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Let me tell you about something that happened to me a long, long time ago.
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I was hanging out with some of my buddies at the Starbucks in Connaught place, when
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a tall, thin gentleman walked in.
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He wore what would today be called a Modi jacket over a finely tailored kurta and the
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tightest churidar known to man.
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He had a Gandhi cap on his head and he wore a pair of dark glasses.
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Despite this inept attempt at disguise, I instantly knew who he was.
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This was Jawaharlal Nehru, our dapper Prime Minister, out to see for himself what this
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fuss over Starbucks was all about.
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Nehru walked to the counter and I surreptitiously made my way behind him.
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The guy at the counter asked him what he wanted.
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Give me a Russiano, he declared.
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Uh, we don't have anything called a Russiano, the guy at the counter said.
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Would you like an Americano?
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Nehru looked all around.
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I stared at the ceiling where I discovered a lizard.
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Satisfied that no one could overhear him, Nehru said, Okay, give me that.
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The guy told him it would be two rupees.
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You gotta remember, this was 1947.
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And Nehru paid the two rupees with a high denomination five rupee note.
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The guy behind the counter said, Thank you.
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Two minutes later, a Starbucks barista shouted, Jawaharlal Nehru went forward to get his coffee.
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The man handed it to him and Nehru took the cup with a sneer on his face.
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The barista asked him, Hey, aren't you going to say thank you?
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Nehru looked at him with contempt and said, Why should I thank you?
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How dare you run this business for profit.
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Welcome to The Scene and the Unseen, our weekly podcast on economics, politics and behavioral
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Please welcome your host, Amit Verma.
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Welcome to The Scene and the Unseen.
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A long, long time ago, I can still remember, Jawaharlal Nehru said to JRD Tata, Never speak
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Now Nehru had selflessly served his country all his life and he believed that the profit
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motive was a bad thing.
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He thought that it was equal to exploitation.
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But while he was a great statesman in many ways, he was wrong about this.
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The story at the start of this episode illustrates that the American writer John Stossel in an
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old column of his asked his readers to think about what happens when they enter a cafe
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When they pay for the coffee they want, the cashier says, Thank you.
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When they get their coffee, they say, Thank you.
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Unlike our good friend Jawaharlal, Stossel calls us the double thank you moment.
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Both people said thank you because both people benefited from the transaction.
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And this is the crux of the matter.
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Every voluntary transaction between any two individuals benefits both people.
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Otherwise they wouldn't transact in the first place.
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Economists call this a positive sum game.
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Now think about what this means.
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This means that if you are driven by self-interest and the profit motive, you can only benefit
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by providing value to other people by making them better off in some way or the other.
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In other words, the profit motive is the surest guarantee of social service.
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Unless you serve other people, you cannot make a profit.
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And this is why Nehru was so wrong.
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His thinking, this distrust of the profit motive percolated down to the policy environment
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in early independent India.
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And it is one of the reasons why, through a panoply of crazy laws and regulations, the
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profit motive is effectively banned in education.
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I find this a travesty because allowing the profit motive to my mind is the only guarantee
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And to speak about this with me today is Parth Shah, who runs a Center for Civil Society
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in New Delhi and has been the foremost advocate for education reform over the last two decades.
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Parth, welcome to the show.
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So Parth, tell me what was the thinking behind banning the for-profit motive in education?
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I think it's a very important question to raise about education.
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And most people don't even think about that part of education.
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Quite often they are not even aware of the fact that there is no profit allowed in education
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I think there is no single law that bans profit in education.
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There are Supreme Court judgments over the years of various kinds, TMA Pai and many others,
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which talk about non-commercialization in education.
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Talk about that surplus is okay, but profit is not okay.
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And there's a fine distinction that they try to draw between surplus and profit, right?
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So there are Supreme Court judgments of those kinds, which put a sort of boundary around
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Then there are some states have a law that says that the education institution must be
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either a trust or a society and that is assumed to be non-profit.
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So it doesn't really say that education should be non-profit, it simply says that only trust
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and society can run education institutions, which are non-profit, so therefore education
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by default becomes non-profit, right?
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Then third component of that is the CBSE board, for example, requires that the affiliated
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schools should be non-profit, right?
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So all CBSE affiliated schools have to be non-profit.
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Similarly, I think ICSE board also has similar provision.
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IB, on the other hand, does not require that you have to be non-profit.
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So you could be in an IB board school and be for-profit, at least technically as far
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as board is concerned, even though obviously Supreme Court judgments will go against you
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and maybe there are some of these state laws would go against you, right?
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In our research, what we have found interestingly that Haryana is one state which allows for-profit
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education and there are few schools which have come up in Gurgaon, which are openly
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for-profit and therefore they have figured out a way that within Haryana you can be legally
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for-profit as far as state law is concerned and they affiliate with the IB board and therefore
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IB board obviously allows you to be for-profit.
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So that's one loophole in the system that does exist and some schools are able to use
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And is there therefore a difference in the kind of education provided in say Haryana
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and Gurgaon because you have this kind of loophole and elsewhere?
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I had to sort of judge that, that just because of the fact that there are two or three schools
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and I think there are not that many.
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And they are all very high fee schools, right, where the fees are in terms of five to six
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lakhs a year and so also they are not impacting the large part of the market.
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So I don't think there is an impact of that on the quality of education being delivered.
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Obviously these schools do very well, they are world class schools obviously.
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But they are at least openly for-profit which is what gives you some hope that is possible
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to sort of figure out a way around the system to run education at least schools for-profit.
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So tell me speaking as an economist, when you ban the profit motive or effectively ban
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the profit motive in any particular field, what do you expect to play out in that sector?
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How does it change the incentives and what are the consequences of that?
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One thing we clearly see and I have been here in Delhi since 1997, since CCA started and
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I have seen every year long queues for admission and there is a huge coupla around and tremendous
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stress that parents go through to get their kids admitted in the schools in Delhi.
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And this has been repeated every year since 1997 that I have seen myself, right.
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And you have to ask yourself why is that the case?
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Why are so many people not able to get into school year after year after year, right.
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There is no area of our life I can think of where similar situations exist, right.
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Even in case of housing, people who want to buy housing, willing to pay for housing are
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able to get their homes, right.
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So there is no area of our life except for education where you see the persistent shortage
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of seats in schools and therefore I remember a colleague of mine taking a three months
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break from work to get her daughter admitted to a good school.
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Wow, that's tremendous loss in value and productivity for parents.
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And this is just one example and there are lots of parents who and she told me that she
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actually ended up paying fees in three different schools because the schools she got first
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admitted were not her first choice.
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So but she had to make sure that at least that seat doesn't go away.
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So she had to pay admission fee and secure the seat in that school.
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Then one got admitted even that wasn't really her top choice.
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Third one is where she really got in where she finally was able to accept, right.
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And it's interesting, like I go to the supermarket and if I want to buy shampoo, I can find like
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50 different kinds of shampoo, dry hair, wet hair, itchy hair, non-hair even.
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But when it comes to schools, there's a massive supply shortfall and would you say a substantial
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part of that is because the incentives are skewed and if people can't set up a school
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for profit, why should they?
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And so that's one part of it that the access to capital is very limited.
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So people who are actually very good in say running schools, whose heart into that vocation,
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They will find it very difficult to start the school of their own unless they are independently
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wealthy and have the resources to buy the land and build the buildings.
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Because no one's going to fund them as a venture capitalist because there's no return of profit.
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They cannot provide that.
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So I think one thing that you see very clear example of that, and this is just glaringly
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obvious to anybody who wants to see it, that the non-profit requirement education has created
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this huge shortage, right.
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And so much suffering happens to parents and obviously to the kids in the result of it,
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People are unhappy with the schools they ultimately get.
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So that is very hard to even calculate what that means for society as a whole, very large
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number of children who feel that they are sort of stuck in a second, third rate school
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compared to what they would want to have.
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I think there's a huge social cost beyond the sort of economic cost of not getting right
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education and therefore not getting the right kind of labor force and all of that.
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I think when you begin to think about this, you realize how idiotic and how harmful this
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idea of non-profit in education is, right.
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So at moral level, people seem to feel that yes, that's the right thing to do.
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The moment you begin to look at the real world impact of this policy, you see that it just
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It's completely inhumane, unjust policy.
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And you hear the argument also from people that listen, education is a social service
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and it's something that the government should do.
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And they often say that if you're talking about private schools in the private sector,
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private schools are lower in quality, they charge too much and so on and so forth, which
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over the years you have, in fact, you guys have demonstrated convincingly is, it's just
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Can you elaborate on that a bit?
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So I think when people think about private schools, they think of usually the high fee
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private schools, DPSs and Basant valleys and international schools, right.
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But majority of the private schools actually are what we call low fee or budget private
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We charge anywhere between three to five hundred, six hundred rupees a month tuition fee.
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And this is where most of the lower middle class and even the poor now send the children
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The government schools are not living up to even their expectations, despite the free
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midday meal, despite the free textbooks and uniforms.
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And in Delhi, for example, they get two jerseys during winter and all of those things which
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Even after giving all of those things for free, government schools are not able to attract
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They all go into private schools, right.
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So that also is one aspect of this picture, that the government schools are not able to
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give away education for free.
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I mean, what does that tell you about the quality of a service that you cannot give
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away for free, not just free.
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You are giving a lot of incentives for people to even accept that service and still people
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are not willing to do it.
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So I think that's the other part of the education sort of challenge we have in the country is
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how the quality of government schools are and what we are doing or not doing in changing
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But the private schools, majority of them are low fee private schools.
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So by our estimate, almost more than 85% of the schools in the country are in that low
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In fact, I remember it was quite a revelation to me a few years ago when I read James Tooley's
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book The Invisible Tree and also I read studies by CCS which showed that children of very,
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very poor parents, even if they could go to a free government school, their parents chose
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to send them to a private school, which was low fee by our standards, but still a substantial
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amount for the parents simply because that's how they valued the education.
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So my question for you is all these low fee private schools, which are opening or private
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schools per se, even if they're not legally for profit, because there are so many obstacles
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to that, why do they open then?
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What are the loopholes?
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Are they just doing some kind of jugart to desperately, you know, because ultimately
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they do run for profit.
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I mean, that's why they would, they're not all just for out of philanthropy.
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How does the system work?
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I think for small low fee private schools, it's not really that much amount of money
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If you think about it, you have 20 students in a class, they're charging 500 rupees a
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month tuition fee, that's about 10,000 rupees a month that you're collecting from one class.
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Many of them have class one to five, so basically five classes, right?
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So total income for per month is 50,000 rupees, right?
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And through which they are paying for five teachers, you are paying for the building
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and rent, most likely renting the building, right?
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And little leftover money is pretty much what the owner gets, right?
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Just like any other entrepreneur.
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So I think at the low fee level, there is not really much of a problem in terms of running
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those schools and entrepreneurs are actually investing their full time.
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So they get a compensation from the school as a salary, the school would pay to a principal,
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For high fee schools, it's an issue because there's a much larger amount of revenue that
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And there are many models have come up, as you can imagine, we are quite ingenious in
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coming up with ways to beat the system.
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And so one of the common model which is being used is to establish a sort of for profit
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service delivery company, which will contract with a nonprofit trust and provide all the
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services and charge a fee.
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So basically you are siphoning in a way indirectly all the surplus or profit from the school
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to this service delivery company.
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And then company, of course, would distribute that profit to whoever is gaming the system,
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but there's a significant cost involved with that also, which is finally passed on to consumers
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and manifests in terms of not enough supplies, like the queues that you pointed out, moving
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away from the profit motive for a moment and just talking about education in general.
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If you had to identify the biggest problems with the way education is run in this country,
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So the same license Raj that we had in the industry, largely before 1991 and part of
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that we sort of abolished in 91 reforms exists today in education, right?
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So a study we have done in Delhi, for example, some time ago, we calculated about 36 different
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licenses that you need to open a school.
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That's actually far more today than the number of licenses you need to open a refinery.
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Just imagine that, right?
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A multi-million dollar project that you want to start, you need fewer licenses than opening
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But come on, Parth, the nation needs refineries.
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And so I think license Raj is one of the biggest culprit, right?
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And that's the reason why you see the most of the new schools are run by usually real
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The majority of them have some link with the politicians.
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If you ask what do they know about education that other people don't, they don't know
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much about education, but they know they'll have the connections to get the licenses,
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to get the processes working in their favor.
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And therefore education, which is a downside to license Raj system and the nonprofit, the
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people who are getting attracted to the field have no interest in education.
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They have interest in other things, right?
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And those are the guys who are running our schools and colleges.
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So go to Maharashtra, go to Karnataka, many of the states, most colleges are run by politicians,
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And largely because of the fact that they are the ones who can play the system of licenses.
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You and I just won't be able to succeed in that area, right?
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So that's a huge cause of license Raj.
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Just give an example, how is one way to think about economic costs, all of that, but the
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human cost is even far greater.
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So I remember giving a talk about education licensing system or regulatory system at our
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Mussoorie Academy, where we train our IS officers, right?
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So after I gave my talk, one of the new IS officers stood up with almost tears in his
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eyes saying that, you know, what I really want to do in my life is to run a school.
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I applied for a license in my town while I was waiting for the licenses to come through.
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I said, let's apply for IS UPSC exam.
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So in two tries, I passed the exam.
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I'm here as a trainee, I still don't have a license to open a school, right?
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The reason why he had tears in his eyes is that now, even if I get a license, my wife
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will not allow me to give up my IS job and go back to the town and open a school, right?
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That really made me think that he is a person whose heart is in running a school.
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That's what he dreams about every day.
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That guy would never be able to run a school.
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It would be impossible for him to give up his IS job now and go back and run a school.
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And that's such a tragedy that it is in this field that the state has become a barrier
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between those who want to serve society and those who would benefit from that and yet
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the state is a barrier in the middle of all that.
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So tell me, Pat, you've for almost two decades, as the head of the Center for Civil Society,
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you've constantly tried to bring reforms into the system.
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What are the obstacles to those reforms?
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What are the interest groups that benefit from the status quo?
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The biggest interest group is, I think, the bureaucracy and the teacher unions, right?
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The current system is designed to keep the power in few hands.
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And obviously, where there is a power, there is all the perks that go with it, right?
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I think bureaucracy, in a sense, is the biggest beneficiary and, of course, biggest obstacle
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to taking away or changing those rules of the game, right?
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The second big group is the teacher unions because they know that if you bring more competition,
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if you open the system, you remove the license raj, then their life would become tougher.
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They would not be able to just not show up for work, sign once or twice a month on a
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register and collect their salaries or even appoint contract teachers.
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So in many of the remote areas, the teachers who are appointed by the government don't
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They have a person in the village who shows up on their behalf at one tenth the salary
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that they collect from the public, in a sense, right?
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I think it's really the two groups of people who are the biggest opponent of any change
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And the third, and as we know, the Baptists and bootleggers, right?
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There are sort of NGOs who believe that only salvation for education is in a state-run
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So they are so committed to government-run, unified, what they call common school system
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where every child goes to a government school in the neighborhood, right?
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That they are very opposed to even existence of private schools, right?
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So my constant battle outside the government and the teacher unions is largely with the
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They are all well-meaning people, obviously.
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They all want well and good for the country and for the children of India, but very misguided
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about what would achieve that goal.
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So what gives you hope?
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I mean, these are such strong entrenched interest groups and often in government, government
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never grows smaller, it just grows bigger and bigger and bigger.
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So what is it that gives you hope in your struggle to reform education?
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I think hope is that people are finding their own solutions, right?
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And the system and the demand is so high, the challenges are so huge that no government
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is going to be able to stop people from solving their own problems, right?
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So these budget private schools that I talked about are actually what I call community schools.
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These are the schools open by people in the community.
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There's nobody coming from outside who goes to a slum area in a town and opens a school.
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Usually the guy who is living in that area, right?
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He sees the need, he sees there are people dying to get slightly better education, what
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government is offering them and then opens a school, right?
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In many cases, I've seen that guy who runs a Kedana shop in the Basti is also the guy
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who runs a school in the Basti, right?
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So there are community schools, there are people addressing their own challenges.
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I think that's the sort of biggest hope that despite all the might of the state, it's not
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Does the state allow them to exist or because many of them are illegal, does the state then
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But I think numbers are so large that it's becoming more and more difficult.
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One part of the, of course, good thing is we are somewhat of a democracy.
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So when a bureaucracy is striking hard on you, you can go to the politician and thereby
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buy some time and some peace for yourself, right?
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And so many of these schools are very well organized locally.
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So there are associations of these schools, which work with local politicians, also sometimes
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with the local bureaucracy to make sure that they are on the good side of the system, right?
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And that's how they survive.
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Obviously, they pay the bribes and all of that, that everybody does in the system.
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But I think that's one hope and our effort has been largely to support these schools.
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One effort of CCS has been to do advocacy on their behalf, bring attention to who these
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schools are, what they actually do, how well they perform, right?
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And help them to fight the system, right?
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So we go to high courts and supreme courts on their behalf, require that due process
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must be followed in closing them down if you want to close them down, challenge some of
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the rules under which they are getting closed down.
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So I think as long as we are able to keep these schools alive and as long as they can
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keep prospering and expanding, I think despite the system, hopefully we'll get slightly
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better education for the children of India.
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Parth, thank you so much for coming on this show, it was a pleasure talking to you.
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You think the episode is over?
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No, no, no, no, no, no, no, no.
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I didn't complete the story, I began at the start of this episode.
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The year is 1947, I'm sitting at a Starbucks at Karnat place and Jawaharlal Nehru is sitting
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in a corner sipping his Americano.
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Just then a lady walks in wearing a frilly skirt, holding a parasol that has a print
#
of the Union Jack on it.
#
Nehru gets up and they do a more and more social kiss on each side of the cheeks and
#
he holds her elbow, practically caresses her elbow as he guides her to her chair.
#
She sits down and just as she does so, I recognize her.
#
This is Edwina Mountbatten.
#
So Jawaharlal Nehru is having a secret rendezvous with Edwina Mountbatten at the Starbucks at
#
I decide I must get closer to the action to witness first hand what happens.
#
I surreptitiously order another coffee and then go and sit at the table next to them.
#
They are coochie cooing sweet things when Jawaharlal Nehru leans over and whispers something
#
She stands up and gives him one tight slap, FATACK!
#
Poor Jawaharlal Nehru grabs his cheek and starts sobbing as a manager of Starbucks rushes
#
He asks Mrs. Mountbatten, why did you slap him?
#
She replies, because he said to me, would you like to profit with me Edwina?
#
So what's wrong with that?
#
Asks the Starbucks manager, don't you know, said Edwina to him, profit is a dirty word.
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Next week, on The Scene and the Unseen, Amit Varma will be talking to Divanshu Datta about
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Digital India and the absence of privacy laws.
#
For more, go to sceneunseen.in.
#
If you enjoyed listening to The Scene and the Unseen, check out another show by IVM
#
podcast, Simplified, which is hosted by my good friends Naren, Chuck and Shriketh.
#
You can download it at Audioboom or iTunes.
#
Hi, this is Amit Doshi and I wanted to thank each and every one of our listeners.
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It's been two years since I founded IVM and it's been an amazing two years.
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We wanted to learn a little bit more about who is listening to our shows and so we put
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The survey is anonymous and we aren't going to be collecting any personal information.
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I would really appreciate it if you could take a couple of minutes out of your day and
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go to ivmpodcast.com slash survey and fill it out.
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Thanks and please keep listening.
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Hey, man, just help me out, man, I need some, I need some podcasts, man, I haven't had a
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fix in a week, just need some.
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Don't you worry about it, I got podcasts galore for you, man.
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Just go to ivmpodcast.com, you can also find us on Facebook, Twitter and Instagram.
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I'm going to check it out.
