In a world that shares the notion of equal opportunities, university and university education are no exception. Though in the world of competitive financing for public good, equitable distribution is a utopian ideal. Policy awareness of educational inequality can drive progressive citizen, corporate and legislative behaviour. This article stresses the third dimension which has the potential to bring about a positively disruptive and transformational shift in the equitable growth of social sectors like education and health.
According to the latest US National Centre for Education Statistics data, the combined market value of endowment of US universities and colleges end of 2018 was $650 billion, of which the share of the top five (Harvard, University of Texas System, Yale, Stanford and Princeton) was $150 billion. If we include only Oxford, Cambridge, Kings College, Edinburg and Imperial College, add another $15 billion. According to a study by the National Association of College and University Business Officers, the average endowment return end of fiscal 2020 was at its lowest 1.8 percent. Even this sub-par return puts the average 10-year historical endowment returns at 7.5 percent from a diversified investment asset allocation. To put this in perspective, the endowment income alone is many times more than our annual Union budgetary allocation for education. Can we generate such fat university endowments? Yes, we can, and here is how.
The Finance Bill, 2017, inserted certain provisions in Sections 10 and 11 of the Income-tax Act, 1961, to the effect that corpus donations made by entities registered under 12AA or 10 (23C) to other entities registered under Section 12AA or 10 (23C) cannot be treated as application of income. The thought process behind this amendment is well understood and we share the concerns of the then Finance Minister. The current limitation of not treating corpus donations to other charitable donations deprives other charitable institutions of their philanthropic capital. The civilisational assets of India which rely on such philanthropic capital get impoverished.
Secondly, this limitation may also result in avoidable but allowed expenditure by 12A registered trusts to meet the 85 percent of non-corpus income and such expenses need not necessarily benefit the charitable institution. The 2017 amendment needs to be revisited in the light of various developments which include the pandemic and our National Education Policy 2020 quest to build world-class institutions. The embargo on corpus donations to other registered entities need not be relaxed but certain provisions may be allowed through suitable statutory enablers.
One such important enabling mechanism is to allow the creation of internal corpus or endowments. Charitable institutions themselves should be allowed to create internal corpus or endowments, to serve a larger cause in the longer run to achieve higher educational outcome targets. Premier institutions like the IITs and IIMs have the Union government, corporate and overseas alumni support. India’s educational landscape is not just IITs and IIMs but beyond them.
Though accumulation of funds for specific purpose is allowed under Section 11 for a period of five years, it is still short-sighted. We need massive internal endowments that can rise during tough times like the current pandemic or for visionary institution building. All charitable institutions running higher educational institutions and schools should be allowed to build internal corpus or endowments for faculty development, student scholarship, infrastructure modernisation, operational expenses during turbulent times or for similar purposes. Nearly 50 percent of the North American institutions upped their endowment spending during this pandemic. Internal corpus for specific schemes will ensure eternal life to the charitable purpose as the fund stays within the institution forever. This is how world-class institutions provide resources for student fee waivers, research support, infrastructure expansion, faculty development, social outreach, etc.
The Ministry of Finance (MoF) through the Income Tax Department may approve the creation and enrichment of such schemes and treat it as application of income. The genuineness of such internal corpus and endowments, and their investment asset allocation shall form part of the annual scrutiny to ensure that the object of the fund is achieved. This narrows the ‘academic Gini coefficient gap’ resulting in equitable and qualitative growth in educational institutions ensuring affordability, accessibility and inclusivity. I am sure the Hon’ble Finance Minister considers this progressive and honest suggestion for implementation.
S Vaidhyasubramaniam
vaidhya@sastra.edu
Vice-Chancellor, SASTRA Deemed University