Higher Education in India: Contemporary Issues and

Opportunities for Foreign Participation

Rohan Mukherjee
Centre for Policy Research
Dharma Marg, Chanakya Puri
New Delhi – 110021
rmukherj@princeton.edu

This paper was presented at the Fourth India-Canada Policy Dialogue, jointly
organized by the Asia Pacific Foundation of Canada (APFC) and the Centre for Policy
Research (CPR) on April 2-3, 2008, in New Delhi.

ABSTRACT

Higher education in India is approaching crisis. The participation of foreign universities

has the potential to address important deficiencies. Historically, foreign participation has

had an unimpressive record and has faced numerous functional and ideological barriers.

However, subtle changes are emerging in the government’s views on the subject. The

ability of foreign universities to take advantage of these changes will depend to a great

extent on their intentions vis-à-vis the scale and duration of their involvement. Ultimately

institutions that envision a symbiotic relationship with the Indian education system are

most likely to succeed in entering and thriving in the domestic market.

Electronic copy available at: http://ssrn.com/abstract=1326011

Introduction

This paper presents an overview of the contemporary issues and challenges of

Indian higher education, and looks in particular at ways in which potential foreign

participants can legitimately play a role in the sector. It does not seek to make a case for

increased foreign participation, but presumes it to be a medium-term outcome of the

process of India’s integration into the global economy. Section I presents a brief

overview of higher education in India today. Section II discusses important systemic

challenges (access, equity, quality) and argues that these problems stem from the lack of

public investment and a flawed regulatory structure, resulting in the rapid and

unregulated growth of private provision. Section III maps the existing government

perspective on foreign and private participation and attempts to show that there has been

an increasing dissonance in the government’s view of foreign institutions. This signals a

growing public debate that can be successfully leveraged by potential entrants. Section

IV concludes by briefly suggesting that in the final analysis, meaningful foreign

participation hinges on the regulatory system’s ability to successfully balance two

conflicting objectives – building a world-class educational system, and ensuring that

education remains a non-commercial activity that embodies national values and priorities.

The basic argument of this paper is simple. The Indian system of higher education

is in a state of decline, primarily due to the adverse effects of its regulatory structure. The

participation of foreign universities, while not a panacea for all of the system’s ailments,

offers an avenue for easing some of the pressures building up within it. Historically,

foreign participation in the sector has had an unimpressive record and has faced

numerous functional and ideological barriers. However, of late there is a discernible

Electronic copy available at: http://ssrn.com/abstract=1326011

dissonance in the public discourse on this subject, particularly from within the

government and its agencies. The ability of foreign universities to take advantage of these

changes will depend to a great extent on their intentions vis-à-vis the scale and duration

of their involvement. Ultimately those who envision a symbiotic relationship with the

Indian education system are most likely to succeed in entering and thriving in the Indian

market.

I. Overview of Higher Education in India

India currently has the largest number of higher education institutions in the

world, and the third largest student population in the world attending them1. Most recent

estimates place the number of institutions somewhere over 18,000 and the number of

students over 11 million2. Behind these numbers are six decades of phenomenal growth,

initially fuelled by public investment but lately more due to the unabated growth of

private sector provision. Since 1990, the number of institutions has been growing at a

compounded annual rate of six percent. While this is significant, growth in institutions

has not matched the growth in demand for higher education. More importantly, growth of

good quality institutions has been negligible. As a result, Indian higher education has

often been characterized as a sea of mediocrity containing only a few islands of

excellence. Aside from concerns of access and quality is also the issue of equity. Socially

and economically disadvantaged groups in the system are under-represented and their

educational attainments tend to be below average.

The key problems faced by Indian higher education pertain to issues of access,

equity and quality. However, these are but symptoms of a deeper malaise, related to the

Electronic copy available at: http://ssrn.com/abstract=1326011

two primary constraints of the system today – the decline in public investment in higher

education, and the existence of a flawed, overly rigid and ineffective regulatory

framework. These problems have steered the sector into previously uncharted waters,

particularly in the realms of privatization and foreign participation, both made more

relevant by changes in the global trade regime and the education sectors of other nations.

In this sense the present is an important juncture in the history of Indian education, and it

remains to be seen whether the government can successfully manage the sensitivities of

the system in order to optimally utilize India’s much vaunted demographic and

educational advantages. As for institutions interested in penetrating the Indian market for

education, this is a time to carefully observe developments in the legal and regulatory

structure, particularly with reference to emerging ideological differences on the issue of

foreign participation in higher education.

II. Systemic Challenges

Access

In 2001, approximately 35 percent of India’s population was aged 14 or below3.

Based on the current burgeoning demand for basic education and a gross graduation ratio

at upper secondary level of 20 percent4, this projected ‘demographic dividend’ is poised

to put considerable pressure on the higher education system in the coming years.

Although estimates vary, the Gross Enrolment Ratio (GER) in higher education can be

estimated at somewhere between 7 and 11 percent5. While this makes India better off

than many South Asian and Sub-Saharan African countries, it does not compare

favorably with countries like Egypt (35 percent), Turkey (31 percent), Brazil (24

4
percent), Iran (24 percent), China (20 percent), South Africa (15 percent), and of course

Canada (62 percent), the United States (83 percent) and the Republic of Korea (91

percent)6. The data both globally and within India suggest that a high per capita income is

positively correlated with a high GER7. While the direction of causality cannot be

conclusively established in this study, it is sufficient to note that such evidence provides

some support to theories that emphasize the importance of human capital to long-term

economic growth, and the need for channeling the benefits of economic growth into

investments in human capital. Thus one of the primary objectives of the system at the

moment is to expand access to higher education in order to meet growing demand.

However, it is important to note that expanding access is not equivalent to expanding

supply. A broader conception of ‘access’ is required, that emphasizes inter alia the need

for expanding the supply of good quality institutions. Of course, even this measure alone

will not necessarily ensure that higher education reaches every person that desires it.

Equity

There are three main axes of disparity that exist in the domain of higher education

– gender, caste, and region. All three become important when considering a strategy of

expanding access. The enrolment of women in higher education is traditionally measured

by the Gender Parity Index (GPI), which is a ratio of female GER to male GER. The GPI

in 2005 using Census and UGC data is calculated to be 0.758. When compared to a

relevant-age population ratio of 0.91 (i.e. female population aged 18-24 as a ratio of male

population aged 18-24), it appears that women are significantly under-represented in

higher education. It is especially pertinent that the GPI throughout school (grades I to

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XII) is 0.919. This suggests a tendency for women to drop out of the education system

after grade XII, possibly due to various social pressures at play.

Inequalities of caste (and tribe) are also significant. Constitutionally designated

disadvantaged groups - Scheduled Castes (SC) and Scheduled Tribes (ST) - are under-

represented, and persistently under-perform relative to their peers. Compared to the

overall GER of the country (between 7 and 11 percent), the GER for SCs is 6.7 percent

and for STs 4.9 percent10. Although various government schemes exist to subsidize the

education of students from these groups, few efforts have been made to systematically

look into the achievement levels of these students in order to determine the effectiveness

of these schemes. Nonetheless, the issue of under-representation remains important. In

this context, the issue of overlapping disadvantages is worth noting. For instance, while

the overall GPI for India stands at 0.75 (as shown above), the GPI among SC students is

0.64, and among ST students 0.5511. Thus women in these disadvantaged categories are

considerably less likely to participate in the higher education system than women in

general.

Lastly, regional inequalities in higher education deserve mention in order to

highlight the uneven nature of growth in the sector over the last few years.

Approximately 58 percent of all higher education institutions are located in only six

states – Uttar Pradesh, Andhra Pradesh, Maharashtra, Karnataka, Madhya Pradesh and

Tamil Nadu12 – which are also among the ten most populated states of India13. This

selection of states reflects the considerable growth of institutions in South and West India

relative to other regions. Variation also exists in terms of enrolment, with the GER across

states and union territories ranging from 26 percent in Chandigarh to 4 percent in

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Arunachal Pradesh. Similarly, in the case of gender parity, states and Union Territories

like Goa, Chandigarh, Kerala, Delhi, Punjab and Pondicherry are most favourable for

women relative to men, whereas Bihar, Arunachal Pradesh, Jharkhand, Orissa and

Rajasthan are at the opposite end of the spectrum14. All of the above, and other regional

data within India, suggest significant imbalances in the capacity and sophistication of

systems for higher education between the South and West on the one hand, and the

North, East and Northeast on the other.

Quality

Quality is a critical factor in the assessment of a higher education system. It can

be measured externally according to pre-defined institutional parameters, or by simply

looking at the educational and job market outcomes of an institution’s graduates.

Institutional assessments are carried out by two accrediting agencies in India – the

National Assessment and Accreditation Council (NAAC) and the National Board of

Accreditation (NBA). The former, an affiliate of the University Grants Commission

(UGC), deals with colleges imparting general education; the latter, an affiliate of the All

India Council for Technical Education (AICTE), deals with professional and technical

colleges. Below is a brief analysis of data from the NAAC15.

Although the NAAC covers not more than 3500 colleges (roughly one-fifth of the

entire college system), its grading system provides a useful insight into the quality of

institutions across the country. A simplified scale comprising its two previous grading

systems (in use from 1998-2002 and 2002-07 respectively), which currently covers all the

colleges accredited by it, shows that as of 2007, only 28 percent of NAAC accredited

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colleges received an above average grading while 47 percent received a below average

grading, and 25 percent were average. The grading system employs a holistic set of

measurement tools that evaluate most of the important aspects of an institution, and

therefore it is of some concern that the bulk of colleges qualify as average or below

average.

Another indicator of quality is the academic performance of the students of a

college. In this regard, the UGC collects data on the number of students passing their

final exams in graduate and post-graduate courses in all colleges recognized by it16. The

data for 2002 show some alarming results. For instance, amongst all the students

appearing for final examinations in commerce, only 56 percent passed. Similarly, only 49

percent passed in computer science/applications, 61 percent in science and 61 percent in

management17. Performance was relatively better in engineering (79 percent), medicine

(75 percent), nursing (97 percent) and education (89.5 percent). Overall, of all the

students taking final exams in all disciplines in 2002, only 63 percent passed. These

figures bear out the adage that quantity (of institutions) does not necessarily imply

quality.

If exam results are not entirely convincing, we might choose to look at the labor

market performance of graduates. Although not much information is publicly available

on this subject, a small dataset on recent engineering graduates from a handful of Indian

states published by the Institute for Applied Manpower Research (IAMR) in 2005 reveals

some interesting information18. Surprisingly, states like Kerala, Uttar Pradesh and West

Bengal emerge as attractive job markets for degree-holders in the major sub-disciplines

of Engineering19, whereas states with a proliferation of engineering colleges like Andhra

8
Pradesh, Karnataka and Tamil Nadu have relatively lower rates of employment for

students with the same qualifications. Prima facie, this suggests that a regulatory

environment that promotes the large-scale expansion of colleges is less effective (or

discerning) in keeping out low quality institutions, thus leading to the production of a

large number of relatively non-employable graduates. The data also show that diploma

holders in engineering are much less likely to succeed in the job market than degree

holders. This is particularly relevant given that in 2003, 60 percent of engineering

graduates were diploma holders20.

Public Investment

The problems of access, equity and quality stem in part from a lack of public

funding for higher education. Public institutions without adequate funds to hire good

faculty, offer scholarships to disadvantaged groups and expand enrolment are finding it

harder to meet growing demand. It took the politics of caste to give an impetus to public

spending in the XIth Five-Year Plan, when the government injected a substantial amount

of funding into higher education, not for improving quality but for expanding the number

of seats in order to accommodate its decision to institute a quota for Other Backward

Castes (OBCs) in universities and institutions funded by the federal government21.

Barring this recent politically motivated action, one can observe a gradual withdrawal of

the state from higher education over the years.

On education in general (all levels), the government currently spends

approximately 3.66 percent of GDP (2005-06 estimate)22. While this is higher than

countries like Indonesia, Cameroon, Gambia, etc. it is lower than Brazil, Mexico, Iran,

9
Botswana, Uganda and other developing countries, not to mention almost all of Europe

and North America23. In India, higher education has received less attention in terms of

public spending than other levels. In 2005-06, it is estimated that university and technical

education together accounted for only 15 percent of total revenue expenditure on

education by the federal and state governments24. In terms of GDP, in the period from

1990-91 to 2004-05, the share of university and higher education fell from 0.77 percent to

0.66 percent, whereas the share of primary education rose from 1.78 percent to 1.89

percent25. Per student, in real terms there was a 28 percent decline in public expenditure

from 1990-91 to 2002-0326. These data are indicative of an insufficient and declining

government commitment (at federal and state levels) to higher education. Moreover, the

funds poured into the system every year are utilized mostly for revenue expenses, of

which salaries are a major component. In 2004-05, capital expenditure accounted for only

1.84 percent of total education expenditure by state education departments27. With funds

drying up from the federal government, this leaves only a small amount of finance for the

growth and development of higher education in the states.

Privatization

As a result of the government’s gradual withdrawal from higher education, the

private sector has begun to play an increasingly important role. Rapidly entering spaces

previously occupied by the state, it has transformed the contours of education –

particularly professional and technical education – in less than a decade. Indeed in the

span of one year, from 2003-04 to 2004-05, the total number of institutions in the system

shot up by 12 percent (1503 institutions)28. Given the lack of public investment, it is safe

10
to assume that most of these were private institutions. UGC data on recognized colleges

show that of the more than 17,000 colleges in the country, at least 20 percent are

privately owned and funded, while another 37 percent are privately owned but receive

some form of aid from the government. Levels of privatization vary across major states,

ranging from 63 percent of colleges being private and unaided in Andhra Pradesh, to 9.3

percent in Haryana29. The incentive for private providers has been to deal in disciplines

that exhibit verifiable market demand, thus justifying the asking of higher fees from

students who anticipate higher incomes upon graduation. Students, on the other hand, are

attracted increasingly towards professional courses that have greater potential in the labor

market, and are willing to pay higher prices for them. There seems to be a convenient

matching of demand with private supply in the face of declining public investment.

However, the situation is not so simple. Private providers, in the interest of

maximizing profit, have every incentive to ‘minimize costs’ by compromising on the

quality of education provided in their institutions. Although a certain reputation effect

operates in the case of the better known private players (e.g. Amity, NIIT, Aptech), the

majority of private colleges and universities are not known for their scrupulous academic

standards. Thus there are serious implications for quality in private provision, and this is

borne out by the growing scarcity of employable graduates in the technical and

professional fields, a fact highlighted by the popular NASSCOM-McKinsey study of

200530. Related to the potential compromise of academic standards is the issue of unfair

trade practices. Private providers are known to exploit the supply shortfall of higher

education in order to maximize revenues through ‘capitation fees’, misrepresentation of

courses, corruption in admissions practices, and other methods that ultimately harm the

11
interests of students. From time to time, the government and the judiciary have taken

steps to regulate such practices. However, as the next section will demonstrate,

government regulation and judicial intervention are often confused, complex and counter-

productive.

The Regulatory Framework

Ultimately, one cannot shy away from the role of the state in higher education.

Yet the manner in which the Indian state has intervened in this sector has been less than

optimal for its development. The most fundamental structural flaw lies in the institutional

architecture of the UGC itself. Its setup is uniquely flawed in that it is the sole authority

on almost all regulatory matters in the university system, including access (fees and

admissions), finance (funds disbursal), quality (accreditation via the NAAC) and entry

into the market (the conferral of degree-granting powers). In essence, the UGC is a super-

regulator. Instead of a regulatory framework that arranges incentives in order to promote

academic excellence, we are left with a discretionary and highly centralized structure that

discourages academic innovation, promotes standardization over standards31, and is not

responsive to the dynamics of academia in the various disciplines.

This form of regulation imposes significant costs on the system that exacerbate

the constraints on public investment. For instance, the requirement that every university,

be it at federal or state level, can only be set up via a legislation specific to it, not only

presents a significant barrier to entry but also raises the public cost of setting up a new

university32. Aside from governments and regulatory agencies, the judiciary too has

contributed to the muddle of policies and regulations currently in existence. Although it is

12
often brought into the picture when the legislature or executive has already abdicated its

responsibilities towards higher education, its interventions nonetheless have sent mixed

signals to stakeholders. In a series of judgments from 1992 to 2005, the Supreme Court of

India vacillated on the issue of autonomy in fee setting and admissions for private and

minority-run institutions, once reversing its own past judgment and another time having

to clarify it in a new judgment33. During this period, the views of the Court on financing

education have seemed somewhat consistent in moving away from their open suspicion

of private enterprise in education. Yet on issues of access (especially caste-based

reservations) and minority rights, the Court has remained ambivalent, likely due to the

political sensitivities involved34. On the whole, there has been little clarity from the

Supreme Court on its views pertaining to access, equity and privatization in this domain.

The result of all the above has been the de facto privatization of higher education.

While the Courts and regulatory agencies have been reluctant to acknowledge the

importance of private investment as a supplement to public investment, the market has

belied their ideologies and continued growing. Consequently the regulatory framework

has been caught off-guard and is unable to fully comprehend the new dynamic or develop

appropriate tools for dealing with it. On the other hand, those within the system that do

understand the possibilities of private investment have used it to their advantage. It has

been argued that political parties of all stripes have permitted privatization because they

recognize the potential of private funding as an effective (and costless) tool to alleviate

the current “fiscal exhaustion” of public budgets, to accommodate the new quota regime,

or to act as a new (and more abundant) source of patronage35. Ultimately, the UGC and

AICTE will need to develop a coherent body of regulation for the private sector that

13
recognizes its importance in the financing of higher education but also holds it

accountable to standards of academic excellence and equitable access. Until then,

institutions and students will continue to bear the burden of an uneasy relationship

between public and private in this domain.

III. Foreign Participation

Foreign participation, while not a self-contained solution for the ills of the Indian

higher education system, can provide avenues for easing some of the pressures building

up within it. In terms of sheer numbers, the entry of foreign institutions would help

expand the supply of higher education. As for quality, the application of international

best practices particularly from institutions of repute with campuses in multiple countries,

would help set higher benchmarks and tend to foster domestic competition at all levels of

the quality hierarchy. We might thus envision a Massachusetts Institute of Technology or

a University of Manchester spurring competition with top-tier Indian institutions like the

Indian Institutes of Technology, leading to innovations in teaching, curriculum design,

recruitment, etc. across the board. Similarly, other foreign institutions lower down the

quality hierarchy in their home countries could spur competition with their counterparts

in the Indian system. The benefits of foreign participation in terms of equity are less

certain, but appropriate regulations pertaining to affirmative action (not necessarily in the

Indian tradition of quotas) might address this aspect of the Indian educational paradigm

as well.

Regulation, as we have seen in the previous section, is often the problem itself;

one that no amount of foreign participation can remedy. Indeed, imaginative and flexible

14
regulation is a prerequisite for reforms like foreign participation in the Indian system.

Unfortunately, the regulation of foreign education providers has followed a path similar

to that of private providers. Starting from a stance of outright distrust, regulators have

gradually permitted the entry of some institutions, albeit with many strings attached. The

following sub-sections will map the regulatory landscape in terms of foreign participation

and briefly discuss the current scenario before moving onto possible strategies for the

entry of foreign providers into the Indian market.

The Regulatory Landscape

In the new millennium, two simultaneous processes have shaped the regulatory

landscape for potential foreign participants in India – first, the rapid privatization of

higher education, and second, the growing importance of the international trade regime

under the World Trade Organization (WTO) and the General Agreement on Trade in

Services (GATS). Taking the cue from other nations that have moved quickly to

safeguard their domestic education systems36, Indian legislators and policymakers have

begun to appreciate the need for national legislation and policies governing the entry of

foreign institutions into the domestic arena. However, as with most regulatory efforts in

this sphere, the government’s response has been hasty and heavy-handed. Rather than

making an ally of the market, regulation has sought to erect significant barriers to the

entry and operations of potential private and foreign providers of higher education.

Although little has been done on the ground, there is a host of regulations, policy

documents and pending or withdrawn legislations that provide an instructive perspective

on current thinking among policymakers and legislators grappling with the issue of

15
foreign participation. The most important regulations in this regard are as follows (for

more detail, see Appendix):

1. UGC (Establishment and Maintenance of Standards in Private Universities)

Regulations 2003 – currently active.

2. AICTE Regulations for Entry and Operation of Foreign Universities / Institutions

Imparting Technical Education in India, 2005 – currently active.

3. The Private Universities (Establishment and Regulation) Bill 1995 – withdrawn

from Parliament in the 2007 Monsoon Session37.

4. The Private Professional Educational Institutions (Regulation of Admission and

Fixation of Fee) Bill 2005 – pending (status unknown).

5. The Foreign Educational Institutions (Regulation of Entry and Operation,

Maintenance of Quality and Prevention of Commercialisation) Bill 2007 – yet to

be introduced in Parliament.

Broadly speaking, the contents of the above regulations embody the distrust and fear

of private (and foreign) enterprise inherent in India’s educational bureaucracy.

Private/foreign institutions are typically required to clear numerous administrative

hurdles before being granted approval. For instance, the AICTE has a mandatory

application procedure for foreign institutions that involves a file passing from the AICTE

to an ad hoc standing committee, then an ad hoc expert committee, then a sub-committee

of the expert committee, and then back to the AICTE before final approval is granted,

conditional on a security deposit of an amount not specified in the regulations. Aside

from erecting barriers to entry, regulators and legislators have also sought to control

almost every detail of the operations of such institutions on Indian soil. Each of the three

16
Bills mentioned above have proposed to control at the very least the admission and fee-

setting procedures of private/foreign institutions, if not appointments, scholarships and

the distribution of seats between faculties. The Indian judiciary, while normally a voice

of reason in matters of state incapacity or mal-administration, is yet to express an opinion

on foreign participation in India (see Section II for the judiciary’s views on private

participation). The collective picture then seems rather unwelcoming for foreign

providers aspiring to be a part of the Indian market in the near future.

Status of Foreign Participation

The current regulatory setup has resulted in a kind of adverse selection. Based on

its suspicions of the sector, the government frames complex and demanding regulations

to govern private/foreign institutions. These regulations impose costs that legitimate

foreign institutions are unwilling to bear. At the same time, they attract illegitimate

providers looking for short-term gains, who recover the cost of regulation by exploiting

students. Typically, the presence of such institutions in India is characterized by minimal

capital investment (sometimes none at all) and high student fees for qualifications that

may or may not be accredited in the home country of the institution. These practices

serve to confirm the suspicions of regulators, thus perpetuating the notion that foreign

providers indulge in unfair practices. While this statement may be true of a large number

of such providers currently in India, it takes a slightly more nuanced understanding to see

that the phenomenon is an artifact of the current regulatory framework rather than an

inherent quality of foreign education providers.

17
 As of 2005, there are 131 foreign education providers operating in India, enrolling

“a few thousand” privately funded students. Although the government of India permits

100 percent Foreign Direct Investment (FDI) in higher education through the automatic

route, foreign providers mostly tend to offer technical programs via “twinning”

arrangements with Indian institutions, whereby a student completes a portion of his/her

studies in India, and the rest in the home country of the foreign provider. Some foreign

providers also collaborate with Indian institutions to have their courses taught in India.

Fee levels are uniformly high in all arrangements38. Both twinning and program-based

collaborations corroborate the low-investment high-return model of foreign provision

mentioned above, suggesting that the current scenario of foreign participation is far from

optimal for legitimate foreign entrants and the Indian education system in general.

The Increasing Dissonance of Public Discourse

From what has transpired thus far, one might conclude that the prospects for

foreign participation in Indian higher education are supremely bleak. While this may be

true in some measure, it is not an entirely accurate representation of a landscape that is

constantly shifting and changing, driven every which way by a divergent set of

ideologies. If there is one thing that commends the current regulatory framework to

potential foreign entrants, it is this lack of coherence in outlook and approach towards

changes in the global and domestic scene. It is no accident that despite three separate

attempts, the Indian parliament has been unable to adopt a unified strategy towards

privatization or foreign participation in higher education. Or, that it has taken the Indian

18
judiciary thirteen years and five judgments to arrive at something barely resembling a

decisive view on private institutions.

Not only is there incoherence within the branches of government, but also

between them. For instance, in 2005 the government was preparing a Bill to extensively

regulate private and foreign professional education providers when the Supreme Court

decided (in the Inamdar case) to grant private colleges autonomy in admissions and fee

setting, within reasonable limits39. Although this led to the Bill in question being

indefinitely shelved (to date), the political outcry in response to the Court’s decision drew

a different and quick response from the government. With unprecedented support from

all political parties, it amended the Constitution via the Central Educational Institutions

(Reservation in Admission) Act, 2006, to mandate reservations for SC/ST and Other

Backward Castes (OBCs) in higher education institutions. These events were a reminder

that politics, more than policy, is likely to impact regulatory outcomes in higher

education, as it is with most other spheres of public action. It is therefore no surprise that

the current Foreign Educational Institutions Bill that was due to be introduced in

Parliament last year has been withheld due to the lack of political consensus between

members of the governing coalition. While the parties of the Left have criticized it for not

being strong enough, there have also been differences within the Cabinet between the

Minister of Human Resource Development and the Minister of Commerce with regard to

the desirability of reservations in foreign institutions40.

The growing dissonance within government on the issue of foreign institutions is

also exemplified by two important policy documents – the recommendations of the

National Knowledge Commission (NKC) on higher education, and the 2006 Consultation

19
Paper on Higher Education and GATS released by the Department of Commerce (DoC).

Based on the objectives of “expansion, excellence and inclusion,” the NKC has, inter

alia, emphasized the importance of diversifying the resource base of higher education

through higher user fees, efficient use of resources, and private investment. Keeping in

mind the objective of quality, it has recommended that the government “formulate

appropriate policies for the entry of foreign institutions into India…while ensuring a level

playing field for foreign and domestic institutions within the country. 41”

The DoC is less restrained in its enthusiasm for foreign participation. Based on

the objective of expanding capacity and access in the system, the DoC argues for “a

mechanism whereby private and foreign investment in higher education can be

encouraged subject to high quality standards and efficient regulation. 42” Its argument

rests on the inadequacy of public investment for India’s current needs, and the economic

gains of having students who would otherwise pay large amounts to go abroad, studying

in equally reputable institutions at home. The NKC, due to its recommendations (among

other reasons), has faced considerable resistance from the Ministry of Human Resource

Development (MHRD) and the UGC. Similarly, the DoC and MHRD have taken up

stances on opposite sides of the debate. Needless to say, both the NKC and DoC are

uniformly reviled by left-leaning political parties, academic institutions and media.

While all of the above certainly suggests a growing discord within policy circles

with regard to foreign participation and investment in education, on a deeper level it is

indicative of a relatively new phenomenon – public debate surrounding the issue at hand.

It is no longer the case that the government, unified in its ideology, shuns foreign entities

without question. The present wave of dissent and disagreement from various quarters of

20
government and civil society signifies a public willingness to at the very least talk about

foreign investment in higher education, a subject long considered taboo in a country

whose public institutions have vigorously upheld the ostensibly charitable (i.e. non-

commercial) nature of education and its importance to the national interest and identity.

For foreign institutions, governments and interest groups, this increased noise offers an

unprecedented opportunity to promote their cause and be heard by an increasingly

attentive audience. How they might go about this is taken up in the next section.

Opportunities and Strategies for Foreign Providers

At the outset, it is important for aspiring foreign entrants to note that there is little

to be gained from a short-term perspective on the Indian education market. The

opportunities that exist in the present regulatory framework are limited, and limiting.

Vision and strategy are both essential for navigating the system and engaging in

meaningful collaborations that go beyond the existing types described above. Vision is

critical along three dimensions. First, in understanding the long-term objectives and

underlying value structures of the Indian education system; second, in realizing that

change in this system occurs not as an overnight transformation but slowly and in a

piecemeal fashion; and third, most importantly, in comprehending the institutional

implications of international education in a globalizing world.

In the context of the third point, a broader view of entering the Indian market

would look beyond traditional collaborations like student enrolment, twinning programs

and program-based collaborations. It would consider domestic commercial presence as a

realistic possibility and work towards it. It would be premised on the realization that in

21
the future, the best educational institutions in the world will be those that can develop

international brand recognition, with commercial presence in multiple locations, and

international networks of students, professors and professionals. This would by no means

signify an era of ‘multi-national universities’ (à la multi-national corporations), yet scale

will increasingly become important for sustainability as domestic players seek to expand

their operations abroad. In such a scenario, where territorial distinctions are gradually

blurred, there would be sufficient incentives for institutional development in local

settings, i.e. the model of foreign participation would evolve into one characterized by

high investment and high return.

As regards strategy, institutions must learn to conceptually separate the functional

and ideological barriers to foreign participation in India. The former operate at the

institutional level, whereas the latter operate at the policy and regulatory level. Functional

barriers include the lack of reliable market intelligence, good quality partners, trained

faculty, or even capable students. These barriers can be addressed by collaborative efforts

that involve student and faculty exchanges and general capacity building. However, what

makes the problem of foreign participation intractable is the ideological basis of the

regulatory framework, particularly the inherent suspicion of private or foreign capital,

and the ingrained belief that education ought to be a non-commercial activity. While such

fundamental values are hard to change exogenously, they can be shifted just enough

whereby the increased difference of opinion within government and the growing

exposure of the educated classes to the new debate can be used to lobby for policy

changes in the right quarters.

22
 For this, foreign institutions need to engage in the long-term process of building

relationships across a spectrum of policymakers, academics, administrators and even

students. It is also important to step up the level of institutional activity and build inter-

personal and inter-institutional relationships of the kind that can pave the way for more

meaningful future collaborations. At the personal level, connections between students

(and faculty) become particularly relevant when one considers that today’s Indian

students going abroad might well be tomorrow’s key decision-makers in government, the

private sector and civil society. At the institutional level, collaborations that involve

foreign institutions developing capacity in Indian institutions are highly desirable for both

sides. For domestic partners, they represent an opportunity to upgrade institutional

capacities to a higher standard. For foreign partners, they represent an opportunity to

expand (and diversify) their set of options beyond the traditional circle of IITs, IIMs, and

national centers of excellence. By helping to build capacity in second-tier Indian

institutions, foreign institutions can develop strong partners for the future and create new

markets for educational services instead of jostling for space in a rapidly saturating

market for top-tier Indian institutions.

IV. Concluding Remarks

Foreign participation in Indian higher education hinges on the ability of the

domestic regulatory system to successfully balance two conflicting objectives – building

a world-class educational system, and ensuring that education remains a charitable

activity that embodies national values and priorities. While the latter might seem rather

anachronistic when juxtaposed with the realities of the modern education system, it is

23
nonetheless a valid concern that must be factored into the calculations of external actors.

Fostering the ‘right’ kind of foreign participation will depend on understanding that the

tension between these two objectives is not of a zero-sum nature. Regulators need to

realize that it is possible to have aggregate gains that promote both objectives without

trading away anything except a degree of control over the system, which in its current

state is highly controlled and inflexible. On the part of foreign institutions, it is prudent to

be sensitive to local conditions and the objectives of education provision in a given

context, and above all to accept a degree of control over institutional autonomy in order

to benefit from longer-term involvement. Lastly, it bears reiteration that foreign or private

investment is by no means a panacea for the ills of the Indian higher education system.

However, it can certainly contribute to a sector currently in dire need of improvement.

1
Indian Council for Research on International Economic Relations (ICRIER), Higher Education in India:
The Need for Change, Working Paper No. 180, June 2006.
2
Provisional estimates from the University Grants Commission (UGC), UGC Annual Report 2005-2006
(New Delhi, UGC).
3
Census of India 2001, Census Data Online, Tables C2 and C14, accessible via www.censusindia.gov.in.
4
UNESCO Institute for Statistics, Global Education Digest 2007 (Montreal, UNESCO, 2007).
5
7 percent from National Knowledge Commission, Compilation of Recommendations on Education (New
Delhi, NKC, 2007); 8 percent calculated by author using Census of India 2001, Census Data Online,
Population, accessible via www.censusindia.gov.in; Registrar General, Ministry of Home Affairs, Govt. of
India, Population Projections for India and the States 1996-2016 (New Delhi, Registrar General, 1996) and
UGC, UGC Annual Report 2005-06 (New Delhi, UGC) – see footnote 14 for methodological note; 10
percent from Ministry of Human Resource Development (MHRD), National Level Educational Statistics at
a Glance (2004-05) (New Delhi, MHRD); 11 percent from ICRIER, Higher Education in India.
6
UNESCO Institute for Statistics, Global Education Digest 2007.
7
For a graphical representation of the relationship between per capita domestic product and GER across
Indian states, see ICRIER, Higher Education in India, p.12.
8
The MHRD estimate for the same year is 0.71. See MHRD, Selected Educational Statistics 2004-2005,
(New Delhi, MHRD, 2007), p.71.
9
MHRD, Selected Educational Statistics 2004-2005.
10
MHRD, Selected Educational Statistics 2004-2005.
11
MHRD, Selected Educational Statistics 2004-2005.
12
MHRD, Selected Educational Statistics 2004-2005.
13
Census of India 2001, Census Data Online, Population. Accessible via www.censusindia.gov.in.
14
Calculated by author from Census of India 2001; Registrar General, Population Projections for India and
States 1996-2016; and UGC Annual Report 2005-06. For the purposes of calculating national and state-
level GER in 2005, the population in age group 18-24 in 2005 is estimated based on the population share of
the same age group in 2001, i.e. the proportion of individuals aged 18-24 is assumed constant between

24
2001 and 2005. The same approach is applied to estimating male and female populations aged 18-24 in
2005.
15
Relevant data were not available from the NBA.
16
UGC, University Development in India, Basic Facts and Figures, Examination Results – 2002 (New
Delhi, UGC).
17
The figure for computer science/applications is heavily skewed due to the presence of Tamil Nadu, with
an exceptionally high number of students appearing for the final exam (68 percent of all students appearing
in this discipline) and exceptionally low number of students passing (33.6 percent). In the absence of Tamil
Nadu, the countrywide percentage of students passing in this discipline jumps to 82 percent.
18
Institute for Applied Manpower Research (IAMR), IAMR Manpower Profile 2005 (Delhi, IAMR, 2006).
19
Specifically chemical, civil, computer science, electronic/communications, electrical and mechanical
engineering.
20
IAMR, IAMR Manpower Profile 2005.
21
The increase amounted to a 34 percent rise in the federal government’s education budget for 2007-08.
See Vijender Sharma, “Indian Higher Education: Commodification and Foreign Direct Investment,” The
Marxist, Vol. XXIII, No. 2, April to June, 2007, p.11.
22
MHRD, Statement indicating the Public Expenditure on Education. Accessible via
www.education.nic.in.
23
UNESCO Institute for Statistics, Global Education Digest 2007, Statistical Table 13.
24
MHRD, Analysis of Budgeted Expenditure on Education 2003-04 to 2005-06, MHRD Dept. of Higher
Education (Planning and Monitoring Unit), New Delhi, 2006.
25
MHRD, Selected Educational Statistics 2005-2006, Table 35.
26
Data compiled from MHRD, Analysis of Budgeted Expenditure on Education, various years.
27
MHRD, Analysis of Budgeted Expenditure on Education 2003-04 to 2005-06.
28
MHRD, Selected Educational Statistics 2005-2006.
29
University Grants Commission, UGC Directory of Colleges 2003-04 (New Delhi, UGC). 19.4 percent of
colleges in the entire dataset were uncategorized due to unavailability of information.
30
McKinsey & Company, and NASSCOM, NASSCOM-McKinsey Report 2005: Extending India’s
Leadership of the Global IT and BPO Industries. Accessible via www.mckinsey.com.
31
Pratap Bhanu Mehta, “Critiquing the Regulatory Regime,” Indian Express, July 15, 2005
32
Pratap Bhanu Mehta, “Regulating Higher Education,” Indian Express, July 14, 2005
33
1992: St. Stephen’s vs. University of Delhi; 1993: Unni Krishnan v. Andhra Pradesh; 2002: TMA Pai
Foundation vs State of Karnataka (reversed Unni Krishnan); 2003: Islamic Academy of Education vs State
of Karnataka (for clarification of TMA Pai); 2005: P.A. Inamdar & Ors. vs. State of Maharashtra & Ors.
34
Devesh Kapur and Pratap Bhanu Mehta, “Indian Higher Education Reform: From Half-Baked Socialism
to Half-Baked Capitalism,” CID Working Paper No. 108, Harvard University, Sep 2004.
35
Devesh Kapur and Pratap Bhanu Mehta, “Indian Higher Education Reform.”
36
See Grant McBurnie and Christopher Ziguras, “The Regulation of Transnational Higher Education in
Southeast Asia: Case Studies of Hong Kong, Malaysia and Australia”, Higher Education, Vol.42, July
2001.
37
PRS Legislative Research, Parliament Session Wrap, Monsoon Session: Aug 10 to Sep 10, 2007.
Accessible via www.prsindia.org. The reason was that the subject of the Bill was a State Subject under the
Seventh Schedule of the Constitution.
38
ICRIER, Higher Education in India.
39
Akshaya Mukul, “UPA claims credit for law still in the works, PMO non-committal,” The Times of
India, May 24, 2007. The Bill in question was The Private Professional Educational Institutions
(Regulation of Admission and Fixation of Fee) Bill 2005.
40
Indo-Asian News Service (IANS), Staff Writer, “Arjun Singh may agree to FDI in education after all,”
March 30, 2008. Accessible via www.indiaenews.com.
41
National Knowledge Commission, Compilation of Recommendations on Education.
42
Department of Commerce (DoC), Higher Education in India and GATS: An Opportunity, Trade Policy
Division, Department of Commerce, Government of India, (New Delhi, DoC, 2006).

25
 APPENDIX

Domestic Regulatory Landscape for Foreign Participation in Indian

Higher Education

UGC (Establishment and Maintenance of Standards in Private Universities)

Regulations, 2003 [ACTIVE]

Promulgated in response to the Chattisgarh phenomenon, whereby multiple

fraudulent universities were established via a single omnibus state legislation in the state

of Chattisgarh. Aimed at universities set up by state Acts. Each university to be set up by

a separate Act of state legislature. Restrictions are placed on the establishment of possible

off-campus and offshore centers. Programs of study must conform to appropriate

regulatory norms. Detailed information on programs must be submitted to the UGC.

Admissions procedures and fee setting are to be governed by UGC guidelines.

AICTE Regulations for Entry and Operation of Foreign Universities / Institutions

Imparting Technical Education in India 2005 [ACTIVE]

Aimed at prospective and existing foreign institutions and domestic institutions

collaborating with foreign institutions in any form. All foreign institutions wishing to

operate in India must undergo the following procedure:

o Submission of Detailed Project Report to AICTE, including credentials and proof

of accreditation in home country.

o AICTE Standing Committee (ad hoc) to consider proposal.

o On recommendation of Standing Committee, AICTE Expert Committee (ad hoc)

to visit and assess institution (expenses paid by institution).

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 o On recommendation of Expert Committee, the Sub-Committee of the Expert

Committee decides whether to grant approval (to be periodically renewed).

o If approved, applicant must provide a security deposit (amount unspecified) that

may or may not be refunded after a specified period, depending on any violations

of norms.

The operations of foreign institutions are governed by AICTE Rules, Regulations,

Norms and Guidelines. In case of collaboration, foreign institutions can only partner with

existing Indian institutions. Institutions must guarantee that their degrees are equivalent to

corresponding degrees awarded in their home country. Fees are regulated by AICTE.

Educational innovations are only allowed if they are already well established in India or

in the institution’s home country. Foreign institutions are bound by the ‘advice’ of

AICTE on admissions, entry qualifications and the conduct of courses.

The Private Universities (Establishment and Regulation) Bill 1995 [WITHDRAWN]

Intended to provide for the establishment and incorporation of self-financing

universities and for regulation of their functioning. Private universities can be set up by

Indian nationals via registered societies, public trusts and section 25 companies.

Procedure as follows:

o Applications to be made to federal government

o Government may consult UGC, who will also seek input from general public

before giving recommendations.

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 o On recommendation of UGC, government may require a detailed project report,

to be submitted to the government of the state in which university is proposed.

State has six months to review the report and pass it on to the federal government.

o On receiving the report, the federal government shall refer it to the UGC, which

will obtain views of experts and give its recommendations within six months.

o If report is successful, sponsoring body of the university is required to set up a

Permanent Endowment fund of at least Rs. 100 million (approx. $2.5 million) to

be invested in long-term interest bearing securities issued/guaranteed by federal

government. At this point, the university will be notified.

Private universities will not be permitted to affiliate any institutions and cannot have

more than one campus. Representatives of the federal and state government will be

members of the Board of Governors, and a representative of the UGC will be a member

of the Board of Management. The UGC will have veto power in the formulation of the

initial statutes of a private university, thus controlling all matters pertaining to

appointments, admissions, scholarships, distribution of seats and fees.

The Private Professional Educational Institutions (Regulation of Admission and

Fixation of Fee) Bill 2005 [PENDING]

Aimed primarily at private (aided and unaided) professional colleges affiliated to a

university, and prospective foreign education providers. Proposes the creation of a

countrywide Admission and Fee Regulatory Committee to regulate the fees and

admissions of private professional institutions. Seats in institutions are proposed to be

divided into Management Category (MC) and General Category (GC), the former filled

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at the discretion of management, and the latter at the discretion of government. Proposed

allocation of seats is as follows:

o In minority-run aided institutions, the management may reserve up to 50 percent

of intake under MC.

o In minority-run unaided institutions, the management shall reserve at least 50

percent of intake under MC.

o In a general aided institution, the management may reserve up to 15 percent of

intake under MC.

o In a general unaided institution, the management may reserve up to 50 percent of

intake under MC.

o In all institutions, 15 percent of seats from the GC may be filled on an all India

basis by the federal government.

o Reservation for SC/ST out of GC seats as prescribed by university to which an

institution is affiliated.

MC seats are to be filled via a common entrance test conducted by an association of

private aided/unaided institutions; GC seats are to be filled via one or more qualifying

exams prescribed by the university to which an institution is affiliated. Importantly, the

Bill requires foreign education providers to be deemed as universities by the federal

government. Such institutions would then be subject to the following regulations:

o Admissions to be based on the university’s own national common entrance test.

o 50 percent of seats to be reserved for students from the state in which the

university is located.

o Reservation for SC/ST and other disadvantaged groups as prescribed by UGC.

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 o National Admissions and Fee Regulatory Committee to decide fee structure.

o UGC permission required for foreign providers to start admitting students.

The Foreign Educational Institutions (Regulation of Entry and Operation,

Maintenance of Quality and Prevention of Commercialisation) Bill 2007 [TO BE

INTRODUCED]

This Bill continues to require foreign education providers to be notified by the federal

government as deemed universities; however it exempts Indian institutions teaching

courses or running programmes in collaboration with a foreign institution. New entrants

are required to have a corpus fund of at least Rs. 100 million (approx. $2.5 million).

Application procedure for new entrants is as follows:

o All applications are to be submitted to the Secretary of the UGC.

o Upon submission, UGC Secretary will forward the application to the relevant

regulatory agency or agencies (UGC, AICTE, Medical Council of India, Bar

Council of India, or other professional councils), which must give its

recommendations within three months.

o On the recommendation of the relevant agency, the UGC Secretary must within

the next three months submit his/her recommendations to the UGC.

o The UGC will consider this report and advise the federal government as to the

fitness of the applicant for deemed university status.

o The federal government may then notify the applicant as a deemed university.

Out of the income earned from its corpus fund, the foreign provider must use not

more than 75 percent for the development of its institution in India, and return the

5 of 3
remaining amount to the corpus fund. Importantly, institutions of repute may be

exempted from the provisions of the Act by the federal government, provided they invest

at least 51 percent of the capital investment required to establish their institution in India,

and that they do not repatriate any surpluses to their home countries.

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