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Foreign Investment In Education
Liberty Institute, India Friday, May 7, 2010

Shanu A
Educational services are to be provided by the market, and market alone. It offends reason to believe that the poor will be made worse off by this bill. It is obvious that many students who can’t otherwise afford a foreign education will benefit from foreign universities setting up shops in India, writes Shanu A.

On May 3rd, Monday, the Foreign Educational Institutions (Regulation of Entry and Operations) Bill was introduced by the Government in the Loksabha. The HRD Minister Kapil Sibal termed this as a ‘milestone’ in education “which will help benchmark quality education in a new way altogether, by enhancing choices for students and increasing competition”. The cabinet had passed the bill two months before. The left has been opposing the bill for the past four years.  The bill calls for legislation regulating entry and operation of all foreign institutions. Such regulations, it is said, are necessary in the interests of students and the general public. Foreign educational institutions, according to the bill, can enter India only if they have been in the field for at least 20 years. “Unscrupulous institutions” and “fly-by-night operators” will not be given the entry pass.

The quality of education these educational institutions impart should not be below that of the standards in their home country. These institutions should be recognized and notified by the central government. The bill says nothing of reservations for SCs, STs and OBCs, but the central government can have a say on policy matters. Kapil Sibal had said earlier that Reservations won’t be forced on foreign educational institutions. Dozens of foreign universities are waiting for the permission of the HRD ministry. The Government is likely to place regulations which strangulate these institutions. These institutions should mention all the details regarding admissions in their prospectus. Details of faculty salaries and qualifications too should be mentioned. Institutions should maintain a corpus fund of not less than Rs. 50 crore. If approved by UGC, foreign institutions could be registered as deemed universities, which is something they would not prefer.

Foreign Universities, according to the regulations, will be established as "not for profit" companies under Section 25 of the Companies Act. The only way they are expected to make profits is through providing consultancy services, faculty development and other like activities. The irony is that those who hail this regulation are the first to point out that the best foreign universities are not interested in entering India, and hence this bill won’t benefit India. The main argument of the Students Federation of India (SFI) is that “the foreign university bill will not bring in any quality educational institutions to our country.” No sane person would be impressed when they express their disappointment. As one asked, “The big question is why a foreign university should use its own resources and capabilities to solve India's problem of higher education. What will they get in return?”  Opening up the higher education system would create a revolution, if the players entering market are given necessary freedom. It is likely to benefit Indian students and teachers immensely, but as far as the Bill doesn’t, the meddlers have only themselves to blame. The bill in the present form is likely to result in even more corruption.

Basudeb Acharia of CPI (M) opposed the bill saying it will allow “foreign teaching shops” in India and “distort the already elitist educational structure in the country and make education more commercial”. The Left has been repeatedly pointing out that these institutions will be exempt from the quota regime. In short, this will skew further the inequality in access higher education. There is nothing unique about education that should prevent it from being commercialized. Educational services are to be provided by the market, and market alone. It offends reason to believe that the poor will be made worse off by this bill. It is obvious that many students who can’t otherwise afford a foreign education will benefit from foreign universities setting up shops in India. So, who loses? The real intentions of envy-ridden “egalitarians” are obvious. One argument put forward by the Left is that higher education is a “public good” as it has positive externalities. Suffice it to say that externalities are a highly arbitrary concept and could be extended to almost everything. Education, certainly has positive externalities, if we grant the validity of such a concept, but the same could be said of almost any beneficial activity.

Yet another fear expressed by the proponents of Government regulation is that greedy, unscrupulous operators will use the foreign tag to exploit ill-informed students. Such arguments are an apparent proof of their understanding of the operation of a free market.  It is forgotten that the greed and profit seeking motive of private educational institutions would protect the interests of students. It should be said that it is the responsibility of students to inform themselves. If they make a mistake, they should pay for it. It is far better than the Government dragging everyone down to its standard by compulsory standards. Once the Government sets a standard foreign institutions would not find little incentives to exceed it. As Alan Greenspan observed decades back, “At the bottom of the endless pile of paper work which characterizes all regulation lies a gun.” Moreover, the image of Indian students this notion conjures up is that of fools waiting to be duped by any fraudster. It is also pointed out that foreign institutions can get away with such activities as higher educational institutions are in short supply. But, why are higher educational institutions in short supply?


This article was published in the Liberty Institute on Friday, May 7, 2010.
Author : Shanu works as a research assistant with Liberty Institute. He blogs at
Tags- Find more articles on - CPI(M) | foreign educational institutions | HRD ministry | kapil sibal | left | reserbations | SFI

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