IMPACT OF FOREIGN DIRECT INVESTMENT

ON HIGHER EDUCATION IN INDIA

Prof. Rayanagouda. S. Marigoudar, Assistant Professor of Commerce,

Govt. First Grade College, Belgaum,
marigoudar.r@rediffmail.com

ABSTRACT

The Twenty-first century witnessed unprecedented demand for higher education: general as well as
professional resulting in increased awareness among the people, particularly the students passing out of schools, of
the vital importance of higher education for socio-cultural and economic development and for building the future.

Globalization has redefined the constituents and drivers of economic progress over last two decades. The
traditional contributors of economic development such as material resources and production capabilities have been
replaced by knowledge and information. Globalization has resulted in significant changes in the knowledge
economy and ushered new conditions for the provision of higher education to cater to the skill requirement all
across the globe. Higher educational services have emerged over the last few years as a major economic sector for
trade worth several billion dollars. The key elements of globalization include the knowledge society, information
and communication technologies, the market economy, trade liberalization and changes in governance structures.
These elements of globalization have impacted significantly the education sector in general and higher education in
particular.

This paper presents an overview of the contemporary issues and challenges of Indian higher education and role of
FDI and its impact on higher education by analyzing the demand and supply factors and suggests remedial
measures for regulating bodies. It also analyzes 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.
Keywords: FDI, Globalization, Higher Education, Universities, Gross Enrollment Ratio

1. INTRODUCTION:

Education is becoming vital in the new world of information. Knowledge is rapidly accredited replacing raw
material and labour as the most critical input for survival and success. Higher education enhances a country’s
capacity for participation in an increasingly knowledge-based world economy and has the potential to enhance
economic growth and reduce poverty.
Thus higher education is assuming an upward significance for developing countries, especially countries like
India which is experiencing service-led growth. Higher education is all about generating knowledge, encouraging
critical thinking and imparting skills relevant to this society and determined by its needs. Education general and
higher education in particular, is a highly nation-specific activity, determined by national culture and priorities. The
growth of India's higher educational institutions has indeed been outstandingly rapid. The number of universities has
doubled since 1990-91, and enrolment is now more than doubled. But this has been at the expense of quality,
increased rigidity in course design, poor absorption of knowledge, and growing lack of access to laboratory
facilities, journals and opportunities for field work, etc. The average Indian graduate compares poorly with her/his
counterpart in most countries, including many developing ones. All this calls for reform, administrative changes,
more funding, greater flexibility, quality improvement, etc.
In 2007, the Indian Government announced a nine fold increase in higher education spending over the next
five years. While this came as good news to a sector characterized by limited supply and uneven quality, four years
later it is apparent that a more intensive effort is required. India needs to nearly double its number of students in
higher education by 2012. Fifty-one percent of India’s population is under the age of 25. Without proper access to
education the country’s demographic dividend could turn into a demographic disaster.
 India is one of the most attractive education markets but historically the government has not encouraged
foreign participation in this sector. It faces a massive challenge to provide education to young people, especially in
remote locations. According to the National Knowledge
Commission estimates, the country needs to build 1,500 universities within a period of five years to endow enough
people with the skills to sustain rapid growth.

Given this state of higher education in India, could liberalization be the way out? The major concern
regarding such liberalization is that it can lead to commercialization of higher education which may have an effect
on a large section of society adversely. This Paper would try to look at the scope for FDI in higher education in
India, assess the regulation of higher education in regard to its ramifications for FDI and make recommendations for
change.

2. OBJECTIVES OF STUDY:
 To study the status of Indian higher education system
 To study the need of FDI in higher education in India.
 To study the implications of bringing in FDI in Indian higher education

3. LITERATURE REVIEW:

1. The importance of FDIs and human capital accumulation or education for economic growth has been largely
discussed in many literatures. Economic theory recognizes FDI and human capital as two important conduits for
economic growth. FDI can contribute both directly as well as indirectly to the growth of an economy, by improving
knowledge, technical knowhow and, by boosting capital stock and by instigating domestic production and
consumption (Feenstra and Markusen, 1994).

2. There literature on the FDI – human capital – economic growth triangle. Stijns (2001, 2006) in his study of the
role of natural resource abundance on human capital accumulation in various developing and developed countries
suggests that FDI can have a lasting effect on a country's per capita income through a higher human capital stock.

3. Intuitively, as Beugelsdijk et al. (2008) have shown for the impact on economic growth, FDIs should have
different impacts on human capital accumulation and education depending on the type of FDI. Efficiency-seeking
FDIs look for cost advantages, mostly cheap low qualified labour. On the contrary, it may lead to specialization into
low value added products, thus providing the local population little incentive to participate into higher education.
Market-seeking FDIs pursue increased market shares in the host countries, competing directly with one
another as well as with the local firms. This is generally synonym to technology transfer, thereby contributing to the
host country’s technological upgrading and human capital accumulation. Accordingly, MNEs, usually associated
with FDIs, seem to be responsible for a large part of R&D activities, which are human capital intensive (UNCTAD
2004). Furthermore, recent data show that most of Greenfield R&D projects have been conducted in developing
countries, suggesting that this type of FDIs should boost skilled labor demand and thus, participation into higher
education.

4. In similar vein, Ram and Zhang (2002) concluded that while the interaction between human capital and FDI
might have been important in the 1980s, it was no longer the case in the 1990s. Using data for 29 provinces from
1978 to 1999, Zhuang (2008) finds that FDI contributes to the accumulation of skilled labour and the participation in
middle school education. The findings are that the increase in share of population with college education and
professional and technical education is larger in provinces with economic and technological development zones
(ETDZs) relative to other provinces.

5. Mazhar Mughal & Natalia Vechiu (2010) investigated the determinants of tertiary and secondary education for
the period 1999 to 2006, with a special focus on FDIs and economic growth. The paper analyzes two samples of
low-income and middle income developing countries. The paper confirms the theoretical proposition that a country's
growth rate exerts a strong positive impact on education. Per capita GNI is found to have a very strong positive
impact on both levels of education in both groups of countries. However, it seems that the importance of GNI in the
evolution of education enrollment is much higher in the LICs than in the MICs.
4. HIGHER EDUCATION IN INDIA – AN OVERVIEW
Higher education in India is in a miserable condition. Even after 60 years of independence higher education
is not accessible to the poorest groups of the population. Hardly 7-8 percent of the population in the age group of 17-
23 years is enrolled in the institutions of higher education. It is a matter of serious concern that higher education
system in the country is facing deep financial crises. The UPA Government should fulfill its responsibility of re-
examining recent policy decisions and the problems of higher education in the country. While technical education
produces technical manpower, it is humanities, social sciences, languages
-4-
and natural and physical sciences that help in producing all-round citizenry. Therefore, the higher education
institutions cannot be treated as a part of non-essential sector with the attendant vulnerability to the vagaries of
fluctuations in public funding. Higher education thus needs sustained funding from public exchequer.
The first college to impart western education was founded by British in 1818 at Serampore near Calcutta.
Over the next forty years; many such colleges were established in different parts of the country. In 1857, three
federal examining universities on the pattern of London University were set up at Calcutta, Bombay and Madras.
The existing 27 colleges were affiliated to these three universities. Later, more universities were established. At the
time of independence in 1947, there were 19 universities and several hundred affiliated colleges.
In 1950-51, there were 3 central universities and 24 state universities. The increase in the number of
universities since then has been given in Table-1. It is clear that the number of deemed universities shot up by
120(224 percent rise) from 29 in 1990-91 to129 in April 2010. This number rose to 129 with aided deemed
universities and unaided deemed universities.

Table-1: Number of Universities:

Year Central State Deemed Private Total

1950-51 3 24 - - 27
1960-61 4 41 2 2 49
1970-71 5 79 9 9 102
1980-81 7 105 11 9 132
1990-91 10 137 29 9 185
2000-01 18 205 95 25 343
2010-11 41 285 129 113 568

The increase of number of general higher education and professional colleges from 578 in 1950-51 to
14,126 in 2010-11 has been given in Table-2. It is obvious from the Table that while 13,548 new colleges were
started in fifty years from 1950-51 to 2010-11, more than this number, i.e. 4,404 new colleges were started in eleven
years from 1990-91 to 2001-02. A phenomenal number of new colleges, i.e. 5,719 were started in just two years
from 2001-02 to 2003-04. Recently 3,974 new colleges were started.

Table-2: Number of General and Professional colleges:

Year No of Colleges for General No of Colleges for Professional Total No of Colleges

Education Education
1950-51 370 208 578
1960-61 967 852 1819
1970-71 2285 992 3277
1980-81 3421 3542 6963
1990-91 4862 886 5748
2000-01 7929 2223 10152
2010-11 10568 3558 14126
Source: CABE Committee Report
As against the total enrolment of 49,24,868 students in 1990-91, the present enrolment has risen to
1,50,41,808 out of which 23 % are enrolled in colleges for Commerce UG, PG, research and diploma courses and
enrolled in universities.
Table-3: No of Students Enrolment in Higher Education (1990-91 to 2010-11)

Year Total Enrolment

1990-91 49,24,868
2000-01 83,99,443
2010-11 1,50,41,808

 Indian Higher Education Scenario:

Faculty-wise Students Enrolment

Arts 27%

Others 3%

Law 3%

Veterinary
Science 1%

Agriculture 1%

Medical 3%

Engineering
and
Technology 14%

Education 0%

Commerce
and
Management 23%

Science 25%

Source: Association of Indian Universities.

India’s annual enrolments in higher education has grown since independence but the GER (Gross Enrollment Ratio)
of 15 % as estimated for 2011 is far below the global average of 26%.

The gross enrolment ratio (GER) signifies the health of higher education in the country and indicator of the level of
participation in higher education. The chart below shows that India is the lowest in GER among the countries
surveyed. We therefore need a multifold approach to increase GER
Source: UNESCO Global Education Digest, 2010

5. NEED FOR FOREIGN INVESTMENT:

If we look at the problem India is facing in expansion of higher education, one may say that FDI is being
acceptable just because we don’t have sufficient money to spend on this area. FDI in higher education will solve
the problem of enrollment rate as we are in a situation of less supply high demand.
1. Infrastructure facilities will improve.
2. Some new methods and technology will be used in teaching.
3. It might happen that India may develop one of its own world class universities.
4. India needs to fill the technological lag as fast as it can to compete with China.
5. An increase in facilities, both in terms of physical magnitude and geographical spread, for inculcation of
vocational skills backed by an increase in the general quality of higher education.
6. The resulting competition with local universities would also induce us to become internationally
competitive through quality improvements brought about by changes in curricula and other responses to an
evolving market.
7. Further, FDI in education would generate more employment.
8. Allowing FDI in education might lead to export of Indian education abroad in which there are large
potential.
9. There will be better scope for research as foreign universities have different methodology to run and
generate revenues.
10. India may move towards practical study based learning rather than rote learning
11. Existing institutions need to be rebranded to overcome their poor image.
12. Indian money and talent going abroad will come under check.
 13. Offered as a two-year associate degree with a strong skills focus and easy mobility into the mainstream
higher education system, short-cycle higher education could be a less expensive and more relevant
alternative to private professional education.

6. FOREIGN DIRECT INVESTMENT IN HIGHER EDUCATION:

It should be noted that Foreign Direct Investment (FDI) in education, including higher education, is
allowed in India under the automatic route, without any sectoral cap, since February, 2000. There is no offshore
campus of any foreign university in India. There are, however, many foreign universities and education service
providers operating in India through twinning programmes. As per the information available at the website of All
India Council for Technical Education (http://www.aicte.ernet.in/) assessed on 25 April 2007, in India there are 106
institutions running technical programmes in collaboration with foreign universities and institutions. Of the 106
institutions, only two are approved by AICTE. Neither the rest of the 104 institutions nor the programmes offered by
them are approved by AICTE under its Foreign University Regulation. As per the provision of the AICTE
Notification, promulgated on 16 May 2005, on Regulations for Entry and Operation of Foreign Universities/
Institutions imparting technical education in India, every institution, foreign or Indian, has to get the approval from
the AICTE. The existing institutions were obliged to take approval from the AICTE within six months from the date
of promulgation of this Notification. As per the punitive provisions prescribed in the Notification, “In case it comes
to the notice of the Council, that a Foreign University is running diploma or/and degree at under-graduate,
postgraduate and research level in technical education in India directly or in collaboration with an Indian partner
without obtaining a certificate of registration, Council shall take immediate steps to initiate action under the Indian
Penal Code for Criminal breach of trust, misconduct, fraud & cheating and under other relevant Indian Laws.”
While the AICTE website has listed 104 unapproved institutions having collaborations with over 125 foreign
universities and institutions, it has not made known as to whether any action under IPC or any other relevant Indian
Laws has been initiated against any institution running illegally.

7. IMPLICATIONS OF FDI IN HIGHER EDUCATION IN INDIA:

It is argued that due to lack of funds investments in public funded institutions is being reduced and it is not
possible to increase the number of state funded universities and colleges. Therefore FDI in higher education would
solve this problem. Another argument is that since a large number of Indian students go abroad for higher education,
by allowing foreign educational institutions opening their campuses in the country will arrest the outflow of Indian
students. As a result, a relatively larger number of Indian students would be able to access quality higher education
in the country itself which would be relatively much less expensive in terms of fees, travelling costs and living
expenses abroad. This would also not allow the outflow of our foreign exchange reserves. It is also argued that
foreign higher educational institutions would create competition with the local institutions enabling them to become
internationally competitive. This competition would force the local institutions to change their curricula and respond
to the immediate needs of the students. And by this, the degrees offered by these institutions will become
internationally comparable and acceptable. Further, the FDI in education would create new institutions and
infrastructure and generate employment.

In fact, the FDI in any field does not have an attached objective of fulfilling the social agenda of a welfare
state. It is guided by profit and market. If it is not so the investors look for other destination for FDI. Foreign
investors aim to increase their profits that lead to commercialization. In the field of higher education, FEPs would
launch courses in frontier areas of science and technology, design courses which the market needs, create false
impression about their courses through advertisements, charge exorbitantly high fees for courses which have
immediate employment potential. By their money power FEPs would be able to attract best teachers and financially
well off students from local institutions affecting them adversely. Teaching learning process and award of degrees
would also not be as rigorous as is required.
FDI would impede the development of indigenous and critical research within our university education
system, aggravate the tendency towards commercialization and strengthen the stranglehold of neo-liberal ideas in
our academia. The FEPs would be concerned about their profits and not about our culture and society. Therefore the
courses which would appreciate and strengthen our ethos would not only be not started by the FEPs, but such
courses would get marginalized in public funded higher education institutions also due to competition.
These tactics of the FEPs would also result in local private institutions raising their fee charges to establish
competitiveness affecting adversely those students who are studying in local private institutions. The FEPs would
tend to repatriate as much profit as possible back home thus accelerating the outflow of foreign exchange from the
country. Therefore, the argument put forward by those welcoming FDI in education that outflow of foreign
exchange from the country could be reversed has not sound footing.

8. CONCLUSION

In India, higher education was traditionally looked after by the government, but in view of lack of resources to meet
the increasing demand, private sector has been allowed to share the responsibility. The country has a well developed
educational set up in terms of range of programs and their acceptability in local industry, but it lacks in terms of
international quality standards. Higher education institutions managed by private sector emphasize more on
commercial aspect than creation of knowledge which leads to deterioration of quality of education. The councils and
government bodies responsible for quality assurance do not have internationally matchable quality norms and an
effective system to monitor and control violation of the existing norms by the institutions. Further, the political
parties manipulate the issues of access and equity in higher education for their vested political interest rather than
taking the right steps to enhance the quality of higher education. As a result those who can afford the high cost of
higher education look forward for the opportunities abroad while the others have to compromise with sub-standard
education. If India has to emerge as preferred location for higher education in the globalizing world it will have to
develop a national policy to address the challenges of sub-standard quality, ineffective systems of monitoring and
control, red-tapism in growth and development and political interference.
Government must consider seriously corporatization of higher education so as to allow corporate houses to
enter higher education and deliver education of global standards. This will also facilitate several private universities,
research houses, large Corporate to consider foreign direct investment in India’s higher education market.

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