The simplest way to do so would be by allowing private schools to be held under one of two options: schools could either be operated by not-for-profit foundations as is presently the case, with the understanding that such schools would not be allowed to charge high fees and would have to include children from underprivileged backgrounds, or by for-profit commercial entities set up like any other business venture by the corporate sector. The latter entities could be treated at par with other commercial venture, subject to taxes and applicable company laws, but allowed to distribute surpluses to investors as dividends. It is not unreasonable to allow a reasonable return on investment in order to attract that investment in the first place.
Naturally, schools set up by private companies would not be eligible for concessional land or any other indulgence from the government. Such a move would eliminate the need for organisations to bend rules to siphon funds out of not-for-profit entities, introduce transparency into the system and attract substantial investment in school infrastructure and quality improvement.
To ensure that parents are not exploited by private schools charging inordinately high fees, the government could put in place a regulator to guarantee a level-playing field. With the regulator ensuring all schools meet minimum standards or face derecognition and prosecution, fly-by-night operators would be forced to comply or close shop.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at email@example.com