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 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.

This paper looks at ways in which foreign institutions can legitimately play a role in Indian higher education. It does not seek to make a case for increased foreign participation, but presumes it to be a medium-term outcome of India’s integration into the global economy. The first part presents a brief overview of higher education in India today and discusses some key systemic challenges that stem from the lack of public investment and a flawed regulatory structure. The second part maps the existing government perspective on foreign and private participation and emphasises the increasing dissonance in the government’s view of foreign institutions. This signals a growing public debate that can be successfully leveraged by potential entrants. The third part 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.

 

It is widely acknowledged by observers that the key problems facing Indian higher education pertain to issues of access, equity and quality. The phenomenal growth in institutions witnessed over the last decade (largely due to the growth of private sector provision) has been largely unable to meet the burgeoning demand for higher education from India’s young population. Significant disparities exist within the current system along the axes of gender, caste and region. Members of disadvantaged groups are under-represented and persistently under-perform relative to their peers.

In terms of quality, academic standards at a large number of institutions leave much to be desired, as do the academic performance and labour market outcomes of those graduating from these institutions. These problems, while systemic, are symptoms of a deeper malaise, related to the 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.

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. In terms of the government’s spending priorities, higher education has received less attention than other levels. In terms of GDP, in the period from 1990-91 to 2004-05, the share of university and higher education fell from 0.77% to 0.66%, whereas the share of primary education rose from 1.78% to 1.89%.¹ Per student, in real terms there was a 28% decline in public expenditure from 1990-91 to 2002-03.² 

These data are indicative of an insufficient and declining government commitment (at central 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% of total education expenditure by state education departments.³ With funds from the central government drying up, this leaves only a small amount of finance for the growth and development of higher education in the states.

 

Rapidly entering spaces previously occupied by the state, the private sector has transformed the contours of education in less than a decade. UGC data on recognized colleges show that of the more than 17,000 colleges in the country, at least 20% are privately owned and funded, while another 37% are privately owned but receive some form of aid from the government. 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 labour market, and are willing to pay higher prices for them.

Yet 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. 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 2005.⁴ 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 interests of students.

 

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, which 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. This form of regulation imposes significant costs on the system that exacerbate the constraints on public investment. The result of the above has been the de facto privatization of higher education, with the regulatory framework being caught off-guard and unable to fully comprehend the new dynamic or develop appropriate tools for dealing with it.

 

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. 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 earlier, is often the problem itself, one that no amount of foreign participation can remedy. Indeed, imaginative and flexible 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.

 

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 systems,⁵ Indian legislators and policy-makers 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 are a host of regulations, policy documents and pending or withdrawn legislations that provide an instructive perspective on current thinking among policy-makers and legislators grappling with the issue of foreign participation.⁶ Broadly speaking, the contents of these 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. Three separate draft bills currently in circulation 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 collective picture then seems rather unwelcoming for foreign providers aspiring to be a part of the Indian market in the near future.

 

The current regulatory set-up 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.

 

As of 2005, there were 131 foreign education providers operating in India, enrolling ‘a few thousand’ privately funded students. Although the government of India permits 100% foreign direct investment (FDI) in higher education through the automatic route, foreign providers mostly tend to offer technical programmes 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 arrangements.⁷ Both twinning and programme-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.

 

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 diver-gent 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 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 limits.⁸ 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 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 institutions.⁹ 

 

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 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.’ ¹⁰ 

 

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.’¹¹ 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 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.

 

As regards foreign institutions, the primary outcome of the existing regulatory set-up has been the exclusion of legitimate players to the benefit of illegitimate ones. Although the changing public discourse holds the promise of change, this will not occur unilaterally, i.e. aspiring foreign entrants have a role to play too. First and foremost, it is important for these institutions 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 engaging in meaningful and mutually beneficial 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 piece meal 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 programmes and programme-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 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 ‘multinational universities’ (à la multinational 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, foreign 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.

 

For this, foreign institutions need to engage in the long-term process of building relationships across a spectrum of policy-makers, academics, administrators and even students. It is also important to step up the level of institutional activity and build interpersonal 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 centres 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. Ultimately, institutions that envision a symbiotic relationship with the Indian education system are most likely to succeed in entering and thriving in the Indian market.

 

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 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.

 

Footnotes:

1. MHRD, Selected Educational Statistics 2005-2006, Table 35.

2. Data compiled from MHRD, Analysis of Budgeted Expenditure on Education, various years.

3. MHRD, Analysis of Budgeted Expenditure on Education 2003-04 to 2005-06.

4. McKinsey and Company and NASSCOM, NASSCOM-McKinsey Report 2005: Extending India’s Leadership of the Global IT and BPO Industries. Accessible via www. mckinsey.com

5. 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.

6. These include the UGC (Establishment and Maintenance of Standards in Private Universities) Regulations 2003; AICTE Regulations for Entry and Operation of Foreign Universities/Institutions Imparting Technical Education in India, 2005; The Private Universities (Establishment and Regulation) Bill 1995; The Private Professional Educational Institutions (Regulation of Admission and Fixation of Fee) Bill 2005; The Foreign Educational Institutions (Regulation of Entry and Operation, Maintenance of Quality and Prevention of Commercialisation) Bill 2007.

7. ICRIER, Higher Education in India, 2006.

8. Akshaya Mukul, ‘UPA claims credit for law still in the works, PMO non-committal’, The Times of India, 24 May 2007. The bill in question was The Private Professional Educational Institutions (Regulation of Admission and Fixation of Fee) Bill 2005.

9. Indo-Asian News Service (IANS), Staff Writer, ‘Arjun Singh may agree to FDI in education after all,’ 30 March 2008. Accessible via www.indiaenews.com.

10. National Knowledge Commission, Compilation of Recommendations on Education.

11. Department of Commerce (DoC), Higher Education in India and GATS: An Opportunity, Trade Policy Division, Department of Commerce, Government of India, New Delhi, 2006.