Is the liberalisation of India’s education sector a lesson in how not to open a market? Indrajit Basu reports.

In early January, India approved a plan to allow foreign universities to open campuses in the country as part of efforts to boost education and foster multidisciplinary research to strengthen the economy.

In October last year, India also authorised foreign universities to build overseas branch campuses in the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT). These universities would not have to abide by the domestic regulations for the education sector, the government said.

When in opposition, Prime Minister Narendra Modi’s ruling party had for years opposed the previous government’s attempts to open up the sector to overseas Foreign Higher Educational Institutions (FHEIs), although many educators had advocated for the change. They argued that hundreds of thousands of Indian students (650,000 in 2022) moved abroad each year, spending an estimated USD3 billion per year outside the nation for their higher education.

The dearth of quality teaching and research in the bulk of India’s higher education institutions was the driving force behind these students’ decisions to seek greener pastures abroad. However, if India opens up, industry experts reasoned, Indian students will benefit from access to world-class education from the world’s top-ranked colleges and higher education institutions.

But while there may now be light at the end of the tunnel, that tunnel appears to be long, and many wonder how much of an impact the policies will have.

“The present government has been working on opening up the education sector to FHEIs since 2020, with the announcement of a national education policy,” says Aparna Gaur, leader – education practice at Nishith Desai Associates (NDA) in Mumbai. “Already, following the Setting up and Operation of International Branch Campuses and Offshore Education Centres Regulations, 2022, two Australian universities have received approvals to set up campuses in GIFT City. With the draft University Grants Commission (UGC) regulations, the government has taken another step in this direction.”

Aparna GaurHowever, she adds, while both moves are good approaches, “challenges remain, and given the various setting-up conditions, foreign universities will need to think about how to navigate through these issues”.

Questions abound

The issues, according to Gaur, include taxation, the flow of investments from abroad for setting up campuses, and whether there is a need for the creation of a local Indian entity by the FHEI or not.

“An FHEI campus in India would be subject to numerous laws, including but not limited to education, tax, foreign exchange, company laws, employment laws, environmental laws, intellectual property laws and local laws,” she says. It may not be practical to conduct a check for compliance with the entire set of laws that are applicable to FHEIs, and conducting such an audit would lead to huge compliance costs.

While the government says that foreign universities will be allowed full freedom – in terms of admission procedures, faculty appointments, and framing of syllabi and curricula – without interference, the government proposes to provide the regulator, the UGC, with sweeping and even veto powers to scrutinise applications made by FHEIs before allowing them to operate a campus in India.

For instance, “No FHEIs shall set up campuses in India without the approval of the UGC,” the proposals say, adding that applicants “should have secured a position within the top 500 of overall or subject-wise global rankings, as decided by the regulator from time to time”.

Clearly, regardless of the eligibility criteria prescribed in the proposed regulations, the UGC maintains oversight of education and other aspects of each branch campus. “In such a case, stipulating a specific ranking for foreign universities does not serve much purpose,” says Gaur.

The proposals prescribed several components of quality assurance procedures, some of which are also unclear. These include who should be doing the quality assurance (a commercial firm or an accreditation agency), quality assurance parameters, and the minimum score required for an extension to be granted, says Gaur.

“So, foreign entrants will need to think through how to navigate through these issues,” she says.

There are more worries. While the National Education Policy (NEP) 2020 recognises online education and open distance learning (ODL) as strategies for enhanced access, equity and inclusion, the proposed regulations do not address issues about “equity”, which is one of the NEP’s primary concerns, with the proposed rules preventing FHEIs from offering online education, or open and distance learning (ODL), courses.

Employment prospects

This also contradicts the provisions of the UGC (Academic Collaboration between Indian and Foreign Higher Educational Institutions to Offer Twinning, Joint Degree and Dual Degree Programmes Regulations, 2022), which allow joint venture programmes to offer online resources and ODL, says Jeevanandham Rajagopal, a Chennai-based partner at Fox Mandal.

Rajagopal says it is vital to ensure that students seeking to enrol in an FHEI Indian campus get access to online and ODL modes of education, so that even students who cannot physically reach the campus can get quality education. “There is a need for checks and balances both in terms of the autonomy given to the institutions and the discretionary power of the UGC,” he says.

Jeevanandham RajagopalRajagopal adds that since one of the goals of the new policies is to stop “brain drain”, foreign universities should be required to offer job placements with both Indian and foreign companies. The placements should not just be with foreign recruiters, since the proposed regulations give universities full freedom to do what they want.

Another concern raised by experts is that in the country, education is equated with social service. The Supreme Court outlaws profit-making in educational services, and while foreign universities will be able to charge whatever tuition and other fees they want, analysts doubt whether FHEIs will be able to earn profits for repatriation.

This is why, given that the UGC’s proposed guidelines don’t promise to provide physical or financial capital for setting up campuses, it’s not surprising that Rajat Mukherjee, a partner and education expert at Khaitan & Co in New Delhi, worries that top foreign universities like Harvard, Yale and Oxford, which are mostly funded by donors and taxpayers, won’t be interested in India.

“The concern is the [ability to commit the] capital expenditure,” says Mukherjee. “How many universities would be willing to invest huge amounts in setting up a campus in India, where the fear is that deriving a fair return on that investment could take years?”

A positive step

However, GIFT City’s IFSC scores a major brownie point in terms of allowing fair returns on investment, according to Ketaki Mehta, a partner at GIFT City with Cyril Amarchand Mangaldas (CAM). The International Financial Services Centres Authority (IFSCA) has not only permitted foreign higher education institutions to establish a separate campus, but function as a for-profit organisation, collect fees in freely convertible currency (other than Indian rupees) and repatriate earnings. These entities would be exempt from domestic rules as well, and would be governed solely by IFSC legislation and the home-country education laws of the international university or educational institution.

Ketaki MehtaYet, to Rahul Rishi, head of social sector practice at NDA in Mumbai, the interplay between the UGC’s intentions and the IFSCA is interesting. While the IFSCA regulations allow the offering of courses only related to financial management, fintech, science, technology, engineering and mathematics, there are no such restrictions under the UGC’s proposed regulations.

“The pros and cons of the proposed UGC laws and the GIFT regulations, when seen through the Indian Foreign Currency Regulations Act (FCRA) provisions, is intriguing from a regulatory standpoint,” says Rishi. “While setting up foreign campuses in GIFT is a welcome step, it is not clear whether such campuses would be treated as ‘foreign sources’ within the purview of the FCRA.”

Nevertheless, most agree that the decision to bring foreign universities to Indian shores is a step in the right direction that could not only help India become a global study destination and assist in reducing India’s brain drain problem, but could also be a win-win situation for both Indian and international students.

As per the education ministry’s All India Survey on Higher Education 2020-21, there were 48,035 international students in India from 163 nations, with the highest proportions hailing from Nepal (28.2%), Afghanistan (8.4%), Bangladesh (5.7%) and Bhutan (3.8%). The remaining 53.9% are from the remaining 159 nations.

That aside, considering that about 43% of local universities and 61.4% of colleges are located in rural areas, and are unable to produce employable graduates, the arrival of foreign universities would allow Indian corporations to upskill their existing talent pool. “With the right universities setting up in India, it could also promote education tourism in India, like in the US, Canada and the UK,” says CAM’s Mehta.

Overall, India’s new policies for foreign institutions have stirred up an important conversation in the sector, raising both positives and challenges. No matter what the outcome, this will be a space to watch in the coming months.