Demonetization Effect On Education

How Demonetization would affect School Education in India

Juliflora (Gandobewal) is an invasive weed, that is as green as grass and on the surface hints at prosperity of land; However, on the contrary, it wreaks environmental havoc on the land it thrives on by drying up water holes, limiting native plants access to sunlight & water, poisoning the livestock & ultimately leading to land erosion. In short, living up to it's moniker "Devil Tree"

"Cash" was the Juliflora of Indian education system. Cash was the root cause of many problems and Demonetization coupled with the push for digital payments is a step in the right direction to eradicate this menace by increasing financial transparency & competition among Schools.

Education by definition is Charitable work in India; and thus classified as "Not For Profit". It means that if an Institute has surplus income then the Institute is expected to plough back the surplus to further its agenda and services.

However, do our educational institutes, especially Schools, really stick to the letter and spirit of "Not For Profit" tag?

Not really.

The answer is pretty obvious when we look at the ownerships, income streams & major costs heads of Schools.

In India, 25% of schools are privately held catering to almost 40% (~ 100 million) enrolled student base. Now the interesting aspect is that very little percentage of these private schools are owned by organized chains while majority of these schools are either directly/indirectly owned or have the patronage of politicians/local influential people via a managing Trust.

And it makes sense for such ownership structures in our schools. Opening a school requires one to go through a maze of regulations, obtain licenses & approvals. Coupled with scarcity of appropriate land and high land cost, the deterrence is further increased because of high Capex. Add to it the higher upfront operational cost- salaries for teaching & support staff, to be borne by Schools in initial years

It's no rocket science then to figure out that this entire operation requires someone well connected and with deep pockets to make things happen. That profile matches to that of a typical politician.

On the revenue side, Schools have four major sources of income – admission/capitation fee, regular fees including tuition, transportation & academic fees, ancillary fees for clothing/events/sports & revenue from other sources such as renting/brand sponsorship etc.

Except regular fees most of the other collections are in cash and mostly not against a receipt. Even for regular fees, collections are mostly in cash and receipts issued only on demand. This leaves enough space for innovative bookkeeping.

With such dynamics, Schools manage their income to the bare minimum by showing lesser revenues and higher costs on books. Thus generating a lot of black income in cash that is extracted out of the system and paid in cash to the promoters.

With the Demonetization this arrangement has been shaken up for good. Government has made Digital payments mandatory for CBSE schools and increasingly parents are getting digital savvy and choosing the convenience of online payments. This would leave little room for schools to under report their revenue from fee and ancillary income.

On the expenses side too, the staff would now push the school management to settle via digital payments as they would want to avoid excess cash in higher denominations thanks to their recent experiences.

This situation would create higher profits in the School's book of accounts leading to few possible scenarios -

  1. Although the income would still be non taxable, the higher disclosed income would by definition mean Schools would have to reinvest bigger share back to Schools or risk getting under government scrutiny. So be it enhancing facilities, improving quality standards, hiring better teachers etc, Schools have to do much and all this may lead to increase in quality of education.

  2. Government will have un-doctored financials to assess and push Schools to rigorously implement Right To Education. Currently schools push back displaying their lack of financial capacities.

  3. Competition would increase for incumbents, as newer schools would want to attract parents by giving them convenience of online payments and better engagement. So incumbent schools would be forced to adapt to the new digital normal.

  4. Tax net may increase for government, as many teachers & staff members of schools would voluntarily disclose their incomes once their payments are made digitally. Currently most of them are paid in cash.

  5. Capitation fees & other frivolous charges that Schools charge may see a southward movement as parents will now have the digital footprints of these payments and can use this as a legal tool against the Schools.

  6. Majority of parents will benefit from the convenience of digital payments. However, few who are directing their black cash would find it hard to justify premium fee for their children.

  7. Vendors who offer value added product/services to Schools will see a surge in demand
  8. Payment to vendors will move from cash to digital thus forcing more vendors to come under the tax net.
  9. Government may see surge in ST payment & compliance by various vendors serving the schools.
  10. Most of the temporary staff, those who get pushed over after a short service or are never made permanent, will have a proof of their employment and income. This may help them in securing better jobs as well as build their credit worthiness.
  11. Government may eventually consider making k12 education "For Profit".

It was time that this Juliflora of our Education system was weeded out and the fertile ground being ploughed again for cultivating fair & for profit education infrastructure that meets the aspiration of Digital India.

School Diary Team

School Diary Team
“School Diary makes School to Parent communication easy & engaging“

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