Upshot of Proposal to Allow Foreign Varsities Critical to India’s Education Sector Outlook Revision – India Ratings

India Ratings & Research (Ind-Ra) expects the Indian education sector to witness a positive action in the long term with the entry of foreign universities (FUs) in the country. This has recently been put forth as a proposal by the Ministry of Human Resource Development. Ind-Ra had outlined in its 2013 Outlook: Indian Education Sector Report that allowing FUs to open campuses on a standalone basis will be a key element for revising the Outlook on the education sector to positive. However, the agency would monitor the impact and developments in this space before taking any action.

Ind-Ra expects competition to intensify, albeit not in the short term. Nearly 0.2 million students travel abroad annually to benefit from foreign education. These students could be a potential target group for FUs. Some students preferring top Indian institutes may also opt for FUs’ courses depending on brand, course fee and other incentives.

Ind-Ra believes that the government of India (GoI), to counter the current account deficit, has allowed FUs entry into India in line with similar measures in other sectors to open foreign direct investment floodgates. Instead of passing the Foreign Education Providers’ Bill 2010 in the Parliament, GoI took an alternate arrow from the quiver – through the powers bestowed on University Grants Commission Act – to allow FUs into India.

Ind-Ra believes that proposed stipulations for FUs to set up shop in India will not only let pre-eminent universities to enter but also instil confidence to stakeholders about their quality. The proposed rules stipulate that FUs with minimum 20 years of operational track record and international or local accreditation will only be eligible for operations in India. FUs should also figure in the list of top 400 universities of the world compiled by Times Higher Education, Quacquarelli Symonds or the Academic Ranking of World Universities by Shanghai Jiao Tong University.

The existing norms allow the creation of educational institutes only as ‘not-for-profit’ entities. The FU proposal retains this clause and permits FUs to operate under the Section 25 of Companies Act, thereby prohibiting profits repatriation. This may dampen some FUs from opening campuses.

FUs could encounter infrastructural challenges particularly land at economical rates and at strategic locations. However, other factors like large market, demographic advantage and low cost of providing other facilities will be lucrative.

Ind-Ra believes that various conditions set out in the proposal will not deter FUs from opening a campus. Many FUs may find India an attractive destination due to strong market potential. FUs will have to invest minimum INR250m before setting up a campus as against the earlier proposal of INR 500m. The degrees conferred by FUs will be foreign degrees and students are required to obtain an equivalence certificate from Association of Indian Universities.

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