How Do Private Schools Make Money In India

New Delhi: According to an U-DISE (Unified District Information System for Education) report of 2019, in the last four years, the increase in the number of private schools was 4 times that of public schools, leading to a fall in government school enrolment by 11.1 per cent. The total enrolment in private schools rose by 16 million students. With fees ranging anywhere between Rs 6000 to Rs 80,000 a month, the founders and the trust associated with the schools are definitely not a philanthropy but a profit making machine. A 2019 FORBES study said, in a stable state,a school earns net margins of 25 percent, which makes it an attractive business on a per unit basis.

TV 9 News Digital, delves deeper, to tell you how some of these Trusts manage to rake in the moolah in name of it being not-for-profit.

"Promoters or founders of the school opt for a twin structure model – the first half of their entity is the Trust which operates under the front of it being a social-service, the other half of the same entity is a for-profit company which provides services and products to the school in exchange of money. This allows for the transfer of money from the school trust to the company in the form of payments for services," says Shailendra Sharma, Principal Advisor to the Director of Education, New Delhi.

Figure this (As quoted by Central Square Foundation and Pratham India)

1. The sector contributes approximately Rs1.75 lakh crores to the economy
2. Nearly 50 per cent of India's school-going children attend private schools

3. Over 80 per cent children in 16 states study in pvt schools

4. There are about 4.5 lakh private schools in India

5. Aggregate Household spends on private schooling is about 1.7 lakh crore

A Comparison

47.5 per cent of students in India attend private schools.

Students attending Government schools: 13,17,55,633

Students attending Private Unaided: 8,73,82,784

Students attending Aided: 2,79,88,914

16 states have over 60% of students in private schools. The following 8 states have the greatest private enrolment share.

83.8 per cent Goa

74.1 per cent Maharashtra

73.9 per cent Kerala

69.1 per cent Manipur

64.2 per centUttar Pradesh

61.1 per cent Tamil Nadu

The business of education

Rituraj Goenka, a consulting strategic advisor to many firms in Mumbai, says schools are an attractive business because, "it is the only sector that has more demand than supply. Fees are mostly unregulated and can even rise higher than inflation and it works with negative working capital because a school collects fee in advance. Forget IT, investors are dying to get into this sector," she says.

How do these Trusts manage to make money?

Farida Lambe from Pratham, an NGO that works in the education sector, breaks it down for us. "Most of these private schools either independently or through chains, operate through a Trust or society that is not-for-profit. The trust can then enter into several second party transactions with companies/clients that supply services or products needed by the school. These secondary companies are usually owned by the promoter or founder of the school itself. So, they may not make money directly but they are re-directing it through other means," she says.

Take for example, a company owned by the promoters (of the school) owns the land on which the school is built and they enter into a lease agreement with the Trust. As and when desired, the rental charged to the school is increased, the promoter goes laughing to the banks while maintaining the garb of being not-for-profit.

Similarly, almost anything required by the school — computers, hardware, software, desks, furniture, lab equipments etc is sold by a company belonging to the founders or promoters of the school. At times, these transactions are at market rates and sometimes at inflated rates.In many private schools, almost all contracts handed out are inflated by 15-20 per cent, which is the promoter's cut.

Declare us for-profit: Founders of schools

Some school founders and owners of private school chains in 2020, urged the government of India, to declare the sector as for-profit because "everyone is earning a profit out of it in any case". They felt, making it a for-profit outfit will only help to channel more funds into the sector. They raised these demands at the meeting of FICCI ARISE in the capital, last December.

But because education is a concurrent subject, the Central government could only request states to bring in legislation that would allow schools to register as a corporate body with a for-profit structure. Haryana and Maharashtra have already indicated their willingness to do this. Is it time for other states to come forward and embrace the for-profit structure? If not anything else, this may result in cleaning up the system.