The Concluding Part — 3


The material well-being of a nation depends on the productivity of its workers. How much workers produce—the productivity of workers—is a function of how skilled they are in their various occupations, which is directly related to how good their education is. The fundamental determinant of a nation’s prosperity is the quantity and quality of its educational institutions.

India’s education system is arguably the worst among the major economies of the world. That’s not because Indians are remarkably natively incompetent to run educational institutions or have some special handicap that prevents them from becoming educated. It’s because they are prevented from creating world-class educational institutions in India and lack the opportunity to get an education that they are capable of.

Indians lack educational opportunities because the government of India has rigged the education system against them. Why would they do that? Because the politicians and bureaucrats profit from the rigged education system. By restricting the supply of education, they drive up the cost and profit from their monopolistic control of education. This is Econ 101: monopoly control drives up profits and drives down quality.

How much do the politicians and bureaucrats gain from this? I would estimate that annually the politicians and bureaucrats gain at most $2 billion. Peanuts, you’d agree considering we are talking about the annual GDP of $2 trillion. But how much do Indians collectively lose in comparison to the $2 billion that the politicians and bureaucrats gain?

I estimate the losses to be at least around $1 trillion per year. That’s at least three orders of magnitude larger loss to India than the gains to the politicians and bureaucrats. I will not go into the calculation here.

In the previous post, I analogized the situation as if a burglar were to burn down your house to steal your silverware: his gain would be trivial compared to the loss you suffered.

The government does not allow the free market in education to operate in India. The ostensible reason? “Education is too important a matter to be left to the for-profit institutions. Only not-for-profit institutions must be allowed to provide education. Education cannot be a business. It’s public service, for the public good. Only the government officials are the angels we need to save us from the rapacious greed of the for-profit corporations if they were allowed to enter the education marketplace.”

With that as the cover, the politicians and bureaucrats make a fine killing handing out licenses and permits for themselves and their cronies to run educational institutions. These institutions are worthless and most Indians suffer the terrible consequences of not being even remotely educated.

Only the rich can afford to break free of this murderous chokehold that the politicians and bureaucrats have on the country: they just send their children abroad for education. By my estimates, currently the Indian rich spend an estimated $30 billion a year.

I don’t have the time to go into the details now. So I will just quote a bit that I wrote 8 years ago.

Though it does not provoke much thought, the matter of why Indians are forced to go abroad in very large numbers to study should be of serious concern. The numbers are startling. An estimated 270,000 students – over a quarter of a million – Indians study abroad at an annual cost of US$ 8 billion which is more than twice the Union budget’s allocation for higher education in India.

Every year around 38,000 new Indian students enroll in universities abroad, mostly (32,000) for master’s degrees. This shows that there are people willing to pay for higher education and are qualified to study further but that they lack the opportunity to do so in India. India’s education system is one of the saddest stories that can be told about India.

It is hard not to compare India with other countries. A liberal estimate of foreign students studying in India is 9,000. Compare that to Singapore. Singapore’s population of 4 million is actually less than the rounding error in India’s population of 1,200 million. Yet Singapore attracts 100,000 foreign students, about 10,000 from India itself. Singapore earns around US$2.5 billion a year from foreign students.

Australia earns US$17 billion a year serving 620,000 foreign students, of which 100,000 are Indian. Annually Canada earns US$ 7 billion from 180,000 foreign students, of which 10,000 are Indians. Once again, the populations of these countries – Singapore, Canada, Australia – are mere rounding errors compared to India’s population. Yet, the number of foreign students in India is just a rounding error compared to foreign students in those tiny countries.

One last set of numbers. The US is a large rich country. It earns US$ 20 billion a year from 200,000 foreign students, half of which are from India. Which brings us to those insistent questions: why are Indians studying abroad at enormous costs? Why is India’s education system unable to educate qualified Indian students?

Let me stress that these numbers are from 8 years ago. The cost of education abroad has nearly doubled since then. The numbers of students have also gone up significantly.


Time to bring this to a close. India is still quite abjectly poor. It’s not very difficult to figure out the various reasons. There are more than one. Nothing that fails in such a spectacular fashion can have a single cause. A whole set of failures have to conspire for a disaster of this proportion to unfold over nearly a century.

Every causal factor can be explained using nothing but the basic principles of economics — especially the principles of public choice theory, which explains why politicians and bureaucrats act the way they do.

Among the various factors, I pay special attention to education. Education is the most important factor that leads to economic prosperity. It is also the one factor that if missing, nothing else can be of much help. A country could have tons of “natural resources” (say, petroleum reserves) but if the population is not educated, the country will fail.

In the 21st century, China could be the nation that challenges the US hegemony. As for India, it has already fallen so far behind China that India is no longer visible in China’s rear view mirror.

Why is that so? That part will have to wait for another day.

Author: Atanu Dey


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