etc. are taken care). The wealthy may choose to pay the fee upfront instead of pledging their incomes. Those who are very confident about their future financial success, and do not wish to part with its small percentage, have the option of taking loans and paying the fee and upfront.

The Gurudakshina is to be paid directly and transparently to the educational institute that provided the education. It will be a mistake to have direct involvement of Government bodies in collection and distribution of Gurudakshina. Three model of implementation come to the mind — (a) Contractual obligation on the part of students to pay for a fixed fraction of their incomes (b) Fully voluntary system of Gurudakshina payments and (c) Tax “incentivised” or tax-neutral system of Gurudakshina. Each of these models have their own benefits and drawbacks.

2.2.1 The legal contract option

In this option, the students sign a legal contract pledging a fixed percentage of their future incomes to the alma-mater. For this option to work, firstly it must be legally viable to have students sign a contract where the exact payment amount is not known in advance. If the current laws do not permit such a contract, they need to be amended to support Gurudakshina.

Secondly, tracking and enforcing individual contracts in a country like India, seems like an insurmountable challenge. However, it is possible to address all the issues with the use of information technology and little help from some Governmental and industrial bodies.

The payment system can be integrated by the proposed unique national identification number, income tax permanent account (PAN) number and the NASSCOM’s national skills registry (NSR). NSDL, which is already involved in the PAN number and NSR initiative, can use its expertise to easily implement a transparent payment system. If a graduate evades Gurudakshina payments, the NSR entry of the student should reflect this, thereby raising questions about his/her integrity in the employment market. Given that the Gurudakshina focuses on institutes of higher education, which are expected to produce tax paying professionals for the services industry, the evasion of Gurudakshina will be difficult.

Integration with NSDL will also open the doors for trading the Gurudakshina contracts in the financial markets. This will give investment opportunities to the investors in the education sector, without the hassle of managing and running educational institutions. In addition, this option will lower the entry barrier for newer educational institutions. These institutes will not need to wait for a long time before sizable Gurudakshina income starts flowing in. It will be possible to generate immediate revenues by selling the Gurudakshina contracts in the financial markets which may act as a substitute for the fee. The financial institutes will be able to price the contracts based on the placement data of the institute and the market trends.

2.2.2 The option of voluntary contributions

In this model, no contracts are required. However, students are expected to contribute to their alma mater on moral grounds. Such a model has been around for a long time. The ancient concept of Gurudakshina was fully voluntary and was followed only due to the ethics of the times. Instances of exemplary Gurudakshina contributions are available in the Indian history. Even in the modern times highly reputed Universities in the USA such as Harvard University, Yale University, Stanford University have built up very large endowments primarily due to the voluntary Gurudakshina contributions from the alumni.

In the Indian context, this model is only applicable to the Institutions that are successful and well-established. Examples include the IITs, IISc, AIIMS and other premier institutions. It will be very difficult for any new educational institute to sustain itself fully only on the basis of Gurudakshina contributions.

2.2.3 Voluntary contributions with tax credits

The simplest option is to make Gurudakshina contributions exempt from tax. The IIT-Bombay heritage fund already operates under such a tax incentive. However, such an incentive is not likely to be sufficient to generate enough revenues for the educational institutions, especially the newer ones without a proven track record and strong alumni strength. The ideal situation will be to give a tax credit equal to the amount of Gurudakshina paid. This will make Gurudakshina revenue neutral to the alumni i.e., paying Gurudakshina will not have any financial impact on the payee. However, an alumnus gets the flexibility of allocating a part of his/her taxes either to the Government or to the educational institute. It is likely that the money will go to the system where it is better utilized.

Tax credits may create some tax loopholes that will need to be carefully examined and plugged. Another option is to give partial tax credit (say 80%) for Gurudakshina contributions. Thus, the alumnus will need to spend some of their income in order to pay Gurudakshina. However, the real contributions will multiply. By foregoing one Rupee for Gurudakshina an alumnus will contribute five Rupees to the institute (under the 80% tax rebate rule). To avoid revenue loss to the Government, the tax credit for the Gurudakshina contributions may be capped (say up to 10% of the income or an absolute fixed amount).

2.2.4 Discussion

Some people may view Gurudakshina as an unfair charging mechanism, especially if legal contract option is considered. The question: “Why should some people pay more money than others for the same education (or why should people who work harder be penalized)?” may arise in many minds.

Gurudakshina may be offered as an option in lieu of the fee and boarding expenses. Students who are capable should be free to pay the fee upfront. In addition, the Gurudakshina option should be make available to everyone without any discrimination. This will ensure access to education to even the poorest of the poor. The people who had limited resources when they started their education should not feel bad in paying more Gurudakshina if their education enabled them to earn more than others.

Gurudakshina should be viewed as an education tax system, with the added feature of transparency and fairness. Firstly, unlike the present system of “tax-and-allocate”, which taxes everyone including the poorest (in the form of various consumption-linked taxes) to support a few (containing rich and poor alike), the Gurudakshina system only taxes those who avail the facility of education. Secondly, the allocation of the tax to the educational institutions is not done in a centralized manner by a small group of people (often prone to incompetence and/or corruption), but in a truly decentralized manner by the actual stakeholders of education — students in consultation with their families and well-wishers. It is likely that good institutions will attract better students who will be successful in careers and pay back to their alma-mater.

Another feature of such a system is that an institute may be allowed to set any fee as long as it provides the option of Gurudakshina without any discrimination to every student it admits. This will enable private as well as Government institutes to raise resources by charging a higher fee and by ensuring that their alumni enjoy a prosperous career. These resources may be utilized for improving the infrastructure and quality of faculty and staff.

The concept of Gurudakshina automatically ensures accountability on the part of the educational institutions. It a student is unsure of the quality of the education provided by an institution he/she is more likely to avail the Gurudakshina option, instead of the fee option. Thus, institutes will need to build an impressive track record using which they can charge a high fee and also ensure that the students are employable after completing the study and have a successful career in the long run. All the institutions accepting Gurudakshina need to carefully evaluate every paisa they spend, since it needs to be recovered either through the fee (which cannot be too high or else the students will pick the Gurudakshina option), or through the future income of their alumni. Such institutions do not need elaborate inspections or approvals from authorities. Instead, it will be sufficient to bring these under the ambit of the right to information (RTI) act, using which the citizens and groups can gather all the information they need to carry out the evaluation of the quality of the institution. Instead of re-evaluating and/or shutting down (a process which is prone to favoritism and corruption) the deemed universities and educational institutions of questionable quality, it might be better to leave this decision to the people by enabling them with information (under the RTI act) and giving them the Gurudakshina option. It will no longer be viable for these institutions to charge high fee without providing education of commensurate value.

2.3 Expansion by resource redeployment resources and private participation

The Government can also transform some of its successful institutions (such as IITs and IIMs) by giving them complete administrative and academic freedom (as envisaged by the Yashpal committee report), including the freedom to charge high-fee while giving the Gurudakshina option to all its students. At the same time it can ensure accountability by withdrawing its financial support. In this way these institutions may be given an opportunity to not only to stand on their own feet but also to run with all their vigor and reshape the educational landscape in the country, without shunning their social obligations. The finances freed up may be used by the Government may be used to incubate newer institutes. The private entities may also be able to provide education without charging a fee while still providing profit opportunities to the investors.

2.4 Regulation

While Government may not need to carry out inspection, its role remains vital to the success of the program. It needs to ensure that all the disputes in this matter are resolved speedily. It needs provide a reasonable ceiling on the percentage of income and the number of years Gurudakshina is to be paid to avoid excessive exploitation. Such a ceiling may be derived by evaluating the cost of education and the incomes of people.

The Government also needs to prescribe broad structures of various programs (e.g., four year undergraduate course, one year vocational training course, diploma course etc.). In addition, it should provide certain services such as nationalized tests (as suggested by the Yashpal committee), ensure fair, transparent, inclusive and non-discriminatory merit-based selection procedures. All the educational institutions may be required to compulsorily publish some vital information (placement figures and salaries, faculty profiles etc.) on their web-sites and application forms, in addition to being brought under the right to information (RTI) act. The Government should rate all the institutions based on well-defined criteria and make the information widely available. It should also devise various incentive schemes to encourage the institutions to grow into full fledges Universities covering all the disciplines of education as recommended by the Yashpal committee report.

2.5 Governance

The ultimate stakeholders in an educational institution are its students, faculty members, alumni and the society at large. In many western nations, a large part of financial endowment comes from alumni contributions who feel obligated to pay back to the society and the institution that provided them the education. Such a culture is not prevalent in India at the moment, primarily because of lack of transparency and accountability. Bringing these institutions under the collective governance of distinguished alumni, eminent faculty and other eminent members of the society will not only improve transparency and accountability but also nurture involvement from students and teachers which will go a long way in ensuring that these institutions strive to provide quality education which is relevant to the needs of the society. Institutions established by private players may operate under a build-own-operate-transfer scheme under which they will be required to hand-over the management control to the ultimate stakeholders of the education within a prescribed time-frame.