Higher education in India: Quality as important as quantity

That India has a huge need to increase its university and vocational training capacity is beyond question says Julian Stretch OBE.

Former Indian human resource development (HRD) Minister Kapil Sibal estimated that India needs 1,500 universities, almost three times the current number, to serve its young and aspiring population and meet expectations of economic growth.

The Foreign Educational Institution (Regulation of Entry and Operation) Bill, which seeks to set a clear framework for foreign universities to operate in India, was passed by the Indian Cabinet in 2010. Despite the Union HRD minister stating that foreign universities and colleges were to play a major role in meeting higher education needs, the Bill remains stalled in the Indian Parliament. Given the prospect of general elections by next year, the Bill may well not see the light of legislative day. Not a bad thing, say some who think the enacted Bill would actually deter foreign universities from entering India, not least because it continues with the non-profit making business model.

But it is not just quantity. Quality is an issue too. Standards need to be raised. The Institute of Applied Economic and Social Research at the University of Melbourne ranked India 49 out of 50 in its 2013 ranking of National Higher Education Systems.

For all that, India boasts some world class engineering and management institutes -its IITs -where last year nearly half a million Indian young people competed the entrance exams for fewer than 10,000 places.

No wonder more and more of the world's higher educational establishments and investors are looking at how to enter India's education sector and capture a slice of this opportunity. But as with so many things in India, that is not as straightforward as it sounds.

India's education sector is made up of the regulated sector -pre, primary and secondary education; higher and technical education; and an unregulated sector, which includes pre-school, vocational education and coaching institutes.

Whilst joint ventures and foreign investment are permitted in the regulated sector, various regulations prevent the foreign investor taking out dividends or other forms of profit participation by requiring the Indian venture to be non-profit making.

However, foreign investment driven by the opportunity in this sector has used alternative and innovative structures such as investing in education services companies. Numerous other regulations constrain foreign educational institutions' activities in the regulated sector e.g. they cannot grant degrees. Despite all this, Indian higher education in the regulated sector is seeing a growing number of “twinning” relationships with foreign colleges and universities -perhaps in the hope that the regulations will be relaxed in time. Twinning has covered a range of educational materials and course work.

Over four million, or about one in five, students in higher education are enrolled in India's open universities. Earlier this year saw a regulatory overhaul of distance learning in India.

Unsurprisingly then, it is the unregulated sector that is attracting the greater attention of foreign investors in various segments including vocational, corporate training, tutoring and test preparing services. The government of India, frustrated by the opposition to its proposal to relax foreign direct investment and other regulations in the regulated sector as well as the funding gap, has been encouraging foreign investment through private entities and public-private partnerships in the unregulated sector.

Significant opportunities exist additionally for the foreign investor/educational provider in sub sectors of the unregulated sector that focus on adult learning -particularly vocational skills and assessment centres, online learning, professional certification training schools and language schools to name a few. These sub sectors also benefit from being less formally regulated.

A number of studies, including by India's IT industry association NASSCOM and McKinsey, indicate that a significant proportion of college graduates are not readily employable and furthermore a substantial proportion of school leavers lack the means to get into professional colleges in the first place. The IT training market alone is estimated to be worth over £300 million, not including the investments in India's major IT companies which are making in their own dedicated training campuses. Hospitality training is another major market, being outside the reach of government regulation makes these vocational training markets attractive to foreign investment.

As the international awareness of the value of Indian qualifications grows, there is increasing demand for higher studies and research for foreign students at -but by no means limited to -India's world class older IITs through formal student exchange programmes.

The growing strength of joint UK-India research was highlighted recently by David Willetts, UK minister for universities and science, with the announcement of 12 new collaborations in the fields of advanced manufacturing and energy infrastructure. Partners include leading companies and universities in UK and India. Since 2008, the value of co-funded research between the two countries has rocketed from £1 million to over £100 million. It is not a big stretch of the imagination to see venture capitalists nurturing Indian start-ups from the spin off.

Looking a little further into the future it will be interesting to see how India's IT wizardry and thirst for learning takes on the emerging adaptive learning technologies leading to the end of the one size fits all curriculum and making personalised education available to more people than ever before. Interestingly, a Pune-based company has introduced an adaptive learning system powered by an analytical intelligence engine. India has a history of leap-frogging technologies. Will this be another one

In the absence of sufficient government resources to meet India's educational and vocational training targets, there remains a huge need for collaboration through joint ventures and investment from private and foreign players. The greatest opportunities for UK investors and institutions fall in the unregulated sector where the requirement for “employability” skills and preparation for placement exams stand out as major requirements.
Realising these and other opportunities requires commitment and a detailed understanding of the Indian regulatory environment coupled with clear and early advice on due diligence, protection of intellectual property and structuring.

The above article was published in India Inc′s Print edition of India Investment Journal launched on October 2013 in conjunction with Education Investment Conclave. Click hereto view photos of Education Investment Conclave 2013 Click hereto read the quotes from India Education Investment Conclave Participants