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TECH TALK: Education and Reservation: Atanu Deys Primer (Part 5)

June 2nd, 2006 · No Comments

Education matters. Observe the correlation between indicators of human welfare and education levels: they are positively correlated. The causation appears to be circular. Educated people have greater wealth and incomes, and can thus afford more education, and therefore have higher incomes, and so on. Aside from its instrumental role in delivering economic prosperity to individuals and societies, education is an end in itself.

The Indian education system is inadequate. Severe capacity limitations allow only around 6 percent of the estimated 120 million in the age group 17-23 years to attend college. At the very minimum, the undergraduate level capacity has to increase several hundred percent for the nation to join the ranks of the developed nations and to compete in this post-industrial age. Policies which engineered the shortages in the first place continue to apply. Instead of the needed massive capacity increase, the government intends to increase the capacity only by 10 percent by 2007.

The government does not allow free entry of private investment into the education sector. Changing that policy is the most critical first step to solving the problem of capacity constraint because the private sector will step in to fill the gap between demand and supply. Is there any support for this assertion? Yes, indeed in many developed economies, the private sector does a stellar job of providing higher education and does so while making reasonable profits. Even in India, the private sector steps in where it can. For instance, the proliferation of coaching classes and institutes is a market response to unmet demand. Policy changes will allow the private sector to enter the education sector and equate supply to demand.

The anticipated objection from the ossified socialistic mindset will be the predictable: “What about the poor? They cannot afford the high fees that private colleges will charge. Therefore we cannot allow private colleges.” The response is simple: the high fees is a result of the limited supply. If private investment were to be allowed, the supply will increase and competition will reduce the prices to levels that are “affordable.” What affordable means is that the sum of the benefits of the education will exceed the cost of the education. And those who are unable to pay for the education up front, they can be given a loan which is repayable once the person is employed.

Higher education needs no subsidies because the market mechanism is sufficient to provide an adequate supply. The same cannot be said about primary and secondary school education: they have “public goods” characteristics and thus markets fail to provide the socially optimal quantities. The sufficiently poor cannot afford basic school education and therefore need subsidies. There is a role for the government to help level the playing field for all segments of society regarding basic schooling. By ensuring equality of opportunity at the basic school level, all students irrespective of their origin will have a fair chance at going on to college level education.

The education system in India is poor by design and inadequate to meet the needs of the economy my policy choice. It can be and must be changed if the country has to develop. The recent conflict between students and the government of India over quotas and reservations is an indicator of the problems that plague the system. Only by striking at the root cause of the problem will all the symptoms disappear. Will those who control the present system for their own personal gains be willing to let go for the greater good? I hope for the sake of the beloved country that it comes to pass. Else we are all doomed to a miserable future.

Next Week: Education and Reservation (continued)


TECH TALK Education and Reservation+T

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