A small change in Maharashtra’s school policy has rekindled an old debate about for-profit education

Reports of a new Bill to amend an education law in Maharashtra have rekindled an old debate. On November 30, The Hindu reported that the state’s education department is polishing a Bill that is likely to be introduced in the forthcoming Assembly session. This Bill will add “any registered company” to the list of entities permitted to open private schools, unaided by the government, in the state. So far, only registered trusts and societies – essentially non-profit organisations – were allowed to do so.

The draft Bill to amend the Maharashtra Self-Financed Schools (Establishment and Regulation) Act, 2012, allows entities established under Section 8 of the Companies Act 2013 to set up schools. It does not represent a massive departure from what was already allowed by the state. Section 8 covers the establishment of “companies with charitable objectives” and requires such a company to “apply its profits, if any, or other income in promoting its objects” and prohibits the “payment of any dividend to its members”. These, too, are not-for-profit firms, at least in theory. But their inclusion in Maharashtra is being regarded as a “step toward commercialisation” and has alarmed some activists.

Pune-based consultant and activist Kishore Darak explained why he was worried. “There is at least a possibility of an opposition within [charitable] societies because the governing body is elected,” he said. “[But] Section 8 companies may not hold elections. Also, companies can pay salaries to their members which will be shown, not as profit, but as expenses. [Charitable] society members and trustees usually get only honorariums. This will lead to a greater proliferation of private schools.”

Darak further argued that while schools run by charitable societies and trusts cannot be shut down without giving notice of 18 months, there is nothing to stop companies from packing up suddenly.

Kapil Patil, elected to the Maharashtra Legislative Council from the teachers’ constituency, sees the proposed amendment in conjunction with the closure of a large number of government schools ostensibly due to the lack of demand, and the relaxation of infrastructure norms for the setting-up of private schools. “The current policy is to shut public schools and make it easier for private ones to run,” he said. “Night schools for students who worked during the day and posts for subjects like arts and sports have been abolished altogether.”

Maharashtra’s Department of Education has previously discussed the possibility of making schools for-profit to encourage investment and competition, and the Centre’s think-tank, the NITI Aayog, clearly believes it is time to abandon the long-held notion that education is a charitable, not-for-profit activity.

A charitable activity

The Indian government has long regarded education as a charitable activity, a stand reinforced by the Supreme Court through a number of judgements. In 2002, a seven-judge bench in the case between TMA Pai Foundation and Karnataka had in their judgement repeated that “education is essentially charitable in nature” multiple times. The apex court repeated that stand in a 2004 judgement in a case involving Modern School, Delhi, and again in a 2016 case from Madhya Pradesh.

Consequently, all state laws, including Maharashtra’s law for self-financed private schools, have permitted only different categories of not-for-profit entities to run schools. Although the proposed inclusion of companies and various public statements made by education department officials have stoked fears that this may change, lawyer Khagesh Jha pointed out that any new policy will be vulnerable at the outset and could be struck down if challenged in court.

But for a charitable activity, education has already proved to be a singularly lucrative one. This explains the massive proliferation of private schools in India. Data gathered by the District Information System for Education, the only centrally-maintained government database on schools, shows that from 2010-’11 to 2015-’16, the number of private schools running without government assistance increased from 1.93 lakh to 2.68 lakh.

Their sheer number and the size of the student population attending them – 7.46 crore as per the information system’s latest data – means that it is difficult to regulate them. The charity system, while providing a way for parents and activists to challenge moves like fee hikes in court, has been expertly manipulated. A former bureaucrat, asking not to be identified, explained how. “A company sets up a trust, staffs it with its own people and advances it money to set up a school,” he said. “The cost of construction is then recovered as payment for a variety of services.”

As Ajay Sangai of Jindal Global Law School put it: “The trust becomes a conduit for the circulation of money, a method to reinvest in different areas and avail tax benefits.” By law, moving money from the school to even the society or trust is not allowed in some states, including Delhi, but there is no transparency. “The trust model has not prevented schools from making money,” said Sangai.

For this reason, even policy-makers have suggested that the charitable façade should be dropped altogether and private schools should be treated as what most appear to be – businesses.

A reasonable surplus

Madhu Prasad of the All India Forum for Right to Education, an organisation staunchly opposed to the privatisation of education, has heard these arguments before. But she pointed out that the statutory restrictions are the only way parents can get relief. “Parents who choose to challenge schools can at least show the Acts [existing law] to argue that education cannot be for profit, there is space for that,” she said. “Making education for-profit would take that away and investors will want their investments protected.”

This, in turn, has implications for the two biggest groups involved – teachers and students.

Both Kapil Patil and Prashant Redij, principal of a government-aided school and a member of Mumbai Principals Association, worry that an increasing shift toward privatisation and deregulation in Maharashtra will mean low pay, increased exploitation of teachers and even higher school fees.

In the United States and the United Kingdom, private schools are given far more freedom than they are in India. In the UK, independent fee-charging schools are even exempt from the common curriculum that state schools follow, but, according to the Independent Schools Council, they teach only about 6.5% of the country’s school-going children. In the US, that figure stands at 10%. In India, private schools teach over 44% of the country’s school-going children. Given this large number and the shrinking presence of the government in the field of education in most states, both parents and teachers have sought state intervention in the business of private schools.

In the TMA Pai judgement from 2002, constant court battles over school fees led to the Supreme Court allowing schools to collect what it described as a “reasonable revenue surplus” without going into details.

So as Darak explained, fee hikes are assessed almost exclusively in the context of what the school authorities have spent, and over the past few years, several states, including Maharashtra, have enacted laws with uneven results.

Lawyer Kamal Gupta, who represents several private schools as well as the Action Committee for Unaided Recognised Private Schools, an umbrella organisation of private school associations in Delhi, said that even if for-profit concerns are legally allowed to run schools, they will be subject to the fee laws as well.

“But there is no consensus on what a reasonable amount it,” said Sangai, indicating why implementation may become more difficult. “Also, if making profit is legitimised, it will be difficult to regulate profit.”

More transparent?

But on the other hand, those in favour of allowing for-profit schools pointed out that running schools as businesses will necessarily make them more transparent. “You will have to comply with the far more stringent provisions of the Companies Act, be taxed more, submit accounts and there will be far greater scrutiny,” said the former bureaucrat. “Setting up a school with Rs 15 crores without any return on investment is not a sustainable model. If you allow a reasonable rate of return, ensure teachers are paid, it should work. In education, profit-making and profiteering have been conflated.”

Gupta, the Action Committee’s lawyer, agreed. “Their [for-profit schools] filings with the Registrar of Companies will be open to public scrutiny and will be governed by the laws laid down by the Supreme Court that allow a ‘reasonable surplus’ but not profiteering.”

SK Bhattacharya, who heads Action Committee, believes it will also “bring more investment and competition will simply weed out the schools that do not do well”.