Privatization, regulation, and quality in Indian higher education: what is the problem?

Hello. My name is Advait Aiyer. I am pursuing a PhD in Applied Economics at the Wharton School’s Business Economics and Public Policy Department at the University of Pennsylvania. I am a rising third year student, interested in examining higher education quality in India. 

It is only fitting that I pursue my research with CASI given the instrumental role that Prof. Devesh Kapur and Prof. Pratap Bhanu Mehta’s (both CASI affiliates in the past) writings have played in shaping my research interest. The most comprehensive overview of the issues facing Indian higher education is authored by Profs. Kapur and Mehta and continues to be hosted on the CASI website till today. While trying to learn more about a grossly understudied issue, Kapur and Mehta’s work on the CASI website proved to be the first foothold I’d find as I delved deeper into this area of research. 

The aim of this blogpost is to venture an exposition of what I consider to be one of the most troubling issues that faces the higher education market in India, and provide some context for what I hope to achieve through my PhD dissertation and broader research. 

India, like many other developing countries (China, Brazil, Kenya, Bangladesh, Mexico etc.) is facing a growing demand for higher education. The Indian government spent roughly the last three decades promoting primary and secondary school enrollment and access and nearly the last fifteen years improving the quality of school education. Higher enrollment in school combined with younger populations in the developing world have resulted in unprecedented increases in the demand for higher education. Public institutions in these countries are overwhelmed and the governments have encouraged the private provision of higher education. Although privatization of tertiary education markets is common in developing countries, education quality, prices, and regulatory frameworks vary considerably across countries. For instance, while the private tertiary education market in both Brazil and India, accounts for over 75% of the total supply and enrollment, quality and prices are relatively high in Brazil’s liberalized market. 

India on the other hand, faces a steady decline in the quality of private higher education, particularly in engineering colleges. Low skill levels and the unemployability of engineers in India have been documented in news articles, employer surveys, World Bank reports, and even recent Indian government publications like the Indian Higher Education Report. Additionally, the private market in India is rife with regulations that can potentially create market distortions. The central and state governments in India regulate virtually every facet of individual colleges’ decision making. Regulations pertaining to tuition price, the entry and exit decision of colleges, admissions processes, curriculum, faculty hiring, promotion, and pay, and the maximum enrollment capacity have been in place for at least two decades.

As economists and policymakers, we do not yet have a reliable and scalable understanding of the interplay between private provision of education, government regulations in a private market, and the implications for quality. For example, privatization of education supply, in the absence of any government regulation, can lead to competitive provision of quality while exacerbating social stratification as poor and marginalized students are priced out of the market. However the absence of government regulations is not a sufficient condition to ensure high education quality (albeit at a high price) in a private market. The reason is that in developing countries, especially in rural areas, private providers of education can exploit their market power to further markup prices and markdown quality relative to a competitive benchmark. A possible downside of excessive government regulation in private tertiary education markets is that they could dissuade private investment in the market, lead to an adverse selection of entrants who can manipulate regulations, and ultimately, result in lower levels of competition along price and quality dimensions. 

Presently, tuition price regulation and affirmative action policies have enabled access to higher education for several marginalized communities at affordable prices, relative to the period immediately after the 90’s liberalization of India’s markets. The impact of these regulations on education quality, human capital levels, and the employability of college graduates is unclear. I aim to bridge this gap in the literature by studying the impact of tuition price regulations and voucher policies on enrollment patterns, intermediate outcomes during college, and broader labor market impacts. I am focusing on collecting data in either Andhra Pradesh, Telangana, or Tamil Nadu which are some of the largest engineering college markets in India. I hope to leverage some key policy changes as natural experiments that will allow me to document patterns in enrollment, education quality, and labor market outcomes for engineering students. 

I believe that facilitating a deeper understanding of the interplay between price regulation, affirmative action, and student outcomes in response to government policy will shed some light on allocations, equity, efficiency, and overall welfare under the current and alternative regulatory schemes. To this end, I am spending the summer of 2022 in India trying to gain access to more detailed datasets that trace engineering students’ paths from the time they graduate high school, through college and ultimately the labor market implications of their decision to pursue engineering. 

In subsequent blog posts I aim to dive a little more into the details of policies that were enacted in the states of AP, TS, and TN. I find some suggestive evidence that the regulatory policies that were designed to promote access to college among marginalized communities might have had unintended or even adverse consequences for the very communities they sought to help.

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About advaitra8

I am pursuing a PhD in Applied Economics at the Wharton School of the University of Pennsylvania. My research interests include development economics, education, and health economics. I also enjoy causal inference, applied Bayesian modeling, machine learning, and networks. I earned an MS in Economics from the New School for Social Research and a BSc. in Economics, Mathematics, and Statistics from St. Joseph's College, Bangalore University.