The Hindu Business Line : Why a university must not go to the market

A regulator or an authority, a university included, cannot and should not be held by a few shareholders seeking profits. Instead it must continue to be held by public at large via the structure of the government.

A recent news item said Bombay University has set aside a certain amount in its budget to do a feasibility study on getting listed on stock exchanges. This set one thinking about the objectives of educational institutions, their finances and the purpose of stock exchanges.

It would also repay to look at public institutions that perform a regulatory role and whether their going public would impact the quality of regulation.

Households participate in the economy by paying taxes, which are used for government objectives such as maintaining law and order, health education and such other purposes listed in the Constitution.

The money left after the payment of taxes is used by the household for the purpose of meeting their family needs and it is saved via various financial instruments and asset classes such as bank deposits, stocks, gold, real estate, or stocks and commodities.

Channelling Funds

The stock exchange channels the household savings into the capital market and make funds available to the industries or the productive sector. Profit maximising is the primary motive. In the recent times there is talk of corporate responsibility and satisfying the needs of all stakeholders.

There is however no parameter to measure the performance of the company on other qualitative aspects.

It is the quarter on quarter results that drive the stock prices. Thus, stock exchanges and the capital market perform the role of efficient capital allocation, guided by market forces and profit motives.

A quick look at the roots of Bombay University. The book The Cloister's Pale by Aroon Tikekar, documents the genesis of Bombay University. Tikekar writes: "The first petition to set up Bombay University was sent in 1852 to the British Parliament by the Bombay Association — a body to ascertain the wants of the people of this country and the measures calculated to advance their welfare and of representing the same to the authorities in India and England.

"The petition stated that the expenditure incurred on setting up a university would eventually increase revenues of the country both by teaching the people new and better modes of production as well as habits of economy and prudence... and rendering them eligible for government employment."

The purpose of setting up the university was thus to impart education to the citizens to become knowledgeable and thereby wealth creators. The university was a facilitator and not necessarily a wealth creator itself. In fact, several noted Indian businessmen in the initial years gifted large sums to the university, this included Cowasjee Jehanghier and Sir Premchund Roychund. Shri Premechund gifted the Bombay University Building — Rajabai Tower — in memory of his mother.

For several years the University only regulated the colleges affiliated to it by setting syllabus and awarding degrees.

Why capital market?

The idea of the University tapping the stock market could be two fold. One, it wants to become a private body and not be under any government control in managing its affairs and making important appointments. And, two, a funds crunch.

Listing of shares has not really helped our public sector units (PSUs) to be free of government control. Hence the objective of autonomy may not be achieved by going public. The second reason, that is, funds crunch could be a probable objective.

The GDP growth of 8 per cent plus and the additional education cess on the income-tax paid should meet the needs of education. In fact, several grants lapse year after year as the basic qualifications for use of grant are not met.

The reason no university has gone public to raise funds is that the institution is regarded a provider of great social service and not as a profit-making avenue. Universities abroad are first funded by the government and then through endowments by alumni. Companies also support universities because they are the beneficiaries of the final products — studentsIf one were to visualise the public issue of Bombay University, it would surely be subscribed fully for the simple reason that it has a good reputation. A large numbers of colleges are affiliated to it. The valuation of property owned by the University would be substantial.

There is a demand for higher education these days.The share price would however be determined by the profitability of the organisation quarter on quarter. The Vice-Chancellor would be seen quarter after quarter defending the profit numbers and not talking about the merits of good education.

On the flip side, the courses would be priced to the market. Hence all the "inefficiencies" of the university would be built into the pricing of the courses. This would make the courses expensive. The cost of affiliation would be high for colleges that, in turn, subsidise education.

Another Regulator?

Would there be reservation? After all, private companies are resisting it. Thus the advantages the University enjoys would be largely nullified if a true financial price were put on the services.

The virtual monopoly status of the institution will invite the establishment of a regulator, yet another, for fixing fees.

Raising money from the market requires a proper business plan that promises a return to the shareholders. Being a for-profit company requires a service orientation on part of the management as well as all the people associated with the company. One approach would be to activate the large number of alumni that have passed out of the university over the last 150 years. Or, work with the corporate sector more actively and produce students to its requirements; Nasscom is working to meet the needs of the software companies by getting persons with various skills. Extending the thought, would SEBI, TRAI, IRDA or RBI also look at the capital market to fund their activities? Extending the thought, Should other government functions/agencies, such as law and order, or justice also be owned by shareholders?

Should monopolies be allowed to exist in the private sector and set their own prices? Should such organisations be allowed to set their own service or product quality parameters? The answer is obvious.

A large number of responsibilities have already been abdicated by many a department. The country seems to copy models of other countries easily especially when private the profit motive is facilitated. Sometimes we do two opposite things in the same field and justify both! In nutshell, it is obvious that a regulator or an authority of any kind, a university included, cannot and should not be held by a few shareholders seeking profits. Instead it must continue to be held by public at large via the structure of government. The ills, if any rising out of such an ownership structure of lack of autonomy or financial allocation must be handled head on and not via such alternatives that may lead us all to poverty of money and knowledge.

(The author is Managing Director, Asit C. Mehta Investment Interrmediates Ltd, and can be contacted at damehta@acm.co.in)

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