In his seminal work Capitalism and Freedom, Nobel laureate economist Milton Friedman wrote thus in a chapter titled ‘Occupational Licensure’: “The overthrow of the medieval guild system was an indispensable early step in the rise of freedom...men could pursue whatever trade or occupation they wished without the by-your-leave of any governmental or quasi-governmental authority. In more recent decades, there has been a retrogression." Friedman went on to write about the American Medical Association, describing it as “the strongest trade union in the United States."

A modern-day guild can be thought of as a regulatory body or system which is either indirectly ‘captured’ by industry incumbents, or worse, is directly controlled by them. Several examples in professional services abound—one of the most pernicious ones in India today is the medical fraternity that is responsible for artificially and selfishly reducing the supply of new doctors. Even when the fraternity, which controls the powerful Medical Council of India (MCI), allows supply to expand, the MCI extracts rent through various official and unofficial mechanisms. The practice of charging capitation fees to admit students is just one type of rent—and these practices abound in a country like India where the number of doctors and medical practitioners, both generalists and specialists, is by any reasonable measure shockingly low.

Given the obvious importance of the healthcare sector, the picture in India is deeply disturbing. In July 2014, the Narendra Modi government appointed the Ranjit Roy Chaudhury Committee to develop a reforms road map for medical education in India, and the committee submitted its report in February 2015. Additionally, the Parliamentary Standing Committee on Health and Family Welfare (chaired by the Bahujan Samaj Party’s Satish Chandra Mishra and subsequently by the Samajwadi Party’s Ram Gopal Yadav) submitted its report on the functioning of the MCI to Rajya Sabha in March 2016. This report pulls no punches in its assessment of the role of MCI and is scathing in its indictment of the role of the principal medical education regulator. “India has not been able to leverage its economic growth to achieve the desired healthcare outcomes," it says. The committee cites an expert opinion that “if we add 100 medical colleges every year for the next five years, only by the year 2029 will the country have adequate number of doctors." Separately, data journalism website IndiaSpend has estimated that India has a shortfall of 500,000 doctors.

The picture becomes even more grim. Drawing from Census 2001 data, the World Health Organisation (WHO) published a detailed study on the Indian health workforce in June 2016. The report says that 57.3% of practicing allopathic doctors in India did not have any medical qualification whatsoever, and 31.4% were educated only up to the secondary level. In rural India, only 18% of allopathic doctors had medical qualifications. As per 2001 census data, 175 of India’s 543 districts had no dentists at all. It is worth examining how these figures have evolved over the last 15 years.

The implications are mortifying—reliable healthcare is unavailable for a vast number of Indians, and people are forced in desperation to try out all kinds of dubious medical treatments. Once in a while, a stark image of this failed system manifests itself in the public eye, like of the man from rural Odisha who carried his wife for over 10 km because there was no ambulance available in his rural area. The issue is of such grave humanitarian and economic importance that it can no longer be ignored. The MCI has evolved into a body that, rather than being a competent regulator, has become a powerful rationing authority controlled by those it is supposed to regulate.

It is in this milieu that Niti Aayog has proposed a far-reaching overhaul of the MCI, and predictably, the reform effort has attracted its share of detractors. Niti Aayog’s reform proposal builds on the recommendations from the Roy Chaudhury and parliamentary committees. Interest groups who would lose out if this supply side reform were to be successful have attacked the reforms principally on two grounds—that taking away the MCI’s election system is an attack on its democratic ethos and autonomy, and that for-profit education should not be permitted.

Of the 102 members of MCI, 67 are elected. The parliamentary report noted that nowhere in the world does a body tasked with regulation of medical education elect its members, and elections in the MCI have only worsened corruption, with special interest groups and money power, rather than technical competence and public interest, dictating who is in charge. But absurdly enough, in India if anything involves voting, legitimacy is automatically deemed to be have been conferred no matter what the outcome. The parliamentary report observed that “elections are unlikely to produce regulators of repute and moral authority", and instead supports selection of regulators through a rigorous and transparent process, a recommendation also endorsed by Niti Aayog.

Stunningly, even if an MCI member is proved to be corrupt, under the current legal framework, the government can do little to remove him. The parliamentary committee observed that this was “symptomatic of the rot within" and pointed to “a deep systemic malice".

The second criticism, that for-profit education would bring corruption, is a red herring. The fear peddled by special interest groups that somebody may make money if liberalization is pursued has been the bane of the Indian reform project, propped up every time the government tries to introduce liberal economic policies in a controlled sector. Disallowing for-profit medical education has only driven profit-taking underground with medical education institutions siphoning off cash by employing various kinds of convoluted schemes and inventive fee structures. Not only does this deprive the government of tax revenue, it breeds corruption while everyone is able to hypocritically pretend that no profit is being made.

A technically competent regulator in the form of the proposed National Medical Commission that is empowered to define and impose globally benchmarked recognition and certification standards will ensure that quality is not compromised even as supply increases. Finally, competition between medical institutions and an enlarged workforce of trained healthcare professionals will help mitigate prices for consumers. Union and state governments have already taken a number of measures to provide low-cost insurance and cash transfer-based welfare to the poor. These are demand side measures. Niti Aayog has now taken a bold step by saying that profit should not be a dirty word in medical education.

Finally, India needs to curtail the rise of occupational licensure in other sectors as well. Friedman had explored three different approaches—registration, certification and licensure. In ‘registration’, a new entrant merely informs the government. In ‘certification’, no permission is needed but the government ranks or grades the entrant over time. The first two approaches should suffice for professionals such as barbers and plumbers. Arguably, even if one wants to open a law or management school a ratings system should suffice. The third approach of licensing, however, may be better suited for more mission-critical training or education where the costs of failure are high, such as for medicine and engineering, but here too continuous vigilance is necessary to prevent regulatory capture.

The near-absolute control of doctors and medical professionals over medical education in India is akin to industrialists controlling the commerce ministry’s Department of Industrial Policy and Promotion through a body like FICCI or Confederation of Indian Industry. Ending this absurdity is necessary to improve the quality of healthcare in India. Niti Aayog’s proposal is a transformational supply side measure that the government should implement swiftly.

Rajeev Mantri and Harsh Gupta are co-founders of the India Enterprise Council.

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