Opinion: Education and private sector

Differentiated demand due to quality and services like placement is fuelling growth of private enterprises in higher education

By Venkatanarayana Motkuri

Public investment in education, given its public good nature, is non-negotiable. It is justified as studies using an economic framework have observed that social returns exceed private returns on investment in education. Hence, public provision of education is the norm, especially in the context of the welfare state. However, the growing role of the private sector and thereby out-of-pocket expenditure/investment for the same is a cause for concern, especially from the affordability point of view.

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Two Factors

Two factors can be attributed to the growing role of the private sector in education: excess demand and/or differentiated demand. In other words, the private sector is either serving the excess demand or differentiated demand. Both are with reference to the supply of educational services through public institutions.

First, excess demand is where the demand for education exceeds that of what the public sector could serve because of its unreachability or limited capacity. That is, public institutions are not expanding in correspondence with the growing demand for education. It is a global experience and there is historical evidence for the same which shows that the private sector initially emerged to serve such excess demand. Such private sector involvement in education at large was initially with the motive of not-for-profit or non-profit.

Second, differentiated demand from the perspective of market economy is about product/service differentiation of enterprise(s) serving different (segmented) markets. For education, it means that parents of eligible students prefer private institutions over public ones due to various reasons. It could be actual or perceived quality of education or post-course completion services like placements.

In Telangana

Attendance rates in Telangana for both school and higher education are one of the highest in India. Educational development in the State during the last two decades has been associated with the substantial growth of private institutions, which appear to be largely serving the differentiated demand rather than excess demand. In school education, there are a total of around 42,000 institutions in the State, of which 11,000 are under private management, which accounts for 55% of total schools’ enrolment.

The remaining 31,000 public institutions accommodate the rest 45%. Public-private imbalance is such that the average size of public institutions for school education in the State is considerably lower than that of private. Low enrolment in many government schools is not due to the dearth of eligible student population in their catchment/vicinity but due to parents’ choice for private schools, even if such schools are away from their vicinity.

The mere presence of government schools in the neighbourhood couldn’t stop even rural parents from choosing private institutions, which are far away from their residences, bearing the transportation costs along with the school fees.

For higher education, it is a little different because the number of such public institutions in the State is limited as compared with the private institutions. Limited public institutions and seat availability lead to excess demand which is served by the private sector, particularly for professional and technical programmes/courses like medicine and engineering. Still, there is enough space for private institutions to meet the differentiated demand.

According to AISHE 2020-21, the total number of institutions for higher or post-secondary education in the State stood around 2,500, including university-level institutions, colleges and standalone institutions. Government institutions for higher education across disciplines in the State account for less than 20% of the total institutions but have a higher share (around 20%) in total enrolment.

Correspondingly, the average size of public higher education institutions (HEIs) in the State is slightly higher than that of private ones, unlike a huge gap observed at the national level. The average size of public HEIs in India by enrolment is two-and-a-half times higher than that of private ones. In Telangana, public HEIs enrolment is 1.25 times higher than private ones. Private institutions registering less enrolment is understandable because most of them have limited seat capacity and offer specialised courses.

Cost Factor

There are instances of government colleges, particularly those that offer conventional undergraduate programmes, having seats left vacant as compared with their seat strength. There are certain private colleges as well which struggle to fill all their seats. This could be due to cost factors. The cost factor in public institutions is almost nominal or nil but the quality factor is decisive for them. It implies a differentiated demand between public and private as well as within the private across classes of institutions based on their quality.

Both cases indicate that differentiated demand is an important factor in the growth of private enterprises in education. This differentiated demand is due to quality and other services like placement, especially for higher education.

Although demand for education in public institutions at the aggregate level in the State is found to be low, it does not mean all the public institutions in the State are experiencing the same situation. Certain public institutions have been garnering excess demand than they can meet.

For instance, it has been observed that residential schools and colleges along with model schools in the State get more applications than their capacity. It, in fact, reflects the quality and credibility of these institutions. These public institutions also demonstrate firmly that improving the quality of education can help retain their catchment with them, leaving to private only the excess demand, if any.