The Capitalist | Budget’s ominous silence on the education front

The Capitalist | Budget’s ominous silence on the education front
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First Published: Wed, Jul 08 2009. 09 25 PM IST

India desperately needs upgrade and better management of school education. Ahmed Raza Khan / Mint
India desperately needs upgrade and better management of school education. Ahmed Raza Khan / Mint
Updated: Wed, Jul 08 2009. 09 25 PM IST
Finance ministers are good at finding new ways to collect money from people. But they often forget to allocate money to the causes for which the money was raised. Education has been one such casualty in this Budget.
India desperately needs upgrade and better management of school education. Ahmed Raza Khan / Mint
For the past few years, taxpayers have been paying an education cess, which goes into Sarva Shiksha Abhiyaan (SSA), the government’s universal education programme. The rules to gain access to these funds are obscure and often unlinked to any certifiable quality standards. And organizations that know how to grease the wheels of governments often manage to extract money efficiently, and sometimes even surreptitiously, from the SSA corpus.
But more ominous is the silence of the present finance minister on giving investments in education a fillip, considering that even government funds are available, at least on paper.
Moreover, looking at the appalling standards of education in schools, some of these funds could easily have been used to ensure improvement of educational standards at primary and secondary levels. This is of critical significance because no amount of money poured on higher education can undo the harm done at the primary and secondary stages of education.
True, education is a state subject. But the finance minister could have allowed a fiscal incentive to encourage private investment in education, subject to their meeting academic standards decided by a central body. Education would then still remain the prerogative of the state governments, but to avail of fiscal benefits, the management of the institute would have to comply with national standards.
This would actually make local managements pressure their respective state governments to allow them to set up such educational institutions and also ensure that the profit motive is combined with academic goals.
India desperately needs upgrade and better management of school education. If this is not done, many of the few students who actually become graduates will remain largely unemployable.
As things stand, barely 3% of India’s population become graduates. Of these, barely 25% are employable. This is because colleges cannot undo the damage caused by the lack of quality education in schools. Moreover, politics has not permitted colleges and universities to detain more than 30% of the enrolled students. Even at school board examinations, state governments allow moderators and examination boards to grant grace marks and promote students who managed to get as low as 15 out of 100.
Unfortunately, without good education for the masses, India will never become a global power; not even an Asian power. You cannot run a world economy when only 0.75% of its population comprises employable graduates.
Round-tripping
Last week, the revenue department of the finance ministry put on hold a proposal by Japan-based Orix Corp. to invest in an Indian trust. The IL&FS Orix Trust, which bought 2% stake in India’s Multi Commodity Exchange (MCX), was to issue units to Mauritius-based Orix-Mauritius Trade Winds Investment Co. The move was unusual because seldom has the finance ministry questioned any deals by Infrastructure Leasing & Financial Services Ltd (IL&FS) or its affiliates.
News reports appearing on Vccircle.com said that the IL&FS-Orix proposal takes advantage of the India-Mauritius double taxation avoidance agreement, which can be called round-tripping. This is a phrase which refers to capital that leaves a country and is then reinvested in the form of a foreign direct investment.
The innumerable deals that IL&FS has with Orix could have triggered such a worry. In any case, the Companies Act in India, too, does not allow money that has been invested by one company into another to come back from the other company into the first company.
According to these reports, the Foreign Investment Promotion Board, the government agency that clears foreign investment into India, has therefore deferred the proposal. IL&FS Orix Trust still has to register as a venture capital fund with market regulator Securities and Exchange Board of India, add these reports, and does not have any foreign equity participation.
The investment in MCX was done by IL&FS. IL&FS spokespersons were not available for comment.
This development comes on the heels of IL&FS’ plans to raise, through IL&FS Investment Managers Ltd (IIML), additional funds for city infrastructure in 2010, according to a statement to ‘Reuters’ news agency made by Archana Hingorani, chief executive, IIML. The firm manages $2.5 billion (Rs12,225 crore) and has interests in real estate as well.
Better public-private partnership structure
The structure of public-private partnerships (PPP) has come in for a great deal of criticism lately. There are charges of state and Central governments signing deals for partnership with parties without inviting many bidders. Moreover, most PPP projects turned out to be more expensive that those awarded under the international competitive bid norms promoted by the World Bank.
In an attempt to streamline such irritants, India’s cabinet secretary issued new guidelines for PPP projects where the private partner would hold at least 5% of the project cost as his equity stake in the venture. This would mean that, given the minimum equity-debt ratio of 1:2, the private party would have to hold 15% of the venture’s equity. The lock-in period is two years.
If the equity debt goes up to 1:4, it would require the private party to hold as much as 25%. However, the two-year lock-in period is far too small a period because most infrastructure projects have a minimum life of 15 years.
Would it not make sense to insist that the award would also require the private party to maintain it for at least 15 years? When backed by proper bank guarantees, this measure could prevent the private firm from making substandard roads and other projects. Unfortunately, this loophole could make such PPP projects even more expensive for the government than the conventionally awarded projects.
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com
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First Published: Wed, Jul 08 2009. 09 25 PM IST