To paraphrase one Nobel prize-winning economist, once you start thinking about Indian education, you cannot think of anything else. The subject fills you with awe, wonder, anger, disappointment, hope, despair, and immense sadness.

India has an astounding number of schools: more than one million by some estimates. But it is deeply disappointing that over ninety percent of India’s children drop out of school by the time they reach the 12th standard. Of the small percentage that actually go on to college, very few graduate as professionals.

It is quite impressive to note that 350,000 graduate out of colleges every year. Yet the quality of our colleges are so dismal that only about 15 percent of our graduates are employable. It is sad that after spending nearly 8 percent of GDP in education, the system is a disastrous failure to the vast majority of the people of India.

And yet we hear of the immensely successful NRIs who had their undergraduate education in elite institutions such as the IITs. Clearly the system has worked for this tiny minority as spectacularly as the system has been a tragedy for the overwhelming majority.

To explain the failure of the system, one has to start at the beginning. The criminal neglect of primary education starts with the involvement of the government in providing primary education. Universal primary education is too important an activity to be entrusted to corrupt and inept public sector bureaucrats. To actually deliver a quality product most efficiently, the only option is vigorously competitive private sector participation in the provision of not just primary education, but all levels of education.

It is true that the private sector will only serve those segments which have the ability to pay. The role of the government is therefore to support financially those who don’t have the ability to pay on their own. Then the poor will also constitute paying customers for the competitive private sector educational institutions.

The operative word is “competitive” – competition must not merely be allowed in the private education sector, it must be actively encouraged. Only through the forces of competition would the immense task of making education available and affordable to all be accomplished.

There are a number of distinctions between the way the private sector operates and the way that the public sector operates: the private sector firms are constrained by hard budget constraints and have to operate at a profit. They can only make a profit if and only if the benefits of the service which they provide exceeds the cost. Private sector competition ensures that the profits are not super normal.

To survive in a competitive environment, private sector firms are forced to innovate. Innovation which is sorely required in the education sector will be missing as long as the government is involved in it. Monopolies in general don’t have an incentive to innovate, and it is a theoretical impossibility (supported by empirical evidence) for a public sector monopoly to innovate. As long as the government has a monopolistic control over education, there is little hope of innovation.

The policy prescription is straightforward to state. First, liberalize the education sector and not merely allow but actively encourage private sector participation and competition in education. Second, provide need-based financial support for universal education up to the secondary school level. Third, provide loans to all those who qualify for enrollment in higher education. Fourth, for those who do not qualify for higher education, provide channels for vocational education.

The educational sector is ripe for innovation. The most appropriate innovation will be the use of information and communications technology (ICT) tools. There have been phenomenal advances in ICT. More than any other sector, education can benefit from it because ICT has the potential to reduce the cost of providing quality education. The use of ICT in education will be as fundamentally transforming as the invention of books was in the previous revolution in education.

Books reduced the cost of education because they could conveyed information across time and distance, and were cheap to reproduce. Books were an innovation compared to the system where humans had to be directly involved in the transmission of knowledge. The time has now come to replace books with its cheaper alternative: information in digital form. Among the great advantages that digital information has over books is that content can be far richer than mere textual information: now it is possible to have hyperlinked content in the form of audio, video, text, and graphics.

It is easy to predict that education will be transformed by the use of ICT tools. There are huge potential commercial gains and at the same time, there is the opportunity to do good. We are only constrained by our imagination.