Strategy for bringing FDI in EDUCATION

Arijit Goswami

Department of Electronics and Communication Engineering

University Institute of Engineering and Technology

Panjab University, Chandigarh

Mobile no.: +919463334792

Shivam Negi

Department of Electronics and Communication Engineering

VIT University, Vellore

Mobile no.: +918608608163

Abstract: Foreign Direct Investment is a

topic that has attracted a lot of furore in the

past few years in India. With the

government allowing FDI in retail, it is

imperative to think of its significance in the

education sector. This paper analyses the

concept of Foreign Direct Investment, its

role in education sector, the consequential

benefits and challenges posed by it and the

solutions for making FDI in education a

success.

I. Introduction

In the 21st Century, the heat is on

Globalization. Globalization became one of

the most important factors in shaping

economies: both of developing and

developed nations. Many theories has been

proposed which showed various

perspectives of globalization which directly

and indirectly affect the growth and

economy of all the nations .Lifestyle , Gross

Domestic Production , Growth rates

,Education , Per capita Income of nations get

influenced by policies which are in turn are

affected by globalization and international

trade. While many benefits of globalization

is observed when African countries and

Latin American countries are brought into

spectrum but several side effects are also

observed when we try to relate globalization

with local economies which are native to

those regions . African and Latin American

countries possess many natural resources,

often extracted by foreign investors, while

multinational enterprises (MNEs) are

establishing production units all over the

developing world in order to take benefit of

the ample low cost labor(Fujita and Thisse

(2006)), more competitive fiscal

environment or weak environmental norms

(Candau and Musson (2010)).Arguments are

being raised that globalization along with

free trade and liberal policies turned out to

be disastrous for the local businesses which

in turn is widening the gap between rich and

poor people.

II. Significance of FDI

Foreign Direct Investment (FDI) is one of

the channels of globalization which directly

affects several economies. FDI inflow leads

to major change in economies by exchange

of technology, monetary funds, managerial

tactics and several other factor which shape

businesses in multinational enterprises

(MNEs).

FDIs has also proved to be more reliable

than other forms of foreign capital during

financial crises: while portfolio investment

and debts dried up during the East Asian

crisis of 1997-98, the Latin American debt

crisis of the 1980s, and the Mexican crisis

(1994-95), FDIs proved to be an investment

with phenomenal resistance (Dadush et al.

(2000),Lipsey (2001)), even though the flow

was slowed down during the 2008-09 cause

of economic crisis, primarily due to the

freezing of the international banking sector.

Change in human capital is one of the

outcome of globalization which is observed

due to buildup of market, business houses

and new infrastructure in short time period

.Apart from stimulating advancement in

technology, FDI turned out to one of the

biggest factor which improved human

capital due to demand of skilled labors

therefore providing incentives for

participation of general public in higher

education. Human capital accumulation can

be defined as “the knowledge and skills

embodied in humans that are acquired

through schooling, training and experience,

which are useful in the production of goods,

services and further knowledge” (De La

Fuente and Ciccone (2003)). While its effect

of several factors are observed , it is noticed

that human capital accumulation has direct

impact on productivity of labor and also

have significant relationship with growth

rate of a nation (Lucas (1988)).

While Job training and experience regarding

work is considered most important factor for

increasing productivity in the field or in a

particular sector ,however when we talk

about grass root level ,school education is

one of the crucial factor for improving the

accumulation of Human Capital .The paper

takes tertiary education as the primary

variable of interest rather than secondary

education, not only because the higher

education is non-compulsory when we talk

about India and other developing nation but

also cause Higher Education suits more

when we try to relate education sector with

technological and economic advancement

happening in that nation .

III. Indian Education System – Past and

Present

India has witnessed an above exponential

growth in the number of higher educational

institutions vis-à-vis its population when we

talk about time after independence. While

there were just about 20 Universities and

500 Colleges at the time of independence

(year 1947), today these numbers have

grown exponentially. India added nearly

20,000 colleges in a decade (increased from

12,806 in 2000-01 to 33,023 in 2010-11)

which translate into a growth of more than

150%. Number of degree granting

universities more than doubled from 256 to

564, primarily due to deemed-universities

and private universities. India has a complex

affiliation system where universities can

have hundreds of public and private teaching

colleges affiliated to it.

Figure 1: Growth of higher education

institutes in India

The current higher education sector in India

and statistics related to it are discussed as

follows.

IV. Technical Education

Taking into consideration the need for

technical education so that skill is acquired,

the government took steps to open,

Industrial Training Institutes, Polytechnics,

Engineering Colleges and Medical Colleges.

In 1951 there were only 747 technical and

professional institutions and at present India

has 1500 such institutions.

600 polytechnics (with 88,000 seats) and 62

women polytechnics (5900 students' intake)

have been set-up during planning period. At

present there are 230 recognized engineering

colleges with 36,000 seats, 146 medical

colleges (with 14045 intake) and 40 dental

colleges.

Figure 2: Growth of management and

engineering colleges in India (source:

AICTE)

V. Adult Education

The literacy rate has increased from 18.3 per

cent in 1951 to 52.2 per cent in 1991 and 62

percent as per NSSO estimates and 63.1 per

cent according to National Family Health

Surrey of 1998. The National Adult

Education Programme was taken up in 1978.

The aim was to reach 100 per cent literacy

(age group 15-35), by the year 1990.

Central Government gave assistance to

states, voluntary organizations and 39

Universities for adult education programme.

The target was revised to cover 40 million in

1985-90 and balance 60 million in 1990-95.

By the close of 1990-91, about 2.7 lakh

adult education centers were set up.

They enrolled about 80 lakh adults every

year. As a result, the overall percentage of

literacy has increased from 52.2 per cent of

1991-92 to 63.1 per cent in 2000-01.

Figure 3: Growth of literacy rate in India

from 1900 - 2000

VI. Vocationalisation of Secondary

Education

As a result of announcement of National

Policy on Education (NPE) priority is given

to vocationalisation of secondary education

to make education relevant to work. They

cover large number of trades/occupations in

agriculture, industry, trade and services.

Central Government introduced the scheme

from February, 1988 for giving financial

assistance to states/U.T.s. Till 2000-01

sanction has been granted to 10,316 schools

with 4 lakh student's strength. The Ninth

plan ad laid stress on the revision of

curricula to work opportunities.

VII. Improvement in Science

Education

It was in 1988 that Central Government

started a scheme for the improvement of

science education in schools. Financial

assistance is given to provide science kits,

up gradation of science laboratories,

development of teaching material and

training of science and mathematics

teachers.

A Central Institute of Educational

Technology (CIET) was set up in NCERT to

purchase equipment for State Institutes of

Educational Technology.

VIII. National Policy on Education

On the recommendation of Kothari

Commission, first policy on education was

adopted in 1968. It recommended:

(i) Free and compulsory education to boys

and girls up to the age of 14 years;

(ii) Application of three language formula

and development of Indian languages;

(iii) Development of agriculture and

industrial education and

(iv) Six per cent of National income to be

spent on education.

In May 1986 Government prepared and

issued National Policy on Education in the

name of "New Policy of Education." It aims

at evolving pattern of education which may

achieve the objectives of value based

democratic, liberal and secular society. The

government has kept the target of removing

illiteracy in the age group of 15-35 years, by

the end of the year 1995.

IX. Higher Education

Higher education has expanded very fast in

India. Efforts are made to make the courses

more flexible and relevant to the

development needs of the country

particularly the post graduate education,

multi disciplinary studies and research.

The University Grants Commission (UGC)

was set up in 1956 for coordination and

determination of standards. UGC has taken

steps to implement the recommendations of

New Policy on Education such as

establishment of Autonomous Colleges,

Centers of Advanced Studies in Universities,

resurrecting of courses, regular use of media

for higher education, establishment of

Education Media Research Centers and

Audio Visual Research Centers for the use

of media and setting up of Academic Staff

Colleges for training and orientation of

college teachers.

Other steps taken in higher education are:

establishment of 10 central universities,

establishment of Indira Gandhi National

Open University (IGNOU) and assistance to

other institutions of higher learning's like

Indian Council of Social Science Research

etc.During 2000-01 there are 254

universities, 42 deemed universities and

7,926 colleges in the country.

X. Non-formal Education (6-14 age

groups)

In order to achieve universal elementary

education, this scheme was started on

experimental basis in Sixth Plan but on

regular basis in the Seventh Plan. It is meant

for those children who cannot go to full time

schools.

From the year 1987-88, central assistance

was made available to states and voluntary

organizations for setting up non-formal

education centers in rural, tribal, hilly and

remote areas and urban slums. By the end of

1991, 2.7 lakh centers have been set up with

68 lakh enrollment.

XI. Education for All

A Summit of Nine High Population

Countries on "Education for All" (EFA) was

held on Dec. 16, 1993. According to 93rd

Amendment, education for all has been

compulsory, free elementary education, a

fundamental right for all children in the age

of 6-14 years. In order to fulfill this

obligation, Sarva Shiksha Abhiyan has been

launched.

Figure 4: Distribution of different types of

schools in India

XII. Statistics which shows current

snapshot of Indian Education

India has a total of 610 universities. 43

central universities, 299 state universities,

140 private Universities, 128 deemed

universities and 5 institutions established

through state legislation, 30 Institutions of

National Importance

There are 45 technical institutes, 13

management institutes, 4 information

technology institutes, 6 science and research

institutes and 3 planning and architecture

institutes

Currently ,the Government spends

around 3.8% of its GDP on education

Less than 1% of the $38 bn of

the Government spend on education was

towards Capex (2008-09)

According to the 2011 census, the

total literacy rate in India is 74.04%

compared to the world average of 83.4%

(2008)

The female literacy rate is

65.46 % and male literacy rate is 82.14 %

FDI inflows in the education sector

during May 2012 stood at $31.22 mn

Source: UGC Annual Report 2010-2011-

DGET; Ministry of Human Resource

Development (HRD) Annual Report 2011-

2012; IDFC SSKI 2010; DISE 2009-10

Flash Statistics; MHRD Statistics: Higher &

Technical Education 2010; Planning

Commission: Midterm Review of XI Plan

Figure 5: Indian higher education statistics

XIII. History of Indian education

system:

Let‟s have a brief look at the history of the

Indian education system. Post-

independence, the first education minister of

the nation, Maulana Azad helped

government enjoy full control over the

education system and formulated a uniform

education system throughout the country.

National Policy on Education (1986) and

Programme of Action (PoA) (1986) were the

part of the progress of education sector in

India. The launching of DPEP (District

Primary Education Programme) and SSA

(Sarva Shiksha Abhiyan, India's initiative

for Education for All) also made their best

and significant contribution.

Figure 6: Logo of Sarv Shiksha Abhiyan

But was all that effort worth the final result?

The answer comes out to be a disappointing

„NO‟. In spite of the big strides achieved in

the education sector till date, we have

blindly constructed the fortress of our

education curriculum on the foundation of

British education system. And believe it or

not, the mentioned system aimed always

towards churning out clerks from our nation

and was never meant to endow us with what

is truly called „quality education‟.

Till the first 50 years of Independence,

education was viewed to be a social

responsibility because till then higher

education in the nation was inefficient to

satisfy the need of the hour. The

responsibility of providing feasible access to

education was enforced on the government.

The output proudly showed that the number

of students in higher education rose from

1.73lakhs in 1951 to 84 lakhs in 2001. But

wait a second…! Here is the story behind

the scene. Although the participation in high

schooling grew by a whopping factor, yet

the targeted population of age group 17 to

23 grew by a factor which far outweighed

the rise in the high school participation. That

is, the percentage increase in higher

education remained pathetic.

XIV. Privatization of education

Hence privatization of higher education

could prove to be revolutionary and realistic

alternative to limited resources and logjam

in government regulations. And perhaps the

government understood this fact very well.

The advent of privatization of education

brought a resurgent drive and fresh blood to

the dissemination of knowledge in the

country with the government regulations

keeping a stern vigil on the functioning of

these institutions, sans chipping away at its

autonomy. Perhaps, it was quite expected for

the idea to work well but…but what? Well,

by Murphy‟s Law, “if anything has a chance

to go wrong, it will definitely go wrong”.

And certainly it did go well with the Indian

education sector.

Today, one can easily observe the

unprecedented and meaningless rise in the

number of higher education institutions in

the nation. With a large number of

universities and even greater number of

affiliates, indeed education has become so

profitable a business that many businessmen

have also begun investing in this area. The

ever increasing number of colleges along

with the quota system and combined with

the politicization of education has made the

matter even worse and to some extent

beyond repair.

Figure 6: Statistics on school enrollment in

India

Even All India Council for Technical

Education (AICTE) has imposed a policy

barrier to check any further growth in the

number of such private institutions. In terms

of educated mass, India has definitely made

a huge leap in terms of quantity but has

lagged far behind in terms of quality.

Consider this; the national daily “The

Tribune” highlighted the dismal plight of

private universities of Himachal Pradesh.

The senior secondary school pass outs are

opting to join commerce and humanities

streams rather than studying at institutions

of lower repute and even lower quality.

Combined with this the fact that many

private institutes are closing down in the

country, courtesy the awareness among

youths about the abysmal quality of

education delivered there, is a solid

indication of the truth behind the educational

setup in India.

Figure 7: Growth of private universities in

India

Although we are churning out engineers,

doctors etc. at a rate faster than what butter

takes out of milk, yet none of the fresh

graduate is competent enough to handle the

reins of nation‟s development. Lack of job

orientation programs and focus shifting from

personality development towards syllabus

completion are some of the many factors

adding to the woes.

XV. Internationalization of

education

Hence, we must aspire for the international

standard in education. And this would be

possible if the concept of globalization is

accepted in education sector as well. The

government of India has taken forth a step

for the free and easier entry of A-grade

global universities into India sans any major

restrictions. Let‟s have a quick recap of what

all has been done till date regarding the

internationalization of education. Over half a

century ago, University Grants Commission

was set up as a harbinger of planned

development of higher education in the

country. And after a long period of time, a

bill called “Foreign Provider (Regulation)

Bill 2010” was introduced as a milestone to

regulate the entry of foreign education

providers and keep a vigil on their working.

Furthermore, the early 1990s observed

consistent efforts by some renowned foreign

universities attempting to market their

programmes of higher education in India. In

fact, they were all done in collaboration with

Indian partners, Also to be noted is the fact

that 100% Foreign Direct Investment (FDI)

is permitted in education sector via

automatic route since 2000, but the present

legal framework is hostile towards granting

of degrees by foreign universities in India.

But the clearance of the proposed bill would

definitely propel the process of setting up of

campuses of foreign institutions in India.

In the words of Sibal, “Any foreign higher-

educational institution allowed into India - if

unaided by the Indian government -will be

able to determine its own tuition and

curricula. But it will have to seek

accreditation in India, and will not be able to

repatriate profits. We are not going to

minutely look at these things to interfere and

intervene, but we must make sure their

quality is consistent with what we want,

when you set up a course in India it may be

Harvard in the U.S; but it has to be

accredited here."

What is the present trend going on in the

nation? Let‟s have a quick tour of the

ongoing collaborations in India, where the

foreign institutes have made their presence

felt in the domain of academics. For

instance, the IIMs have partnerships with

Harvard and Yale; IITs collaborating with

institutes like MIT (USA) etc. back at

Punjab, one can easily find private

universities like Chitkara University proudly

boasting of student exchange program with

George Brown University. The premier

management institution, Indian School of

Business has also joined hands with

Wharton College, University of

Pennsylvania for giving a cutting edge to

their teaching methodologies. Indian

Institute of Planning and Management

brings out its advertisement in various

national daily newspapers every week,

claiming to produce global leaders and has a

fleet of professors who have previously

worked at giants like Harvard, Cambridge

etc. Last but not the least, the IIMs already

are following the „Case Study Method‟ of

Harvard Business School. This clearly

means that the foreign universities have

already penetrated into the Indian education

system, though not physically but definitely,

virtually.

Figure 8: IIM-A exchange programmes with

foreign universities

XVI. MOOC concept

The last year also observed a brand new

initiative by MIT in online education.

EdX.org is a website where transcending the

barriers of age, qualifications and region,

anyone can opt for a desired course and can

heavily benefit from the lectures delivered

by MIT professors. The successful

completion of the course comes along with a

certification from MIT. This wave has been

a year later by Harvard and Berkeley too.

Doesn‟t all this mean that foreign institutes,

though not physically, have set up their

campuses on cyber space?

XVII. Challenges of FDI in

education

But what is the debate all about? Well, the

critics say that these universities from

foreign lands would definitely not be

coming bearing the torch of quality

education but would also be arriving with

some certain vested interest. The shrink in

the opportunities in employment and spurt in

ageing population has compelled the foreign

universities to look for prospects abroad.

The inflow of international students, which

forms a handsome chunk of their revenue,

has also been hit badly by the incidents of

racial abuse which are escalating day by

day. Hence, the best solution they probably

have found is to set up their campuses in the

foreign lands, where the big market i.e. the

students are.

Another question that naturally arises is that

whether the foreign universities brought to

homeland will be able to create the same

magic as they do abroad. Institutes like

INSEAD in France and IMD in Switzerland

have become global hubs for the youths to

interact with their counterparts from other

countries. All this essentially contributes to

cultural exchange and is by and large a very

learning experience.

Furthermore, it is well known that most of

the students flying away to foreign countries

have to take loans and repay it after the

completion of their studies. Hence, an ample

amount inflows back to the nation as bank

loan and invest repayment. In 2008, there

was a boom in the remittances from foreign

countries and India left everyone behind as a

total of $43.5 billion was sent back to India.

This literally formed around somewhat 3.3%

of the total Gross Domestic Product (GDP).

The phenomenon of internationalization of

education in India would definitely kill this

inflow of revenue.

Besides all this, the gullible young brigade

of India might fall into a mousetrap laid by

fake universities or even universities of low

quality. It is not guaranteed that the students

of these universities would definitely get a

good job after passing out. Moreover, it is

also unknown about the pay scale of the

teachers of such institutes. Who knows that

a professor of Yale, India campus might be

paid much less than his counterpart in

United States? He/she might also be

despised in front of his foreign counterparts.

We are also unaware of the curriculum of

the prospective campuses to be set up in

India. How would you feel if you end up

finding that the courses taught here are not

of the same standard as that of the parent

university? The biggest hurdle which awaits

the internationalization of education is that

these universities will have to shed their

policy of liberalization of education and

would have to adopt quota system in

compliance with the education policy of

India, which is really a pity.

But as it is well said that, “there is hardly

any flower sans a thorn”. We cannot afford

to keep good things at bay just for the fear of

entrance of negative elements. The number

of blessings conferred by the

internationalization of education weighs far

more than the than the troubles posed by

them. The 100% FDI in education would

definitely step up the standard of education

in the country. The competition which

would come along will be quite beneficial as

a culture of vigour and hunger for

excellence would become the order of the

day. The positive aura of the foreign

universities would act like a domino effect

and would incite the Indian counterparts to

improve themselves.

The ever troubling phenomena of brain drain

would also definitely get curbed as adequate

opportunities would become available in the

country itself. Researches searching out for

good facilities and appropriate funding

would also get the same in their homeland

and hence India might well climb the ladder

of success and fame in the field of research.

Moreover, the education from such giants

would come at a much lower cost as many

expenses which have to be met in foreign

lands would be absent and at the same time,

the students will be able to retain their own

culture and ethos, which sometimes

becomes a problem in foreign lands. And

definitely, the campuses would be a major

powerhouse for generating employment

opportunities.

No wonder that this phenomenon would

give birth to resurgence in the field of

education. The government ought to set a

panel or a committee which would look after

the standard of courses taught at these

places. Moreover, liberalization of education

must be done and the foreign institutes

ought to be spared from reservation policy.

The ranking of each giant must be adjudged

only by seeing the cumulative progress and

standard of each and every campus of the

universities. Only then would the

universities maintain the standard of

education in India as they do in their

homelands. The programmes that are

accredited to International standards must be

allowed.

XVIII. Conclusions

Above all, the crux of the matter is that if

the government plays with comprehensive

caution and keeps a stern vigil on the

functioning of these universities, sans

hurting their deserved autonomy, then

internationalization of education can be a

big boon for India.