Setting-up Private Universities
We are a group of consultants for establishment of Private Universities. We provide advisory services in setting-up a University.
Key Challenges in setting-up Private Universities in India can be noted as follows:
ENTRY
ESTABLISHMENT
At the Centre, a Private Universities (Establishment and Regulation) Bill was introduced in Parliament in 1995. The Bill received strong opposition from both academics, and the private sector, and its constitutionality was challenged in the apex court. Subsequently, the Bill was withdrawn by the Central Government in 2007 and as a result no private university has been established by Parliament so far.
At the state level, Entry 32 of the State List enables state governments to enact laws regarding incorporation, regulation, and winding up of universities. Several states have warmed up to the idea of private universities and enacted umbrella Acts over the last two decades, bringing clarity on the process and requirements for setting up of private universities. However, few states such as Uttar Pradesh still don’t have an umbrella Act and hence requirement and the process remain unclear.
UGC (Establishment and Maintenance of Standards in Private Universities) Regulations, 2003, govern the establishment and regulation of private universities, and require a university to be setup only through a separate Act rather than an executive order. It also restricts the jurisdiction of private universities to the state in which the university was incorporated.
In the state of Chhattisgarh, close to 100 private universities were set up in a short span of time through an executive order (Agarwal, 2009). Many of these universities setup offsite centres to award degrees or diplomas and opposed the UGC regulations, by claiming to be outside the ambit of UGC since they received no funding from it. Subsequently, many of these universities ran into trouble due to dubious operations and the Supreme Court struck down the Private Universities Act of Chhattisgarh and upheld the validity of the UGC regulations. It became clear that UGC regulations are binding even if the university does not receive funding from UGC.
The requirement of using the legislative route to establish private universities is constraining and lengthy. While the legislative route is meant to promote discussions among MLAs regarding the merits of the Bill, data from PRS Legislative Research shows that the state legislatures functions quite poorly. While the ten-year trend in Rajasthan shows that the state legislature sits on an average for 28 days in a year, the Delhi legislature sits for only 22 days.
“Bills are passed with little or no discussion. While in Parliament, referring bills to the standing committees is the norm, most state legislatures do not have standing committees. The only examination of a bill, if any, happens on the floor of the House. And if data from the Delhi assembly is anything to go by, the average debate on a bill before it is passed is a little over half hour. There are many numbers of instances where bills are introduced and passed in state assemblies on the same day – so there is not even a pretence of the need for MLAs to read, understand and deliberate on the provisions of legislation they are supposedly passing.”(Madhukar, 2010)
If the private universities are to be regulated more effectively or strongly, expressly requiring them to be established through the legislative route is not going to yield any benefit. The same objective can be achieved by putting in place a scrutiny process to screen applications and transparently laying down the criteria for entry and operation of private universities. If the state government considers itself inadequate to setup and administer such a process, UGC recognition can be made mandatory instead of requiring just a “fulfilment of conditions and provisions of UGC” as specified in the respective Acts of Haryana and Rajasthan.
CLARITY ON PROCESS OF ESTABLISHMENT
Some states such as Rajasthan, Haryana, Assam and Gujarat have passed an umbrella Act specifying in detail the process and requirements for setting up a private university. In such states private universities are either setup through a separate Act for each of them, or by appending to a list of universities. While the former process is followed in Rajasthan, the latter is followed in Haryana.
Other states do not have such an umbrella Act and hence the process and requirements are opaque. In Uttar Pradesh for example, each university is established through a separate Act. The requirements keep increasing over the years and that creates a distorted and discriminatory field for private players who established universities at different points in time. The new players cannot be sure about the requirements until they approach the government directly, making it a cumbersome and time-consuming process.
For the sake of clarity, each state desirous of incentivising private players to enter the university space must pass a law putting in place the necessary requirements and the approval process.
NOT-FOR-PROFIT NATURE
By virtue of the definition of “sponsoring body”, anyone who wants to setup a private university can only do it through a non-profit entity – a society, trust, or a Section 25 company. Education in India (including school and higher education) is a not-for-profit sector, open only to philanthropists and religious organisations that intend to run without making any profits. However, many of these institutions are de jure not-for-profit and de facto for profit.
The not-for-profit nature of higher education creates significant hurdles in raising finances. The equity route of raising finance is unavailable since dividends cannot be distributed and the investor cannot exit at a higher valuation. Only the debt route, through loans from banks, remains open. However, as per discussions with a private university official in Haryana, banks are inexperienced in lending to educational institutions since they demand cash flows equivalent to other for-profit industries and charge a high interest rate.
Allowing for-profit institutions will allow profits to be made legally, rather than forcing the promoters to follow a circuitous route to plough back surplus and indulge in creative accounting. It will also open up the sector to equity financing and financial markets can then be used to raise finance in case of listed companies. Allowing companies to establish universities will subject them to the Company Law Board and relevant laws of Consumer Protection Act. Moreover, it will also enable levy of taxes. This will strengthen rather than weaken the higher education sector.
Internationally, several countries such as South Africa, Brazil, Philippines, Malaysia, Ukraine and several Gulf states legally allow for-profit institutions (Kinser and Levy, 2005).
LAND NORMS
Land norms are a contentious issue, since land constitutes the majority of the initial capital expenditure incurred to establish a university. The greater the minimum requirement of land, the more unattractive it becomes to the private players. It is tough to buy contiguous land near cities, where it is most feasible to setup universities. Hence, land has to be acquired through the government route by land acquisition and the process takes a very long time to consummate. For example, a university in Haryana nearly took three and a half years to acquire land and begin construction.
Moreover, an official who was interviewed pointed out that the land acquisition department wanted the construction to begin immediately after possession, but the founders wanted to wait until they received the letter of intent so as to be sure about the invested amount.
Uttar Pradesh had the requirement of a contiguous land of 50 acres for Amity University, much larger than the 30 acre requirement in Rajasthan and the 10-20 acre requirement in Haryana.
Since land acquisition is a contentious issue, the land-norm requirement needs to be re-visited. Fulfilling this norm creates high entry barriers. One possible reform could be to do away with the requirement of contiguous land and exploring other avenues of minimising costs.
PRIOR EXPERIENCE AND EXPERTISE
Rajasthan and Haryana include a requirement of prior experience and expertise in the field of education. This restricts entry of new players and breeds a monopolistic environment, which could be counter-productive. Interactions with stakeholders show that this requirement is not very stringent and states are willing to waive off this clause if the founders seem to be genuine.
However, possibility of such waiver is subjective and may or may not lead to a desired outcome. This increases opportunities for rent seeking. It is recommended that this requirement be modified to “good-to-have” rather than being a “must have”.
JUSTIFICATION FOR ESTABLISHMENT
Rajasthan and Haryana have a clause requiring the sponsoring body to justify the establishment of the private university in the project report that has to be submitted to the government. This brings back memories of the Licence-Permit-Quota Raj.
Such a subjective requirement increases the potential of rent seeking. The private player gauges the market demand and invests millions of rupees to establish a university. In doing so, the player bears the entire market risk and the responsibility to enrol students and impart education. There is no greater justification than a management’s accountability to the shareholders.
BOOKS & JOURNALS AND INFRASTRUCTURE REQUIREMENT
Universities in Rajasthan and Haryana are required to spend at least INR 1 million on books and journals and give an undertaking to spend at least INR 5 million on library facilities in the first three years. There is also a requirement to purchase movable and immovable assets of at least INR 2 million and give an undertaking to spend at least INR 10 million in the first five years. Uttar Pradesh similarly required Amity University to install equipment worth INR 50 million in laboratories and offices.
In both cases it has been mentioned that the norms of regulatory bodies shall be followed if they are at a higher minimum.
These requirements seem arbitrary and the logic behind selecting the floor values is hazy. In today’s digital age, students would prefer a digital library through which all can access soft copies of the required books, rather than a few hard copies in the physical library, which have restricted access. Such a facility is convenient as well as cost effective and should not only be allowed but also encouraged. It is interesting to note that many government institutions such as Gokhale Institute of Politics and Economics, Pune are digitising their libraries to catch up with the digital age. In light of such advancements and modern day needs, norms such as library requirements should be revisited by the regulatory bodies.
ENDOWMENT FUND
A minimum requirement of endowment fund has been specified in each of the Acts of the three states. This fund is for the purposes of keeping a substantial amount handy with the state government, so that in the event of dissolution of the university, this amount can be used to run the university until the last batch of students complete their courses.
While Rajasthan and Haryana have specified in detail the manner in which endowment fund is to be invested, Uttar Pradesh has left it to Amity University.
Another feature of the endowment fund is that income that is derived out of the fund is to be used only for capital expenditure and not for recurring expenditure.
The Acts does not specify a sunset clause specifying if and when the endowment fund would be returned. AICTE has a provision of returning the endowment fund after a period of ten years. State governments can learn from AICTE and provide a clear sunset clause for such a regulation under their Acts. Moreover, autonomy to spend the income derived from the endowment fund would reduce the cost of opening private universities and, in turn, lead to a lower fee bracket for students.
FACTORS FOR REJECTION OR ACCEPTANCE OF PROPOSAL
Factors that are considered for rejection or acceptance of a proposal include financial soundness, background of sponsoring body, and potentiality of courses.
While the first factor is onerous without contributing to outcomes, the other two are widely subjective. Background includes expertise, reputation and commitment to follow norms. It is unrealistic to assume that “commitment to follow norms” can be measured. Perhaps the most peculiar factor is “potentiality of courses offered as per requirements of contemporary demands”. This indicates traces of our excessively centrally planned economy.
In order to encourage participation and discourage rent seeking activities, such arbitrary and subjective factors for consideration of proposals need to be replaced with objective and reasonable criteria.
OPERATIONS
ACCREDITATION
Rajasthan and Haryana specify that universities need to obtain NBA or NAAC accreditation within the first three years of their operation.
This requirement is welcome since regulation needs to move away from barriers to grading. Grading allows weaker players to improve and provides information to the general public about the competence of a program.
Uttar Pradesh does not specify criteria for accreditation for Amity University. However, Amity University has been accredited by NAAC with Grade A in 2010.
FEE STRUCTURE
Rajasthan requires universities to seek prior approval from a committee constituted for purposes of regulating the fee. The decision of the committee would be valid for three years.
Haryana on the other hand does not require prior approval but mandates the private university to intimate the government about the new fee structure before the commencement of the academic session. However, Haryana mandates a different fee structure for domicile students. For the 25% students who are mandated to be domiciles of Haryana, fee concessions need to be provided. The first 20% are to be granted full fees exemption; the next two segments of 40% are to be granted 25% and 50% fee exemption respectively.
Uttar Pradesh specifies that fee structure should be as per the laws in force in the state.
In case of Rajasthan, freezing the fee structure for three years seems counter-intuitive as inflation will lead to a rise in costs but the moratorium on price would lead to a deficit. This would lead the private player to increase the fees in bulk so as to account for future price increases during the next three years and the batch of students admitted during the first year of increase will end up subsidising the next two batches of students.
Haryana’s fee structure for domiciles seems to be very political in nature. It ends up making students from other states cross-subsidise the students from its own state. Haryana incidentally has the third highest per capita income after Delhi and Sikkim and such a waiver seems unwarranted. Moreover, the requirement of granting a waiver to all students including those from rich families may incentivise the players to artificially raise the fees.
Fee structure is a highly politicised issue. There needs to be a transparent mechanism to increase the fees on a yearly basis. A fees hike of a percentage amount equal to or less than the CPI of the previous year, or the estimated CPI for the next year, could be allowed, without government approval. For extraordinary events such as Sixth Pay commission hike, a government review could be subjected. The students need to be sensitised about the possibility of future fee increases and range in which it could fluctuate. This would help set expectations with students accordingly.
ADMISSIONS
Admissions are strictly based on merit. For purposes of admission, entrance tests, test scores obtained in qualifying examinations, or curricular and extra-curricular activities can be used as a yardstick. Entrance examinations are the mandated process for admissions to professional and technical courses.
Rajasthan and Uttar Pradesh specify a reservation policy that is to be followed, as per the laws in the respective states. Haryana specifies a reservation of at least 25% of students from its own state. Ten percent of these seats shall be reserved for the Scheduled Castes.
The fees of private universities are usually much greater than those in the government universities or government colleges. Students who are able to pay such high private institution fees can safely be assumed to belong to the creamy layer. Provision of reservation for students belonging to the creamy layer of any caste does not lead to greater inclusiveness. It is more apt for the government to provide income based reservation or scholarships to the deserving students.
GRANTING OF AFFILIATION TO COLLEGES
Private universities are not allowed to affiliate colleges, thus restricting upcoming private colleges to seek affiliation from only government universities no matter how burdened these government universities may be. This also hinders the expansion of private universities even if they are providing quality education.
The government universities are not growing, whereas private universities are growing rapidly. Government universities are burdened with the load of managing private colleges and deterioration in quality of the latter is primarily due to weak oversight of the former.
Removal of the ban on affiliation of colleges to private universities is necessary, otherwise, it would lead to further burdening government universities, assuming that they experience the same stagnant growth rate in the future.
EXIT
Dissolution of a private university has been codified in the respective laws. The procedure is fairly simple; with the sponsoring body giving notice to the state government at least six months to a year in advance and waiting until the last batch of students have completed their courses.
Upon dissolution, the assets and liabilities rest with the sponsoring body. In case of Uttar Pradesh, the clause of assets and liabilities is missing from the Act. The exit barrier is reasonable and low and therefore, should be continued as such.
The biggest challenge of following this route by all states is the lack of proper legislation. States such as Tamil Nadu and Andhra Pradesh do not have the necessary legislation and this has been a concern raised by private trusts in these states.
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