Monday, May 23, 2011

PPP in Education

It has been reported that government wants to expand PPP in education (and healthcare) sectors in the 12th Five year plan. While increased focus and allocations are welcome, government must introspect what has happened to existing schemes. The ICT@Schools scheme is one of the most successful schemes to date with several thousand of schools being enabled with IT labs, lower teacher absenteeism and better academic performance due to participation by companies such as NIIT, Educomp, Everonn etc. However, lately these companies are staying away from such tenders as the scheme is marred due to excessive delay in payments by state governments. While these private players put in upfront capital to create infrastructure and take servicing responsibilities the least they can expect is timely payments. The average receivables/payment cycle for most of the companies is over a year with some states not paying for even longer durations leading to expensive capital being stuck in these contracts. In the last 12-18 months none of the large players has taken up new schools contracts. Even though some new players have emerged the pace is no where near what it used to be over the first half of the 11th plan.

Similarly, despite much fanfare the PPP scheme for model schools is floundering. Top areas for improvement for these PPP schemes are 1) tendering process b) timely payments c) recognizing that the private sector's main motivation is creating shareholder value

One excellent scheme that is doing well is the one for vocational skills. National Skills Development Corporation is a fantastic structure for encouraging private sector capacity creation. It has already given soft loans to over 30 projects including to Everonn, which aims to train 15 Mn people over 10 years. The aim of NSDC is to train 150 million people by year 2022 vs current total capacity of less than 5 million per year. NSDC's target is part of overall target of the government of creating 500 million skilled people by the year 2022. NSDC provides primarily soft loans to private companies with no further interference. No doubt, some of these  ventures would fail to achieve target capacity but NSDC would achieve large numbers at fraction of the cost otherwise required.

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