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The Economics of Coaching Classes

A thriving coaching culture in both urban and rural areas has emerged in a country that's obsessed with entrance exams.
Photo: Ankita Konwar/Unsplash

Markets are acclaimed to give perfect solutions that satisfy both the consumer and the producer. They are said to bring together ‘all those who are willing and able to pay’ with ‘all those who are willing and able to sell’ at a certain price called the equilibrium price.

In this situation of market equilibrium, that almost sounds platonic, several contentious questions emerge. Is everyone willing to pay? Who is not able to pay? Does it matter? Do they know what they are paying for? Who is the producer? Is profit their only motive? Obscure answers to these questions have led economists to conclude that the ‘invisible hand’ of the market may not always be the best way to organise economic activity.

Markets work efficiently for ordinary goods like online taxi services and even in case of ‘bads’ such as tobacco, logical solutions are provided by the market. However, the ‘good’ in question is education and the agents providing it are the coaching centres. Without getting into the philosophical debate on what is education, we look at this fairly complex good from an economist’s perspective and question the efficiency of coaching classes and how much well-being they actually produce in the society.

Education in itself, especially at the school level, is declared to be a public good which is non-excludable and non-rival. This means that nobody should be excluded from its consumption and consumption by one should not rival the other’s. With private schools occupying 31.5% of the total schools, 46.7% in total enrolments and 49.3% of total teachers in India, the ‘public good’ nature of education becomes blurred.

Private schooling is both excludable and rival. As if this complexity was not enough, shadow schooling in the form of coaching centres have mushroomed all over the country to meet an unprecedented demand. The 75th round of the National Sample Survey (NSS 2017) states that 27.2% of students in rural areas and 38.3% of urban students take private tuitions at the secondary level. The 2022 ASER report states that the proportion of rural Indian students between grades 1 to 8 taking private tuition classes increased from 26.4% in 2018 to 30.5% in 2022. 

The genesis of a massive and progressively increasing demand for private coaching is the substandard state of government school education. Nearly 35% of both urban and rural students report this as the reason to opt for private schooling, according to NSSO data. The share of government schooling at all levels of schooling is higher in rural areas, at 68% at the secondary and higher secondary level; than in urban areas where the same is at 38.8% explaining the increasing demand for private coaching.

A thriving coaching culture in urban and rural areas has emerged in a country that’s obsessed with entrance exams. Appearing as ‘ancillary units’ of private schools, coaching centres have witnessed a phenomenal growth with some becoming unicorns and case studies at Harvard Business School. The rising feeling of irrelevance of schools – since they do not provide the code to crack entrance exams – has made parents and students flock to private coaching centres to fill that gap.

So far what sounds like a simple story of effective demand in economics takes a twist because of the original nature of education as a public good that we began with. Public goods create ‘externalities’ or spillover effects that affect the society positively apart from benefitting the consumers themselves.

Education, justifiably, has several positive spillovers that may or may not recognised by an individual compelling the government to make basic schooling not only free but also compulsory. Occasionally, however, a public good can turn into a public bad when they give rise to negative externalities.

Private coaching, that was originally intended to compliment school education has almost become a ‘substitute good’ with a rise in the number of private schools in the country that admit students without expecting them to be physically present. Emergence of coaching classes have turned mainstream schools into ‘dummy’ schools, allowing students to only attend science practical classes and appear for exams.

The anticipated high rates of return through private coaching gives ground for the steep investment in it, overlooking several negative externalities that have been internalised by the stakeholders especially parents. Charging anywhere between Rs 1,000 to Rs 6,000 per hour, private coaching makes up for the third biggest component of household expenditure on education.

A fervent ‘neighbourhood effect’ stating how consumer preferences are influenced by surroundings, seems to govern household decisions on consuming private coaching and with asymmetric information and uncertainty, in the form of lack of clear understanding of student’s own genuine interest, aptitude and inclination to pursue a certain course in future, it may result in suboptimal consumer choices. Massive advertising and aggressive marketing by coaching centres seems to have multiplied the demand for them validating the economic principle “Supply creates its own demand”.

 The externalities in case of private coaching are not immediately obvious as in a pollution emitting industry. The rise in dummy schools, extensive commercialisation of education, excessive focus on exams over actual learning, relentless scurrying of young children between school and coaching with little time for free play and finally increasing mental health issues among teenagers leading to growing suicide numbers are some of these problems.

Rajasthan’s Kota, the hub of private coaching, is infamous in reporting 20-25 cases of young students dying by suicide in fear of not fulfilling their parents’ aspirations.

Students accounted for 8% of the total deaths by suicide in 2022 according to the National Crime Records Bureau. Of these, most of the students were in higher secondary school. This loss of potential human capital plus loss of productivity among related family members due to acute distress appear intangible although real. 

Professor Tilak, an eminent researcher in the field of education talks of three ‘fads’ in education: Private education is most efficient, English-medium education is very important and pre-primary education is essential. Tilak argues that all these ‘fads’ are mere views of people that lack research evidence.

That private coaching is a sure road to success can be annexed to the ‘fads’ list.

An IIT-Madras study revealed that 50% of students who got admission into IITs did not go to any coaching. The recent case of a missing teenager in Bangalore, who feared being reprimanded by parents for his poor performance in a coaching centre, created furore in society, prompting the government to introduce more regulation on private coaching.

Certainly government intervention is needed to correct ‘market failures’; in our case the failure of achieving welfare objectives intended through education. However, all regulation will be ineffective till the most important stakeholders, the parents, are fully convinced.

Between the risk taken by parents while perceiving education as a capital good and the joy and satisfaction experienced by students who are consuming it, there are externalities, positive and negative. There is a need to recognize and educate that education is a good where the impact is on parents (through fees), incidence in on students (through their schooling experience) and the effects are on the society (that could be positive or negative). Well-informed choices of parents, in clear recognition of their children’s interests and abilities will alone bring about the desired outcomes benefitting individually and collectively.

Dr Pushkarni Panchamukhi is associate dean at School of Economics, RV University, Bangalore. 

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