As the new year begins, and the time for resolutions is upon us, I offer a single policy reform, which I think deserves the highest priority this year—liberalizing the education sector and allowing for-profit schools.

At 250 million-plus students, India has more school-going children than any other country. And it also has enough schools to service these students. Unfortunately, the Indian government school system is either crumbling or altogether non-functional. Most students who have passed elementary school are barely literate. Worse still, fifth graders cannot do simple arithmetic. Poor parents in India would rather pay to educate their children than send them to a government school for free. More damning and explicit evidence of the failure of the government education system is difficult to find.

While most Indians recognize the failure of public education system in India, the rise of the private schools, especially of low-cost private schools, often remains unacknowledged. Private schools, in both urban and rural areas, are saving the lives and livelihoods of millions of Indians, who will enter the workforce in the next few decades. At a fraction of the cost required to run public schools, low-cost private schools provide a superior and affordable alternative.

There are four factors or trends in schooling in India, from a 2017 report by Geeta Gandhi Kingdon, that are worthy of consideration. First, a substantial number of students are already enrolled in private schools; 49% of urban and 21% of rural children attended private primary schools in 2014-15. Second, the increase in the number of private schools is four-five times the increase in the number of government schools for the period 2010-11 to 2014-15. Third, total enrolment in government schools decreased by 11.1 million in that period, while enrolment in private schools increased by 16 million. Finally, these private schools are not demonstrating the exit of rich children from the government system; the median private school fee in urban India was Rs500 per month and in rural India Rs275 per month.

The most interesting aspect of the rise of private schools in India is that its growth has taken place in the most hostile environment for education entrepreneurship. The government imposes very costly hurdles to “recognize" a private school. Once recognized, it frequently nationalizes 25% of the enrolment for socially and economically backward students under the Right to Education Act. And from time to time, judges and bureaucrats order the closure or demolition of unrecognized low-cost schools. For these reasons, private schools, while often superior to their public counterparts, are still not able to provide the best possible educational choices for the poor. Learning outcomes in low- cost private schools are marginally better than the public counterparts, but there is a high level of variation across schools, and no guarantee of high quality education.

Despite these roadblocks, enrolment in private schools is still overtaking enrolment in free government schools. How would a world function where these roadblocks were eliminated and a thousand private schools could bloom? If the liberalization of other sectors in India is used as an example, one can expect a drastic increase in quality, decrease in price, and innovation. Indians went from waiting for years to get a phone connection, to becoming the country with the highest number of cellular connections. In addition to improvements in both quality and price, liberalization also provided Indians with a lot of competitive choices in each market through innovation. This is exactly what we need in education—high quality, low price, and innovation and experimentation in the education system.

The first step in liberalizing the education sector is to allow for-profit schools. While the profit motive has gained recognition in post-liberalization India, most believe that “important" and “sacred" sectors like education should be protected from the profit motive. Even in the current non-profit system of providing private education, private schools are the preferred option for parents. The increase in demand for private education in India can be met more successfully if educational institutions can profit.

The typical argument against allowing for-profit schools is to protect parents from self-interested capitalists. Indian parents and their children do not need protection from profit-making schools. The crucial element in the operation of for-profit schools, is that the fear of losses (i.e. losing students) is the greatest impetus to provide quality education to students. These sensible and pragmatic parents understand the high stakes involved and will abandon a bad for-profit school by taking their hard-earned money to a better alternative. They have already demonstrated this wisdom by exiting the free government school system.

The cost of not sufficiently educating the next generation is enormous. And each year India waits for government schools to improve, millions of Indians lose the opportunity to learn, earn a livelihood, and prosper. In a decade or two, if these children remain uneducated and jobless, India will witness great social inequity and chaos. Indian parents and their children deserve a real chance to access quality education of their choice.

By liberalizing education, India can unleash the imagination and innovation of 250 million children joining the workforce in the next two decades. Failing to do so will set the foundation for the greatest disaster India will face. If we don’t allow schools to profit, our children will bear the losses.

Shruti Rajagopalan is an assistant professor of economics at Purchase College, State University of New York, and a fellow at the Classical Liberal Institute, New York University School of Law.

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