The government’s proposed scheme to invite private players to run hospitals and schools in partnership with it might not be open to the most preferred business vehicles in these sectors – trusts and societies.
The preferred partner would be a registered company. The essential reason is the scalability of a company, a quality that trusts lack. Greater transparency in reporting financial performance is another reason to prefer companies. While the government is yet to work out the regulatory and legal changes that would have to be made to operationalise its public-private-partnership (PPP) plans for health and education, it contains within it the possibility of India’s education system shedding its current hypocrisy that commercial motives play no role in education. At present, schools, etc. are run by trusts, which are not supposed to make profits. Or they could be run by not-for-profit companies falling under Section 25 of the Companies Act, which are obliged to reinvest their profits for further pursuit of their stated objectives. In either case, surplus cannot be transferred to the promoters under the law. This restriction is circumvented, in practice, through assorted ways. The PPP model would work by allowing companies to generate returns, if not directly from the running of the educational institution in question but by utilising some under-utilised asset of the educational institution in question. Whether this would require modification of the current legal standing of education vis-a-vis commerce is being worked out, according to a senior government official. “We want entities that are subject to adequate disclosure requirements and internal governance processes, not fly-by-night operators,” said the source.