The Challenge!!

FOREIGN DIRECT INVESTMENT IN

HIGHER EDUCATION

Can FDI solve the financial challenges in Higher Education sector?!

(Yes/ NO /Maybe)
 Mainstreaming India
• India –The knowledge sector of the top economies of the
world

• Not only backroom offices but also the R&D centers for
world’s Biggest multinational companies.

• Trend are not limited to just software development

anymore.

• Tie up with world famous names like Microsoft, Intel, IBM,

SAP, Google, Yahoo, Accenture, British Telecom, Oracle,
Citicorp, Siemens etc.

• As Business Week ('The other MIT' 22-29August, 2005) has

concluded, ‘unlike China, India’s significant cheap labour is
not a pool of factory workers, but a huge crop of scientists’.
 Mainstreaming India
• Has India being lucky more by accident than by design?!
(Yes/ No/ May be)

• Offer skilled, scientific, English speaking manpower

immediately after communication boom.

• CONCERN : Continuous supply of skilled manpower.

• Gear Up our higher education institution to meet the

growing demand.
 Higher Education in India
– An Overview
• System with over 230 universities and 6500 vocational
colleges catering to about 10 million students.

• Even after 60 years of independence higher education is

not accessible to the poorest groups of the population.

• Hardly 7-8 percent of the population in the age group of 17-

23 years is enrolled in the institutions of higher education.

• Deterioration in the financial support provided by the

government:
- financial constraints with exploding enrolments
- very high demand from primary and secondary
education
 Higher Education in India
– An Overview
• Nearly 92 per cent of the professional institutions are in
the private sector.

• The growth rate of government institutions in the last five

years has been around 5 per cent against the private
sector's 75 per cent.

• Source of Funding :
-Govt: increased from 49 per cent in 1950-51 to 76per
cent in 1986-87;
-Non-govt sector (largely student fees):Declined from
33per cent in 1960s to less then half of what it was in
1950s’
-Other Sources: Voluntary donation, endowments etc also
declined;
 Higher Education in India
– An Overview
• This source which could potentially provide approximately
20per cent of the funds is currently funding barely 3per
cent of the cost of education.

• Other sources of financing besides the government have to

be developed

• Innovative policies are formulated and implemented

 The Challenge!!
• Opinion differs among academics, educational experts and
political parties.
• The pros and cons of FDI in higher education in India at
both micro and macro economic level.

Looking at arguments why FDI is opposed, first:

• One of the education experts are of the opinion that 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 programmes.

• A foreign investor is interested in selling his educational

products such as courseware, some of which are
copyrighted.
 The Challenge!!
• Offering what are called "twinning programmes“ or are
"franchising" their degree programmes.
• Hefty fees, without proper supervision and quality
monitoring.
• Motive seems to be only commercial.

Kind of investors who are likely to participate in our

higher education system:
• 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 programmes.
 The Challenge!!
• About 150 such programmes offered with an estimated
enrolment of about 15,000 plus students.

• No agency is responsible for monitoring the nature and

quality of these programmes.

• A survey found that 44 of these 150 programmes were

unaccredited and unrecognised in their own countries.

Implication of FDI might also include:

• The FDI in any field does not have an attached objective of
fulfilling the social agenda of a welfare state.
 The Challenge!!
• 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 raising their fee charges to

establish competitiveness affecting adversely those
students who are studying in local private institutions.
 The Challenge!!
On the flip side, lets look at the preferences to have
FDI inflows:
• India has a huge population of uneducated children

• Constitution provides free and compulsory education upto

the age of 14.

• The growth of the knowledge sector along with BPO is

sending a new signal to the economy.

• Growth in South East Asia,(starting with Japan, then the

Asian Tigers and now China), is export led in nature with
cheap manufacturing products leading the fray.
 The Challenge!!
• 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
• Need of the hour is a robust higher education system

• The ignominious 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
 The Challenge!!
• A large number of Indian students go abroad for higher
education.
• 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
• Counter outflow of our foreign exchange reserves.

• Create competition with the local institutions enabling them

to become internationally competitive.

• Increasing the standards of local institutions forcing them to

change their curricula up to industry standards
 The Challenge!!
• Consider the macro financial issues of the Indian
government.

• Budget deficit of 6% and a huge demand in primary and

secondary education sector.

• The committee led by Mr. Kumarmangalam Birla and Mr.

Mukesh Ambani projected that by2015 we will need to
double the number of colleges in India, which will require
an investment of Rs. 11,000 crore.

• We need to improve our 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.
Experience of other developing countries in respect
of FDI

• Singapore:
In Singapore, only a very limited number of world-class
institutions have been allowed to start their programmes. It has
very rigid control on who can offer higher education programmes.
And that too not for the Singaporeans, who are taken care of by
the government and their own universities. Singapore only wants
to be a location for top-class institutions to attract foreigners to
come and study there.

• Only world-class institutions may enter Singapore. Many foreign

institutions have responded. For instance, MIT is offering a joint
programme with the National University of Singapore. Out of some
120 universities in Australia only one, the University of NSW, was
permitted to establish a campus in Singapore by bringing
investment, by bringing in real money. But they will be offering
their programmes for Indians, Malaysians, Indonesians, and so on,
and not for the citizens of Singapore. In other words, Singapore
wants to make itself an educational destination for foreigners to
come and study there and, that too, only in world-class
 Experience of other countries in respect of
FDI
• China:
In China, there is a very strict regulation against foreigners
starting operations. NIIT is operating [in China], but it is not
offering a formal degree programme. It offers commercial,
technical, skill-oriented and trade-oriented programmes,
just as in India.Recently, China has also started attracting
foreign students. Indian students are being drawn to
Chinese Medical Schools.
• Malaysia:
Bhoomiputra policy binds its government does not
encourage the Chinese and other non-Malays to have the
same kind of educational opportunities as Malays. So they
have opened up the field to enable the private sector and
also foreign institutions to operate in their country mainly
to meet the needs of non-Malay ethnic groups. They do not
offer any high-level programmes.
Experience of other developing countries in
respect of FDI

• Indonesia:
Even in a country like Indonesia, any programme [foreign]
universities offer should be accredited [by the
governments] both in their own countries and the country
in which they propose to offer their programme. India is one
country where anybody can come and advertise all kinds of
degrees. In fact, there have been plenty of offers from what
the Americans call the "diploma and degree mills". By this
they mean that these are not legal entities and their
degrees are worthless.
 Options to Safeguard national interests with
FDIs

• The government should make sure that what comes in is real money
and that the programmes 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 programmes,

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 households needs special attention
subsidization of the interest rate for students should be based on his
and his family income.
 Options to Safeguard national interests with
FDIs
• India should make efforts to strengthen its public higher
education system - If the government really fulfils 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 [help of the] private sector.
 Refrences
• Anandakrishnan, M., 2006, “FDI and False Hopes”, Frontline,
Vol:23 No. :23 URL:
http://www.flonnet.com/fl2323/stories/20061201002204300.htm
• Kaul, S. , 2006, “HIGHER EDUCATION IN INDIA: SEIZING THE
OPPORTUNITY “ , WORKING PAPER NO. 179 , INDIAN COUNCIL FOR
RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS
• Sharma, V. , 2007 , “Indian Higher Education: Commodification
and Foreign Direct Investment”, THE MARXIST, VOL. XXIII, NO. 2
• Government of India, 21 March 2007, The Foreign Educational
Institutions (Regulation of Entry and Operation, Maintenance of
Quality and Prevention of Commercialization) Bill, 2007, which was
to be introduced in Parliament (Rajya Sabha)
• India Today International, 3 Oct 2005
• India's Higher Education needs Policy, Hindustan Times, 28
November 2005
• 'Simputer for Poor goes on sale', BBC News, Monday March 29,
2004, bbc.co.uk
Open to Comments and Question
Thanking you,
Gunjan Tandon