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Strategy for bringing FDI in Education


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.


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.

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.

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.

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)

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

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.

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.

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.

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.

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.

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.

4Figure 4: Distribution of different types of schools in India

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 mnSource: 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

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.

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 7: Statistics on higher education 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.

8Figure 8: 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.

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 9: IIM-A exchange programmes with foreign universities

MOOC concept

The last year also observed a brand new initiative by MIT in online education. 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?

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.


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.

By: Arijit Goswami and Shivam Negi

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