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Restrictions on for-profit education in India
Restrictions on for-profit education in India mainly stem from Supreme Court verdicts, Model and state Right of Children to Free and Compulsory Education (RTE) Rules, and board affiliation norms.
Supreme Court Verdicts
For both K-12 and higher education, the following two court judgements regulate the ability of educational institutions to run for-profit.
T.M.A Pai v. State of Karnataka, 2002: The Court directed that educational institutions could make a “reasonable surplus”2 but disallowed profiteering and charging capitation fees. It argued that “reasonable surplus” to meet the cost of expansion and augmentation of facilities did not amount to profiteering.
Higher Education Legislation
University Grants Commission
The University Grants Commission (UGC) Act 1956 does not explicitly restrict for-profit education. But Section 26(1)(g) of the Act grants UGC the power to regulate the “maintenance of standards and the coordination of work or facilities in Universities.” This can potentially allow UGC to regulate fees in higher education institutions. Recently, UGC released draft regulations governing the fee structure in private aided and unaided institutions under this provision.
School Education Legislation
Model RTE Rules
For K-12 education, the RTE Act 2009 requires private schools to fulfil certain norms and requirements to obtain a Certificate of Recognition. These schools cannot operate without this certification. Though the RTE Act 2009 does not mention restrictions on schools run for-profit, its Model Rules require schools to be non-profit in order to qualify for recognition. According to Rule 11(1)(b), every school applying for recognition should submit a self-declaration showing that they are “not run for profit to any individual, group or association of individuals or any other persons.” This restriction is replicated in several state RTE Rules.
State RTE Rules and fee regulation Acts
States restrict the kind of schools that can apply for recognition through their RTE Rules. Schools that can apply for recognition generally have to be run by the following entities:
- Societies registered under the Societies Registration Act, 1860 or under state government Acts for educational, religious or charitable societies
- Registered Trusts or
- Companies registered under Section 8 of the Companies Act 2013 having education as one of its objects
Only Haryana has allowed for individuals or a group of individuals or companies registered under the Companies Act 2013. Rule 12(1)(a) of the Haryana RTE Rules 2011 states that the following entities can open a school in the state
- Individual/association of individuals/firm/society registered under the Societies Registration Act 1860
- Trust created under the Indian Trusts Act 1882
- Company registered under the Companies Act 1956
States such as Maharashtra (Section 11(1)(b)) and Delhi (Section 14(1)(b)) also clearly mention that schools should “not run for profit of any individual, group or association of individuals or any other persons.”
While many states pass orders and notifications to regulate fees in schools, 11 states in India have stand-alone Acts that govern school fees. The Punjab Regulation of Fee of Unaided Educational Institutions Act 2016 is the only such Act that explicitly regulates profit-making by schools. It constitutes a Regulatory Body for regulating fees at the divisional level. Under Section 7, one of the functions of this Regulatory Body is to “check excessive hike in fee by an unaided educational institution with the motive to earn profit.”
Board Affiliation Norms
Affiliating boards such as the Central Board of Secondary Education (CBSE) also impose restrictions on how schools can operate. We look at two such examples below.
Central Board of Secondary Education (CBSE) Affiliation Norms
Similar to State RTE Rules, Section 2.1.8 of CBSE Affiliation Bye-laws 2018, states that the CBSE may affiliate the following categories of private schools established by:
- Societies registered under the Societies Registration Act 1860 of the Government of India or under the Acts of the State Governments as educational, religious or charitable societies
- Registered Trusts or
- Companies registered under section 8 of the Companies Act 2013 having education as one of its objects
Council for the Indian School Certificate Examinations (CISCE) Rules for Affiliation
Rule 2(a) of the CISCE Rules for Affiliation 2016 states that the school should be “run by a Registered Society, a Trust or a Company (under Section 25(1)(a) of the Companies Act 1956 or as amended) for educational purposes. It must not be run for profit.”
Existing rule-sets governing K-12 Education in India
Education in India is a concurrent subject. Both Union and state governments can regulate school education. This has led to varying rule-sets across states. We compiled existing rule-sets for all states in India using legislation listed on the state Department website and online sources including Laws of India, Manupatra, Bare Acts Live and Latest Laws.
We collated 145 Acts and 101 corresponding rules across all states. On average, each state has 4 Acts and 3 rules approximately. Uttar Pradesh has the highest number of state Acts at 11 and Karnataka has the most number of rules at 17. Arunachal Pradesh, Chhattisgarh, Chandigarh, Kerala, Nagaland and Uttarakhand have 1 state Act each. Generally, southern states have a higher number of rule-sets than northern states. We could not find any rule-sets for Andaman & Nicobar Islands, Dadra & Nagar Haveli and Lakshadweep.
We also classified all rule-sets as per the touchpoint they were meant to regulate. For instance, we categorised the U.P. Self-Financed Independent Schools (Fee Regulation) Act, 2018 under “fees in private schools.”
For all states with rule-sets, we found legislation regulating the process for opening a school. Most states have Acts apart from the RTE Act 2009 that still apply to this process. A few examples are the Delhi School Education Act and Rules 1973, Orissa Education Act, 1969 and Gujarat Educational Institutions (Regulation) Act, 1984. Rajasthan Non-Government Educational Institutions Act, 1989 also lays out recognition norms but Rajasthan RTE Rules 2011 mandate recognition only under the older Act. Similarly, all states with rule-sets apart from Tripura, regulate employment of teachers in private schools.
Currently, the regulatory framework for K-12 education in India is ridden with obstacles for edupreneurs. In order to build an effective regulatory environment that allows the best-placed edupreneurs to enter the education sector, we need to facilitate the shift towards principles-based regulations.
Matrices of State Rules and Schemes under the Street Vendors Act, 2014
The Indian Parliament enacted the Street Vendor (Protection of Livelihood and Regulation of Street Vending) Act in 2014, to prevent harassment of street vendors and to regulate their livelihood. Given the important role played by local authorities in regulating street vending, the Act delegates rule-making powers to the State Government. It specifies the respective authorities for making rules, schemes and bye-laws, neatly delineates the rule-making heads/matters for each of these and specifies the timeline for enacting them. While State Governments are tasked with framing rules and formulating schemes, municipal authorities have to enact bye-laws.
Apart from shaping local governance, the content of State schemes and rules have a bearing on the vendors’ right to occupation and the duties imposed on them. While the parent Act sets the contours for regulation, States vary in the way they adopt, interpret or elaborate on the different aspects of street vending.
We have prepared two matrices that feature cross-tabulation of all state rules and schemes under the Street Vendors Act, 2014. These matrices are user-friendly tools that facilitate a comparison between States based on the different ways in which they approach the same rule-headings, under the parent Act.
Section 36 (2) of the Central Act directs the states to notify rules within one year from the date of commencement of the Act. Sub-sections 2(a) to 2(r) outline the matters that the rules may address. These include the dispute redressal mechanism, the constitution and functioning of the Town Vending Committee (TVC), record maintenance, social audit and the returns to be furnished.
The matrix on State rules clubs these 19 rulemaking heads under 5 categories. These 5 categories are further classified into smaller specifications to provide clause level summaries of the different State provisions. Some columns are empty. Since the parent Act does not mandate the rules to deal with all matters, some states have not introduced any provisions for specific matters.
Per section 38, states should draft and notify the scheme within 6 months from the commencement of the Act, in consultation with the TVC and the local authorities. The second schedule of the Act elaborates on the matters that the scheme may address. This includes laying down the process for conducting the survey, issuing identity cards and certificate of vending, the guidelines for earmarking vending zones, vending regulations for different categories of vendors, provisions regarding vending fee and the relocation and the eviction of vendors.
The matrix on State schemes clubs these 29 rulemaking heads under 13 categories. These are further classified into smaller specifications to provide clause level summaries of different scheme provisions.
Rethinking K-12 Assessment Framework
There are inherent information asymmetry problems in education that are characterised using the lens of the principal-agent framework. Principal-agent problems exist when the principal hires an agent to act on her behalf but the interests of the principal and the agent are not perfectly aligned. This necessitates that the principal has information to monitor the agent’s effort. Typically, in education, there is information asymmetry between parent-child, teacher-child, parent-school/teacher, parent-administrator, administrator-administrator, and administrator-teacher. Administrator means administrator at different units—school, block, district, state and nation (Bergbauer, Hanushek, and Woessmann 2018). These principal-agent problems can be linked to different uses such as child diagnosis, child progression into university, school information to parents, school regulation, teacher evaluation and so on (Figure 1).
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Figure 1: Tree of principal-agent problems and different information uses; Adapted from Bergbauer, Hanushek, and Woessmann 2018
A common solution to some of these information gaps is to use learning outcomes assessment. In the two decades preceding 2020, India has had some measures of learning outcomes. These include initiatives by the government institute, National Council of Educational Research and Training (NCERT); non-governmental organisation, Pratham; state governments; and private organisations such as Educational Initiative. In addition to national assessments, Tamil Nadu and Himachal Pradesh also participated in the OECD’s Programme for International Student Assessment (PISA) in 2009. Besides these, we also have in-class assessments.
Although the proliferation of multiple assessment organisations and tools is commendable, the assessments have had a limited impact on driving change in school or administrative practices. There is a lack of systematic thinking on the question of the right tool and the right use. This is evident by the low learning outcomes across the country, despite years of assessments pointing in the same direction. This requires a rethink of the assessment framework—what are the different tools and tests available currently, how may they be best used to fill the existing information gaps and what gaps remain to be filled with new tools.
Assessments that solve one kind of information problem may not be suitable for another. For example, tests that evaluate children for progression to university, such as board exams in India, are different from tests that evaluate schools or tests that evaluate teacher performance. The conflation of multiple uses in one is seen for assessments such as Board exams. Board exams are designed to assess child performance for progression but have been at times used as indicators of school performance. Unless we isolate the child effort and background from school effort, board exam results are not valid indicators of school effort.
The latest draft of the National Education Policy released in 2019, led by Dr Kasturirangan, proposes multiple ideas to reform existing assessment practices and also introduces new ways to employ assessments. The document lays out a number of new test uses—low stakes assessments to personalise teaching, national achievement survey for periodic health check-up, census assessment for disclosing school performance and board exam reforms for student progression. Yet, even as the draft policy lays out these different tests, it lacks lucidity on the problem each of these tests solves, the information gap it fills, and the use it will be put to. Critical terms such as ‘developmental purposes’ and ‘health check-up’ remain vague and open for interpretation. In light of these developments, it is critical to identify clear and plausible objectives of each test that we carry out currently. What are the principal-agent problems NAS can solve? What are the principal-agent problems board exams solve? What is the role of in-class tests? How can census assessments be used for school accountability? To answer these, we need to tackle each principle-agent problem systematically—parent-child, parent-teacher, teacher-child, parent-administrator, administrator-teacher.
This brief looks at three uses of information, i.e., school information to parents, school regulation, and system health, and explores the role of assessments in each.
Enumerating Street Vendors in Mumbai, Maharashtra
Municipal Corporation of Greater Mumbai [commonly known as Brihanmumbai Municipal Corporation (BMC)], responsible for regulating street vending in Bombay, has been grappling with the ‘street vendor nuisance, encroachment and other illegalities’ since at least the 1880s. According to the Government of India, there are around 2,50,000 vendors in Bombay. Their rights are protected under the Street Vendors (Protection of Livelihood and Regulation of Street Vending) Act 2014. This Act empowers a participatory committee called Town Vending Committee to regulate street vending, conduct a survey of all street vendors and formalise them.
There are four major challenges in the way the Government of Maharashtra has implemented this Act.
First, Rule 22 of the Maharashtra Street Vendors (Protection of Livelihood and Regulation of Street Vending) (Maharashtra) Rules, 2016 empowers the Municipal Commissioners and the State Government to veto TVC proposals. This veto power dilutes participatory governance and may be misused to make the TVC dysfunctional. This veto power is against the Street Vendors Act, 2014 as the Act expressly supersedes all other local laws. Deciding whether a proposal by the TVC violates another law is a judicial function and vesting the power of judicial review in an executive body is also a violation of the doctrine of separation of powers.
Second, six years have passed since the enactment of the Street Vendors Act, 2014 but the Government of Maharashtra has still not formulated a statutory scheme as per the mandate of the Act. Although the Government formulated a scheme in 2017, Azad Hawkers Union challenged it on the grounds that the scheme was not framed in due consultation with the local authority and TVC. Bombay High Court ruled that the scheme is not legitimate as it did not comply with the consultation mandate.
Third, the 2014-Vendor survey did not comply with any statutory requirement - either with the Street Vendors Act, 2014 or with 2009-Policy. In Azad Hawkers Union 2017, street vendors argued that a survey is not possible in the absence of TVCs with duly elected members and that without the survey, street vendor elections cannot be conducted. Bombay High Court called it a chicken- egg question and addressed this legal conundrum by ruling that the first elections to the TVC may be based on the surveys conducted under the 2009 Policy. The 2009 Policy prescribes a census like survey and hiring of a professional agency for conducting the survey. But the 2014-registration drive was based on application submission and not census-like survey. BMC merely distributed forms and asked the vendors to submit the filled form later, along with other documents. Also, BMC did not hire any professional agency to undertake a survey.
Fourth, even though the Street Vendors Act, 2014 does not prescribe requirements like domicile certificate for the purpose of registration and licensing, the Government of Maharashtra has added a domicile certificate to the list of required documents. This requirement has brought down the number of eligible street vendors from 23,265 to 5,000 only.
Another exclusionary policy is the ban on roadside cooking. Previously the Municipal Commissioner had advocated for a ban on the vending of any cooked food articles. But the Supreme Court in Bombay Hawkers Union case found such a condition to be an unreasonable restriction. This issue has been repeatedly discussed both in the Supreme Court and the Bombay High Court. With the enactment of the Street Vendors Act, 2014, no such restrictions were placed on roadside cooking or the sale of cooked food. Yet, on 23 October 2015, Bombay High Court refused to accord protection to those vendors who cook food at the place of street vending. The judiciary is therefore reading a prohibition in the law that the Parliament has not legislated.
How to: Design a separate independent regulator for all schools
The Kasturirangan Committee Report 2019 proposes that “the three distinct roles of governance and regulation, namely, the provision/operation of education, the regulation of the education system, and policymaking, will be conducted by separate independent bodies, in order to avoid conflicts of interest and concentrations of power, and to ensure due and quality focus on each role.”
In our view, separating the regulatory and service delivery functions performed by state school education departments/directorates and creating state-level independent regulators for all schools is the most significant reform proposal in the Report for school education.
As per the Report, each state should set up a State School Regulatory Authority (SSRA) to regulate all schools, public and private, on the same set of minimum standards to assure quality education for all. The revised state education administration structure envisaged under the Report is:
the existing Directorate of School Education (DSE) to oversee government schools operations;
a newly-formed State School Regulatory Authority (SSRA) to have exclusive responsibilities over rule-making for all schools, public and private, and ensuring compliance;
the Department of School Education to be the primary institution for overall monitoring and policymaking (without any involvement in service delivery or regulation).
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Figure 1: Governance and regulatory architecture of School Education post-NEP 2019
Promise and perils of State School Regulatory Authority
Independent regulation will likely bring competitive neutrality, focus and efficiency. A dedicated regulator for a marketplace of a variety of suppliers, public and private, is an approach increasingly followed in India and several other countries. Conflicts of interest that currently exist between a government service-provider regulating itself and other service providers will be contained. SSRA, as a regulator, will function separately from any government department. As a result, the role played by discretion and quid pro quos in licensing, school recognition, inspections and fee regulation can be minimised. SSRA will be mandated to draft specialised rules only for the K-12 sector. This can encourage a symbiotic relationship where the regulator receives feedback on the efficacy of its rules from regulatees and consumers.
However, an independent regulator makes rules, checks compliance, and enforces the rules. This fusing of powers vests extensive authority in unelected officials. It needs to be countered by assigning the regulator a limited and well-defined mandate and developing an agency design accountable to Parliament/Legislature, regulatees, and parents and children whose interests it is to protect.
Design Elements for an effective State School Regulatory Authority
In this How To Note, we discuss the five design considerations that should go into the setting up of SSRA:
Defining clear and narrow objectives: Assessment of SSRA’s performance, metrics to hold it accountable, governance structure, and management processes, all hinge on a clearly articulated objective. This objective should be limited and measurable, and subscribe to the principle of regulatory neutrality.
Preparing a legislative framework delegating authority to the regulator: Since SSRA will be at the state-level, the state Legislative Assembly has to pass the Act enabling its creation. Furthermore, the powers relating to K-12 education are currently scattered across numerous Union and state Acts, and enforced by different officers and agencies. These need to be brought under the purview of SSRA to avoid regulatory cholesterol from building up.
Structures that ensure independent functioning of SSRA: Independence will insulate SSRA from regulatory capture while making room for guided discretion. Moreover, it will allow SSRA to be held accountable for its decisions. This can be achieved by making appointment process for its Board members transparent, maintaining a balanced and lean Board composition, instituting working processes that incentivise performance, and imposing term limits on Board members to minimise conflicts of interest.
Setting up accountability measures for performance via internal separation of functions and information disclosures on processes; and
Establishing checks on executive discretion and against the abuse of power: Since SSRA will be formed by fusing quasi-legislative, executive and quasi-judicial powers, fail-safes against potential abuse of power must be instituted. Only its Board must hold rule-making powers. An internal adjudication body, and an external Education Appellate Tribunal are necessary. The rules governing SSRA also must lay out procedural and substantive guidance on applying administrative actions.
The proposal of the Kasturirangan Report to establish an independent SSRA is a promising reform for K-12 education in India because it tackles the key impediments to improvement—conflicts of interest between service-delivery and regulation, absence of accountability, violation of natural justice, and unchecked discretionary power of officers. Embedding the above-mentioned design elements in an SSRA may not guarantee a world-class regulator, but their absence will certainly result in an ineffective regulator that compounds the problems in K-12 education.
What does a framework of regulatory quality and hygiene entail?
All articles of law create obligations and impose restraints on government action. Laws that govern economic activity, for example, limit business entry and exit, product price and quality, whereas social laws alter individual or organisational behaviour. The process through which rules are drafted and enacted, the authorisation to state action that rules provide and the constraints on private action that rules sanction have a bearing on enterprises and every day living.
This paper, the second in our series of papers on the state of regulatory quality in India, provides a simplified guidepost to improve regulatory hygiene in India. We outline benchmarks to guide rule-making and establish checks on government action.
Through an extensive literature review, we identified practices that must be encoded into the rulemaking process. These are categorised under three heads:
Democratic Safeguards are procedural checks that help ensure a participatory, transparent and accountable rulemaking process. Ex-ante, this involves increasing public access to the rule-set (including accessibility in terms of language), a serious consideration of stakeholder views and a rigorous assessment of the costs and benefits. Ex-post, this involves a review to assess the validity, cost-effectiveness and efficiency of the legislation.
Use of tools throughout the lifecycle of a regulation, from drafting to sunset, allows a rule-making body to manage the flow and stock of regulation. We find that countries like Sweden, United Kingdom and Australia use different mechanisms to ensure that the interests of the affected parties and the public at large are heard and honoured by decision-makers.
Legal Safeguards are checks on executive discretion. While executive discretion is inevitable, it ought not to be unguided and uncontrolled. There is a thin line between discretionary powers and the arbitrary exercise of powers. Rule of law demands that the executive ought to operate within a constraining framework that provides express legal authorisation to and procedural checks against excesses.
In particular, procedural checks ought to be placed on the rule-making (quasi-legislative) and decision-making (quasi-judicial) functions of the executive - both of which affect the rights and duties of the regulatees. In the United States, for instance, the Administrative Procedure Act provides standards to guide administrative action and encodes the duties of procedural propriety in law.
Economic Safeguards are substantive checks on the way a rule-set impacts economic freedom. Rules that regulate economic activity are guided by consideration for both market participants: enterprises and consumers. While India is influenced by different frameworks including World Bank’s Doing Business in carrying out economic reforms, it lacks a lucid and explicit regulatory philosophy of its own to guide economic laws.
Most high-income countries such as Hong Kong and the United States share certain features and values that guide their economic laws. This includes a high degree of openness (allowing for easy entry and exit for firms), low economic burden, increased competition, an enabling environment for the private sector and greater consumer choice.
Drawing from global best practices and indices around the world, we propose a check-list (for primary acts) to measure the quality of rules currently on the books in India. The check-list is a set of distilled minimums based on these three safeguards, that any rule-set ought to conform to. These do not apply to any one department, regulator or agency but to all.
A check-list approach to evaluate laws currently on the books will help diagnose the distance individual rule-sets have to cover, along with guiding future law-making. While there have been efforts in India to evaluate the impact of single rules, little attention has been paid to a comprehensive evaluation of all regulations, across industries over a period of time to assess the cumulative cost of regulation.
High-performing countries persistently strive to introduce such institutions and mechanisms to create a transparent, answerable and accountable government. To build a well-functioning and non-intrusive regulatory regime we in India need to similarly introduce a ‘set of institutions and processes that embed regulatory review mechanisms into the every-day routines of governmental policy-making’ (Morgan 1999: 50). In sum, what we need is a whole-of-government approach for regulation of regulation.
Suboptimal vendor enumeration practices in Gurugram, Haryana
The Street Vendors Act 2014 mandates the formation of town vending committees (TVC) to survey all local street vendors at least once every five years. Until a survey is complete, no street vendor is to be evicted. In this attached study, we document how street vendors were enumerated in Gurugram, Haryana.
Multiple surveys, varying methods
In the span of seven years, six private agencies have been contracted by different government departments at the municipal and state level. These agencies carried out surveys using varying methods and each reported different number and category of vendors (Figure 1). Despite multiple attempts, it is not clear if and how the agencies adhered to the Central Act and state guidelines. There also seems to be a lack of thorough and careful evaluation, by the local authority, of the work carried out by the private agencies.
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Figure 1: Timeline of surveys in Gurugram
Contracted agencies used different survey practices
To understand the enumeration mechanisms adopted by different agencies, we interviewed two agencies, Egmac Capital and REPL. The former was contracted under the local authority and surveyed sector 10A and 56, the latter was contracted by the state government and surveyed the whole of Gurugram.
While Egmac Capital carried out a survey using physical forms, REPL used an app called the REPL Survey. The application allowed the agency to geotag the individual vending spot of all vendors. Figure 2 lists the differences in practices followed by the two agencies.
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Figure 2: Comparative analysis of survey practices adopted by two agencies
Critical gaps in vendor enumeration practices in Gurugram
Surveys are not all-inclusive: Barely a third of the vendors we interviewed (11 out of 30) were surveyed under any of the survey exercises. Even in designated vending zones, vendors remain uncounted. None of these vendors could confidently declare who their surveyor was.
Local authority reigns supreme: The Act is clear on two aspects: first, the final decision on vending zones will be made by the local authority in consultation with the TVCs, and two, the scheme has to provide for the conditions and principles of demarcating vending and no-vending zones. Haryana fails on both aspects: the local authority decides and then declares its decision to the TVC, and there is no notified scheme.
Misaligned Incentives: The TVC meeting minutes, from 25 January 2017, highlight that one of the agencies underreported the number of vendors to evade paying the Municipal Corporation of Gurugram (MCG) its share in the fees collected from vendors. In another instance, the state government paid REPL on a per vendor basis. While the first instance creates incentives for the agency to underreport, a per-vendor payment system may create perverse incentives to overreport the number of vendors.
Survey complete without a scheme. What next?
There remain many implementation gaps. Haryana, for example, has not drafted the scheme, as required under the Street Vendors Act 2014. The state government and the MCG carried our surveys, through private agencies, in the absence of a scheme. Further, the scope and results of the agencies differed significantly making comparisons or creation of a unified dataset of vendors difficult.
The survey reports of all the agencies are stuck with the local authority and TVC. Complaints to the MCG by the vendors and the private agencies go unheard. Currently, the only avenue to express concerns, the TVC, has not conducted any meeting since 21 August 2018.
Gurugram’s model of contracting out vendor enumeration to private agencies may be desirable given constraints on state capacity. However, without clear objectives and rigorous evaluation of work, we are left with less than perfect outcomes.