Foreign direct investment in Indian higher education sector

Abstract

Education has always been a growth driver for development. India's higher education sector is today, and has been for quite some time, at the proverbial crossroads where opportunities and challenges abound. Demand of skilled workers in the knowledge economy has created hindrance for a large portion of world youth, especially in developing countries, where higher education system has not been able to realize sufficient ‘value addition’ in terms of enhancing the employability in the new age labour market. Educational reforms are more intrinsically tied-up with and can have stronger influence on the youth employment opportunities than ever before. The success of school reforms over the past 15 years has increased not only supply but also demand with the number of students seeking a higher education increasing exponentially in recent decades. The continuing growth of the middle class in India (approximately 300 mn people) has led to increased demand for higher education that cannot be met by the Indian Higher Education system as government spending on higher education is only 0.63% of GDP (of a committed 6% to education as a whole), versus an OECD average of 1.5%. The government increased the allocation for higher and technical education 9-fold from INR 961 bn (USD 2.1 bn) in the 10th Five Year Plan to INR 849.4 bn (USD 18.6 bn) in the 11th Plan. However, even such a massive increase in public investment is not sufficient to meet the rising demand for higher education in the country in fact as per the funding gap identified by the Indian Government’s Planning Commission stands at a massive INR 2,200 bn (USD 48.2 bn). The public resources are far from sufficient to meet the growing demand for quality higher education. Having successfully implemented the reforms in telecom and IT sector, India is in better position to meet the growing demand in education sector by liberalizing the sector. Foreign direct investment in higher education could help not only reducing government expenditure but also in increasing the quality of education. If the government does decide to throw open the formal education sector to for-profit private players, we expect the liberalization process to start with higher education sector as it has high profit potential. However unlike other sectors where reforms have been successful (telecom, IT), the high involvement of politicians (~70% of HEIs in Maharashtra are run by politicians) given the segment’s high profit generation potential (though indirect) make the much-needed reforms too difficult to implement. An extensive study for effective implementation of these reforms would be the need of hour. A recent development in higher education is that foreign educational institutions are increasingly interested in India as a nation which is, and will continue to be, an important world force in the coming decades. As part of drawing up clear regulations and procedures for foreign universities interested in establishing linkages in India with Indian institutions and ensure transparent and quick implementation government has come up with foreign educational institutions bill and has presented the same in parliament. A study on how this bill addresses the current issues in the Indian higher education scenario is a need of the hour. It is also necessary that we look at the experience of other countries while implementing the reforms in higher education and take the important learnings from them while we implement the foreign entry regulations.