FOREIGN DIRECT INVESTMENT IN EDUCATION SECTOR (HIGHER EDUCATION) IN INDIA

-Why should we allow it?

INTRODUCTION

In developing country like INDIA, higher education is of great significance where the country’s

growth is service led. Higher education comprises inculcating of awareness, encouraging vital

thoughts and imparting expertise relevant to the economy. Teachings are highly origin specific

and thus are driven by the existing culture and priorities in the nation.

Education institutions in India have witnessed dramatically rapid growth, by doubling the

number of universities since 1990-1991 and the enrollments being more than double at the

expense of quality, decreased flexibility in the course design, poor combination of knowledge

and increasing rate of unavailability of laboratories, journals, field work etc

An average Indian graduate is poorly compared with their equivalent in other developed or for

those matter even developing countries. All the leading institutions in India are exceptionally

discerning, and well financed, still they face the problem of relevance and draining of talent

Thus, this calls for restructuring, administrative changes, thick funding and larger flexibility,

quality up gradation etc.

HIGHER EDUCATION IN INDIA

Knowledge is the thrust of the swiftly shifting globalised economy. Magnitude and excellence of

the specialized human resources resolves their fitness in the global market. Surfacing of

knowledge as the dynamic factor resulted in both challenges and opportunities. It is now well

known that the growth of the economy depends upon the level of education prevailing in that

nation, and those they are in the need of specialized human capital to flourish. And India is no

exception.

India has witnessed some of the great institutions like Takshasila, Vikramsila, Pallavi and

Nalanda Vishavidyalayas and was able to attract large number of learners from India and abroad

during 40’s and50’s. “At the beginning of India's independence, there were 19 universities and

591 colleges while students enrolment at the tertiary level of education was 0.2 million. After the

independence, there is great advancement in these numbers. India is the third largest higher

education system in the system in the world (after China and the USA) in terms of enrolment.

However, in terms of the number of institutions, India is the largest higher education system in

the world with 17973 institutions (348 universities and 17625 colleges). This means that the

average number of students per educational institution in India is also lower than that in the US

and China. On the other hand, the public expenditure on education is only about 3 percent of the

GNP. More particularly, only 0.37 percent of GDP is spent on higher education in India and this

has been falling in recent years.”

(Ref: Political Economy Journal of India, July- December 2009)

BASIS FOR FDI IN HIGHER EDUCATION IN INDIA

The implications of FDI into higher education are not a simple question as it has its bearing not

only in the higher education, but also on the education sector and more broadly on the whole

process of creation of knowledge. The policy of FDI in education services is through

involuntarily route. In the lack of any policy in this sector, foreign capital may flow in or out by

means of ‘offshore foreign institutions' campus or through the tie-ups with the private partner in

India. There is also no edge for foreign capital investment in education services. Since the

foreign education providers are coming in free-for-all manner, an unregulated inflow of foreign

capital particularly in education sector is a cause of great concern. It is now felt that FDI in

education must be guided by certain norms and direction, as it is a insightful sector and its

implications should be tested before any FDI policy

“Foreign education institutions should be permitted in with policies to guarantee the incentive for

good institutions and disincentives for sub-standard institutions to coming to India, and all

conventions that apply to domestic institutions should also be appropriate to foreign institutions.”

(Ref: Sam Pitroda on behalf of the National Knowledge

Commission (NKC) on January 12, 2007)

As a source of investment Education was considered as non-tradable and the government used

to fund education through domestic resource mobilization. In the Higher Education, 90’s are the

decade of falling percentage budgetary allocation on secondary, higher and technical education.

The resource crisis in these sectors have adversely affected the public sector and promoted the

private sector participation at almost all levels of education. The participation rate was intended

to increase from7 percent to 10 percent. It was argued that foreign investment in education

might lead to cultural imperialism. Thus, education should be national agenda purely funded

through domestic resources.

Quality Issue It was argued in favor of FDI in education that foreign institutions can bring

quality programs with market orientation. Besides, updated curricula, teaching-learning

processes, evaluation of processes may be internalized within educational institution in India. It

may also reap the benefits of improved managerial and organizational skills to run the

institutions. It is also argued that FDI could promote competitiveness in the education system as

a whole. The critics maintain that the quality could be maintained in certain specific sectors,

where FDI takes place, whereas in mass education sector the spillover effect of quality may not

take place. In fact, it might lead to dualism in education. Hence, critics maintain that there

should be no liberal FDI policy in education.

Export It is also argued that there is a positive correlation between FDI and export. Hence it is

argued that allowing FDI in education might lead to export of Indian education abroad in which

there are large potentials in South East Asia, Africa, and Latin America etc. Education may,

therefore, turnout to be net exporter and earner of foreign exchange. It is, however, maintained

that foreign institutions would be interested to exploit the large market in India, rather than

exporting education from India. There is also no empirical evidence to show the positive

association between FDI and export.

STATUS OF MOVE TO ALLOW FDI IN EDUCATION SYSTEM IN INDIA

When we go for international agreements for services, there are certain international obligations.

Some of the things that India wants that other countries should do, the other countries also want

India to do them. Take the example of Indian students going abroad to study. Similarly, their

students will also come to India. If we expect our students to get scholarships and fellowships

abroad, the same would be expected out of us in return. We cannot just turn around and say,

India is poor and so we cannot do anything. Therefore, foreign direct investment in education or

opening up the Indian education sector to foreigners or allowing foreign universities to come to

India this is now no more a matter of choice. These are international obligations. The issue is

when to discharge an international obligation and when to allow FDI, the essentiality lies in what

care are taken to protect domestic education sector. Allowing FDI in the education sector cannot

be postponed any longer; however, it should be ensured that Indian universities and colleges that

are working in relatively unfavorable conditions as compared to foreign universities should be

given a level-playing field.

“For example, nearly 60%-70% universities in India have 20%-30% teacher vacancies.

Resources, technology, teaching personnel, syllabus, take any indicator; the foreign universities

will be superior to ours. Environment should be bent so that our universities can compete with

them when they come. The entire higher education system of the country including appointment

of vice chancellors, autonomy of the universities and the examination system has to undergo a

substantial transformation. “

(Ref: Planning Commission member Bhalchandra Mungekar views)

The Government has even decided to evaluate the policy on foreign direct investment (FDI) in

primary and elementary education. The administrative ministry, the Ministry of Human

Resources Development (HRD), has set up an internal committee to assess whether it is

attractive to open up the elementary education sector to 100 per cent foreign investment. The

committee will also take a view on whether to reduce the existing FDI limit of 100 per cent to 49

per cent in the primary education sector. FDI in the primary education sector has already been

permitted through the automatic route. In the elementary education sector, FDI is not permitted

now.

There has been a dispute whether it is sensible to expose children who are at vulnerable age to a

new system of education whose values are not in line with our socio-cultural background. In case

the Government decides to reduce the FDI ceiling to 49 per cent in the primary education sector,

the majority stake in any venture would have to be controlled by an Indian partner. The interest

shown in investing in this sector has mainly been from a couple of players such as Denmark-

based Egmont Imaginations. The Danish company has approached the Government with a

proposal to set up 200 playschools in India. But the government didn’t show any interest as the

setup was not in the rural parts of India, so foreign direct investment in education system in India

has still a long way to go.

The foreign direct investment bill was formulated which looked up at allowing foreign investors

in higher education after studying the need for quality higher education institutes and necessary

frameworks. There was consensus within the government for looking at the prospect of FDI in

higher education given the level of brain drain in the country. A survey was conducted with the

delegates of the forum which listed education as the top choice for improving competitiveness.

Foreign direct investment bill was directed to retain the talent which goes out of the country in

search of opportunities.

“Over 1,30,000 people go abroad every year and if we can even retain 60 per cent of the number

then the scarcity of skilled manpower would be addressed to some extent,”

(Ref: statement proposed by kamal nath)

The new institutes which will come into existence as a result of the bill will open up new

opportunities in the sector underlining the need for urbanization of the rural educated youth. The

numbers of people who have graduated in the vicinity of the country are a misfit in the urbanized

world. There is a severe need for intensification of the system in a way that the process of

urbanization seeps into the rural parts as well.

Agreement on allowing foreign direct investment (FDI) in India's education sector plans to

"synchronize" madrassa education with the mainstream.FDI must come into India. Entry into the

education sector must neither be limited nor over-regulated which will make the system to be

accessible from outside too. The country should not be prevented from quality learning coming

from abroad.

"After all, 160,000 children go abroad from India at an overall cost of seven billion dollars.

Before going they face all kinds of visa problems while after going abroad, there are issues like

the attacks in Australia,",

(Ref: Kapil Sibal, minister for human resource development to IANS)

When the demand exists, why should the human resource is sent out? Foreign universities can

come at India’s doorstep; India has the potential to become a global provider of quality

graduates. The Foreign Educational Institutions (Regulation of Entry and Operations,

Maintenance of Quality and Prevention of Commercialization) Bill was cleared by the cabinet in

February 2007 but has been hanging fire. It seeks to regulate the entry, operation and

maintenance of foreign education providers and protect students from receiving sub-standard

education offered by institutions that view it as a profitable business.

MOVE TO ALLOW 100% FDI IN THE EDUCATION SECTOR- ISSUES AND CONCERNS.

The commerce ministry and most educationists are upbeat about 100 per cent foreign direct

investment (FDI) in the education sector. The move is aimed at increasing the number of foreign

students pursuing higher studies in India (which stood at 7,000 in 2001), and will also facilitate

retaining of 48,000 Indian students going abroad each year – a loss of $4 billion to the Indian

foreign exchange. But the commerce ministry is in for a long pull as the HRD ministry has been

opposing it on grounds that the move would go against national interest. It is not a single voice.

Some players in the field argue that a lot of foreign universities in India which have tie-ups with

institutes here are not recognized on their soil and award an MBA degree of lower value than

that awarded by an Indian institute. FDI in education sector is a guide of international

benchmarking and should be welcome. But it should be monitored and regulated well, keeping in

mind the national interest. These concerns apart, FDI in colleges by top global universities will

ease the pressure on students going abroad to pursue studies. It can be reasoned that India had an

outgo of $4 billion on education every year which could be saved by allowing foreign institutes

to set up shop in the country. FDI in education is a very welcome idea. It will not only support

funding of institutes but will also encourage institutes to be answerable and do the audits which

is not a regular occurrence now. Opening up the doors to the foreign varsities would imply that

foreign educational institutions would be allowed to establish wholly owned subsidiaries in

India, leading to a foreign education and certification for students. This would make foreign

education/certification more accessible to Indian students at a substantial cost by improving the

quality, efficiency and accountability in the educational institutions.

The General Agreement on Trade in Services of the World Trade Organization agreement

considers educational services also as tradable services. This is precisely because the estimated

market for educational service in the world is over one trillion dollars. Education is the fifth

largest traded service by the United States. Therefore the demand for setting up of foreign

universities is nothing to do with the interaction with the best global minds. In fact, such a

demand is primarily coming for reasons of trade and commerce.

In fact, there is nothing wrong if the best universities of the world like the Oxford or Cambridge,

Harvard, or MIT or London School of Economics set up their campuses in India even for

commercial purposes. It is also acceptable if the leading corporate giants specialized in an area

set up training centers or educational campuses in India. But, it should be looked that the third

rate universities of the West does not setup campuses in India and offer third rate degrees at

excessive price capitalizing on the craze that exists in Indian youth for foreign education.

THE CHALLENGE!!

According to one of the experts FDI flow in the country is “a misleading mirage”. None of the

foreign institutions has invested any money in this country in the last 10 years but offered around

150 foreign programs. A foreign investor to a huge extent is interested in selling its educational

products such as courseware, some of which are copyrighted, By Offering what are called

"twinning programs” or are "franchising" their degree programs. Motive seems to be only

commercial when the foreign universities charge heavy fees, without proper supervision and

quality monitoring.

The top-tier institutions will only be interested in collaborating with some of India's outstanding

institutions in research and development, for faculty exchange, in conducting summer schools,

and so on. Only the second- or third-tier institutions abroad may intend setting up shop in this

country offering programs.

“About 150 such programs offered with an estimated enrolment of about 15,000 plus students.

No agency is responsible for monitoring the nature and quality of these programs. A survey

found that 44 of these 150 programs were unaccredited and unrecognized in their own

countries.”

(Ref: Anandakrishnan, M., 2006, “FDI and False Hopes”, Frontline, Vol: 23 No. :

23 URL: http://www.flonnet.com/fl2323/stories/20061201002204300.htm Kaul, S.)

Competition entails reduction in costs; infrastructure, laboratories and libraries would find least

investment Possibility of attracting best teachers and financially well off students from local

institutions affecting them adversely. Exploitative environment in education institutes. Local

private institutions will raise their fee charges to establish competitiveness affecting adversely

those students who are studying in local private institutions.

CALL FOR FDI

On the flip side, look at the preferences to have FDI inflows: India has a huge population of

uneducated children and Constitution provides free and compulsory education up to the age of

14. The growth of the knowledge sector along with BPO is sending a new indication to the

economy. Contrary, India’s present growth is led by service sector, which has had a boost due to

the ICT revolution - India being skill-intensive sector. Service sector export requires a steady

supply of highly skilled manpower and that calls for robust higher education system. The

disgraceful medal for the largest absolute number of illiterates in the world hangs heavily round

our national neck. Private funding of Higher Education is not only possible but desirable. Also,

lack of funds investments in public funded institutions is being reduced. A large number of

Indian students go abroad for higher education. FDI will help in cutting on the outflow of Indian

students and access quality higher education in the country. Less expensive in terms of fees,

travelling costs and living expenses abroad offset outflow of our foreign exchange reserves.FDI

will create competition with the local institutions enabling them to become internationally

competitive by increasing the standards of local institutions forcing them to change their

curricula up to industry standards. Budget’s 6% investment in primary and secondary education

sector is yet to be decided by the government.In the committee led by Mr. Kumarmangalam

Birla and Mr. Mukesh Ambani projected that by 2015 the need to double the number of colleges

in India, which will require an investment of Rs. 11,000 crore were estimated. There is a need to

improve the Tertiary Education System but public funds are in short supply. To counter this

Private Sector funding is available and FDI in education is also possible.

SAFEGUARD NATIONAL INTERESTS WITH FDI’S

The government should make sure that what comes in is real money and that the programs

offered are in accordance with the priorities in this country.

It should also ensure that they follow the national policies in terms of equity, affordability and

access. The government should monitor the quality of the programs, verify the credentials of the

investor-institutions, and have a watch over newspaper advertisements by these institutions.

The need for financing of higher education for students, especially those coming from low

income household’s needs special attention subsidization of the interest rate for students should

be based on his and his family income.

India should make efforts to strengthen its public higher education system - If the government

really fulfill its promise of providing 6 per cent of its GDP for education, out of which 1 per cent

will be for higher education and 0.5 per cent for professional education, as suggested by one of

the committees of CABE [Central Advisory Board for Education], there will be plenty of money

to start first-rate institutions without the private sector’s help.

CONCLUSION

India is under proposal to open up its higher education sector to foreign providers and to end

public subsidies, with adverse consequences for the quality and affordability of higher education.

The problem then is largely a domestic one. While there are reputed foreign educational

institutions operating, there are numerous less reputed, second or third tier ones as well who

charge high fees for programs of dubious quality. Given India's capacity constraints in higher

education, substandard foreign institutions are able to survive in India. There are instances of

foreign institutions partnering with unapproved domestic institutions. Degrees awarded under

such programs are not recognized in India. Although, the Association of Indian Universities has

lay down guidelines for twinning arrangement to ensure genuine partnerships and protect

consumers, but there guidelines are often dishonored. There are also instances of false marketing

of foreign programs, wherein institutions claim to have resources that they don't really possess.

At times, students in twinning programs have not been able to obtain visas to study abroad at the

foreign partner's campus. It's also interesting to note that there has been little or no foreign

participation in India's higher education sector through franchises and subsidiaries, i. e., forms of

participation, which are likely to yield greater benefit to the country's educational infrastructure.

There is a requirement of more effective registration and

certification systems, which prevent unapproved institutions from partnering, which protect and

inform consumers, enable good quality foreign institutions to enter the Indian market, and which

create a level playing field between domestic and foreign institutions so that the former can

compete effectively in a liberalized environment.

REFERENCES

2006, “higher education in India: seizing the opportunity “

POLICY-Lessons in FDI, Business Standard / New Delhi September 13, 2006

FDI in education being reviewed- Ajita Shashidhar - new Delhi, Aug. 2

Tilak, J. B. G. (2001): "Education and Globalization: The Changing Concerns in Economics of Indian Education, Editorial" Perspectives in Education, Vol. 17, Special Issue, pp. 5-8.

Stewart, F. (1996): "Globalization and Education", International Journal of Educational Development, Vol. 16, No. 2, pp 327-33.

Mainstream, Vol XLV No 25 FDI in Higher Education : Aspirations and Realitysunday 9, june 2007, Konark Sharma

Powar, K. B. (2005): Quality in Higher Education New Delhi: Anamaya Publishers.