By Gurbachan Singh
It is widely believed that the License-Permit-Quota Raj (LPQR) in the Indian economy was abolished in the early 1990s. This belief is not entirely correct. The LPQR was abolished in certain sectors like manufacturing but, not in sectors like real estate, and education. The benefits of liberalisation were evident in the sectors in which it happened. For instance, the automobile industry was no longer dominated by the Ambassador and the Fiat cars.
This article aims to explain how the LPQR has adversely affected the real estate and education sectors. It also forms a previously unexplored link between the two sectors.
The struggle for land
The town planning in India centres on providing homes. There is a minimal provision of land for other purposes. As a result, there is a restricted supply of land for the building of educational institutions. Consequently, the warranted price of land for educational institutions is high.
The government follows a policy of selling the land at controlled prices. Since demand exceeds supply, a system of discretion is followed in the allotment. This is where contacts, nepotism, corruption, black money, etc. start playing a pivotal role.
Honest people often get driven out by such forces. As the building of educational institutions lies in the hands of compromised educationists, the quality of education and the general culture of the institution declines.
Tweaking of fees
The limited supply of land for educational institutions, in turn, limits the supply of education. Since the supply of education falls well below the demand, the market price of education shoots up.
Usually, there is some form of government control or influence over the official price charged by educational institutions. This compels the promoters to ask for unofficial fees-donations, capitation fee, high prices for books prescribed, expensive uniforms, annual charges, computer fee, etc. As a result, students are not always admitted on merit.
The actual culprit
All this gives a bad name to private educational institutions (although, private institutions like Ashoka University are exceptions). The root cause lies in the policy framework, within which the market for education functions. Faults are typically seen in the system of private education; the policy framework is hardly visible.
This is not to say that all restrictions on educations need to go. Education is different from other goods and services. So, there is a need for some kind of regulation. But, what is happening is that there are excessive direct and indirect controls, whether in the policy of allotment of land for educational institutions or the permit raj, under which various approvals from the education department need to be ensured after land allotment.
The usual analysis in the media is focused on the more visible symptoms whereas, the root cause lies in the basic policy framework.
The way forward
It can be argued that if more land is made available for educational institutions, then there would be less available for homes in towns. However, this argument takes the amount of land available for urban development as a given. This need not be the case. Calculations estimate that even if 1000 square feet of land is given to each family of 4, only 0.76% of India’s land area would be utilised (assuming a low floor space index 0f 1).
Hence, there is no shortage of land for the development of urban homes. The matter of high market price can possibly be eliminated by abolishing the permit raj. Basically, what all this implies is that a simple change in the policy framework can ensure that the development of homes and educational institutions take place at an equal pace.
Dr Gurbachan Singh is an independent economist, and a visiting faculty at Indian Statistical Institute (ISI), Delhi and Ashoka University. His area of research and teaching is macro-financial stability.
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