How demonetisation will impact the education sector

Published: December 12, 2016 6:49:27 AM

One of the key advantages of demonetisation is that it can create a level-playing field for aspiring and deserving students, who are unable to pay capitation fee (donations), which has been prevalent in the Indian private education system

Money in the education ecosystem flows in many forms. Imagine a student paying the fee to an institute. This fee has multiple components—admission fee, tuition charges, transportation charges, hobby activities fee, money for uniform, to name a few. The aggregated amount paid by parents is disbursed in different bank accounts based on the various fee elements mentioned herewith. This payment by parents is in part cheque or demand draft or digital, and in part cash.

Hereupon, with the demonetisation of Rs 500 and Rs 1,000 bank-notes last month, a lot of hassles will get sorted for both the institutes as well as parents. On parts of both ends, the cash management gets eliminated and there is total management system accountability for the money trails. Auto debit to the payer account and credit to the receiver account ensures that there are no chances of any revenue leakage in the system. In addition, it will ensure that capex (capital expenditure) and opex (operational expenditure) accountabilities are assigned to the right heads rather than facing issues of reconciliation.

One of the key advantages of the demonetisation step is that it will create a level-playing field for aspiring and deserving students, who are unable to pay capitation fee, which has been widely prevalent in the Indian private education system. Capitation fee is a transaction whereby an institute that provides educational services collects a fee that is more than what is approved by regulatory norms. In simple words, this is the money paid to the educational institute by parents of such students who have underperformed in their academics, but who get admission based on capitation fee. It is commonly called donation, and some times the amount is more than 100% of the usual fee.

Now, going forward, the amount of unaccounted wealth with many such parents is likely to considerably reduce, resulting in increased opportunities for those students who are capable, but previously edged out by capitation-fee-paying students.

The next wave of the demonetisation impact is on the larger education ecosystem, where the management of campus vendors will go digital. Among other things, it will bring in discipline in payment management. Another change we are going to see is campus spend by students—transactional costs for canteen, monthly food bill, buying stationary, getting academic notes arranged and so on. Until now, everyone used to carry cash for petty educational expenses, which, it is expected, will go digital. It may be a lesser-talked-about thing, but the fact is that short-term loans between students are commonplace and its accountability has always been an issue. Similar are credit transactions between students and campus vendors. Now, it is expected that students will have a digital wallet and will be able to keep track of receivables and payables, bringing maturity and discipline in campus money management.

Demonetisation will also lead to a high proportion of people changing their purchase habits and increasingly using online payment wallets, credit and debit cards, to carry out transactions. The education sector will benefit from the efficiencies brought by this new payment infrastructure, in terms of fee payments, benefiting both educational institutions and parents/students.

Demonetisation, it is expected, will result in a large proportion of unaccounted/black money going out of circulation. This, in conjunction with the cash collected due to recent spate of bank deposits, will help the government increase its expenditure on key public sectors, including education. Making of world-class campuses is possible only when the money is available on the table. With the same becoming accountable, the dream of achieving Ivy League standards by educational institutes will get closer to being realised.

Demonetisation and the subsequent increase of payments through the banking system for purchases by the population will increase tax collection by the government from 4% to a higher proportion of the population. Even if one were to assume similar levels of system leakages, as previously, in terms of use of tax money towards creating public infrastructure, the extra tax collection should lead to a higher level of government expenditure towards sectors, including education. This can help improve physical infrastructure and facilities, increasing salaries of teachers and staff, and provide an overall lift to the sector in India.

Rishi Kapal is CEO of Edugild, an ed-tech accelerator, and an international speaker. Ajay Malik is head, Financial Consulting & Technology Division, Nomura Research Institute Financial Technologies

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.