Higher Education As Profit Centre

The case for allowing foreign players in the higher education sector in India is weak and controversial and simply a ploy to create a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity.

HRD Minister Kapil Sibal finally managed on May 3 to introduce in the Lok Sabha the Foreign Educational Institutions (Regulation and Entry and Operations) Bill 2010 amid protest by Left MPs to the proposed law.

The bill proposes that institutions aspiring to set up campuses in India will have to deposit Rs 50 crore as corpus fund. They will have to be registered with with UGC or any other regulatory body in place.

The bill, however, gives exemption to reputed foreign institutes from the tough conditions set for opening up campuses in India. The reputed universities will not have to go through the rigorous process of approval.

An advisory board will will recommend permission for such universities like Harvard, Yale, Cambridge, Oxford and similar institutions. They will not be required to deposit any corpus money.

However, the clause that foreign institutions cannot take away surplus money back to their respective countries also applies to all foreign institutions, including the reputed ones.

The bill stipulates a number of criteria for ensuring quality. The aspiring institute need to have minimum 20 years of standing in the country to which it belongs. It should have adequate finance and other resources to conduct the courses in India.

The bill says that an aspiring institution will apply for recognition as Foreign Education Provider in India. The application will be scrutinised by the accreditation authority and the UGC or any other commission in higher education. The commission will recommend to the government on whether the institute should be given recognition.

However, the bill, which is being referred to a parliamentary Standing Committee, raises more questions. My friend CP Chandrashekhar, professor of economics at JNU in New Delhi, argues that the case for allowing foreign players in the higher education sector in India is weak and controversial and simply a ploy to create a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity.

There are two arguments, among many, that are being advanced to justify this desire for the foreign. The first is that it would substantially enhance quality in both the new institutions that would be set up by these foreign entities and, by example and the pressure of competition, in old and new institutions created by public and private Indian promoters. The second is that it would close the supply-demand gap.

The supply of higher educational facilities relative to requirements in this country is seen as so large that the government or Indian private players would not have the resources to fill the gap.

To clarify, the resources that the foreign entities would bring could not be real resources like faculty, administrators and material inputs like classrooms, libraries and labs. Foreign providers would have to find these resources largely from within the country, just as Indian promoters would have to, since importing all of it would make things so expensive that the investment would not make sense unless the intention is merely to throw away the money. “Resources” here means the requisite money.

Neither of the arguments—enhancing quality and augmenting supply—is particularly convincing even for those who are enamoured by these foreign brands and what they could contribute to the making of the modern Indian mind.

It is not that foreigners were barred from coming into the country in the past. They could through many routes subject to certain rules. But either because of the rules or because of mere disinterest not many big names even gave a thought to have an independent presence here (as opposed to collaborating in different ways with domestic institutions).

On the other hand, it is not true that no foreign institutions came into this country. Some did. But they were not the well known and what they offered here did not compare at all with the best or even less than best that Indian educational providers were offering. Both in terms of presence and quality history does not give cause for optimism.

The question then is, are the rules being changed to accommodate the foreign? The government states that it is only clarifying the rules and regulatory framework that would apply to foreign educational providers, and that in itself would serve to attract them to the country.

It is true that if foreign institutions are to be allowed at all, to provide education of any kind in the country, it is better that they operate within an appropriate framework of regulation. If not, unscrupulous operators can use the “foreign” tag to exploit poorly informed students who do not have the scores to enter a good national educational institution or the finances to travel abroad to acquire a good education.

In an environment where good higher educational facilities are in short supply, such operators could get away with charging high fees for courses backed by inadequately qualified faculty, inferior infrastructure and substandard equipment.

This has in recent years been a reality in India because of a mismatch between the law on foreign investment in educational provision and the law with regard to the functioning of “recognised” educational institutions.

The foreign investment law in this country does allow foreign educational providers to enter India under the automatic route in the educational services area. It therefore allows for commercial provision of educational services by foreigners and the repatriation of surpluses or “profits” earned through such activity.

However, the nature of such services must be “informal”. If an educational service provider (foreign or domestic) chooses to establish an institution that is termed a university and is recognised as such by the University Grants Commission (UGC) or if it awards a degree or diploma that is recognised by a range of institutions such as the All India Council on Technical Education (AICTE) or the Medical Council of India, then it would be subject to regulation just as any other Indian institution engaging in similar practices. That is, there is no separate set of rules to recognise and regulate foreign institutions.

This implies that recognised foreign educational institutions cannot (like private Indian ones) operate on a “for-profit” basis. Surpluses can be generated based on fees charged, but those surpluses have to be ploughed back into the institution.

This distinction in the regulatory framework, applying to institutions seeking recognition of their degrees and those that do not, did result in the proliferation of courses that are not recognised by government, in institutions that were, therefore, not subject to regulation under laws governing the higher education system.

Most of these institutions were in the private sector, with a majority being domestic private institutions and a few foreign. Some were good, many extremely bad. These institutions were not all avowedly “for-profit” entities, but there were many that made large surpluses legally and otherwise and distributed them in various ways to their promoters.

In some ways, what the Foreign Educational Institutions Bill does is that it seeks to bring certain of those foreign institutions within a separate, clearly defined regulatory framework, requiring institutions providing diplomas and degrees to register under a designated authority, making them subject to regulation and seeking under such regulation to ensure that the promoting institution has a proper pedigree, brings in adequate resources, employs quality faculty, offers adequate facilities, and reinvests all surpluses in the institution, which cannot function for profit.

However, even though these are not considered for-profit institutions, the government is not seeking to regulate the fees they charge the students they take in, set parameters for compensation for faculty, or impose demands such as reservation of seats for disadvantaged sections as it does in its own institutions.

There are three questions which arise in this context. One is whether the implementation of the Bill amounts to skewing further the inequality in access to higher education and tilting the playing field against public institutions. Clearly, the Bill does not allow for the application of laws with regard to affirmative action in the form of reservation of admissions to private institutions, domestic or foreign.

But if the infrastructure for higher education is inadequate, this is true not just for those who fall in what is termed the “general category”, but for those in the reserved categories as well, who need adequate numbers of seats to be reserved for them.

So if private, including foreign institutions, are seen as entities that would help close the demand-supply gap in higher education, they would need to service students in the categories eligible for affirmative action as well.

Since the aim of promoting private education, including that offered by foreign providers, is to make up for the shortfall in public education, the demand that reserved category students be admitted to these institutions with support from the state is bound to rise.

State money would provide access to the socially and economically disadvantaged to private institutions. That is, while the state is not going to regulate fees, it may be forced to demand some reservation by covering the fees charged by these institutions for those it wants to assure the access they are deprived of because of the social discrimination they face.

The obvious question that would then arise is whether it may not be better to use these funds to expand quality public education at lower cost per student. Hence, clarity on the government’s use of these institutions for closing the demand-supply gap would be useful.

If the direction of policy in other areas is indicative, the public-private partnership mantra would be used to justify supporting private provision by funding access to the disadvantaged with no regulation of costs or prices. In fact, the likelihood is that the implicit control would be on the “subsidy” offered to needy students, who then may have to make do with entry into poorer quality institutions.

A second question that arises is whether the better among foreign educational providers are likely to choose not to come into the country if stringent regulations are imposed on them.

With budgetary cuts for education in developed countries and with demographic changes affecting the size of the domestic college-going population in these countries, universities there may like to go abroad if they can earn surpluses to support domestic operations.

But if regulation includes the “not-for-profit” condition, which prevents them from extracting surpluses and transferring them abroad, they may see no reason to be in India.

Perhaps for this reason, the Act for the possibility that its provisions can be diluted. For example, as of now the Act provides for the constitution of an Advisory Board that can exempt any foreign provider of all requirements imposed by the Act except the requirement of being a not-for-profit body.

It also exempts institutions conducting any “certificate course” and awarding any qualification other than a degree or diploma to be exempt from most of the provisions of the Act, making them subject only to certain reporting requirements.

This amounts to saying that if a foreign provider enters the country, reports its presence, and advertises and runs only such “certificate courses” (as opposed to courses offering degrees and recognised diplomas), it would have all the rights that many of the so-called “fly-by-night” operators exploit today.

Once that possibility is recognised the only conclusion that can be drawn, based on the experience hitherto, is that this Act in itself is unlikely to either bring high quality education into the country, or keep poor quality education out. What motivates it, is therefore, unclear.

This raises the third question as to whether this bill is just the thin end of the wedge.

If foreign providers do not come in requisite measure, would the government use that “failure” to dilute the law even further and provide for profit and its repatriation by foreign operators in this sector?

Some time back, the commerce ministry had put out a consultation paper clearly aimed at building support for an Indian offer on education in the negotiations under the General Agreement on Trade in Services (GATS). The paper, while inviting opinions on a host of issues, was clearly inclined to offering foreign educational providers significant concessions that would facilitate their participation in Indian education.

In its view: “Given that India’s public spending, GER (gross enrolment ratio) levels and private sector participation are low, even when compared to developing countries, there appears to be a case for improving the effectiveness of public spending and increasing the participation of private players, both domestic and foreign.”

GATS is a trading agreement and therefore applies to those engaged in trade in services for profit. Providing such concession would force a fundamental transformation of the face of higher education in the country.

Put all of this together and both the motivation and the likely outcome of this bill remain unclear. If the intent is to attract new, more and better foreign investment in higher education to close the demand-supply gap, then the specific framework being chosen is likely to subvert its intent.

If the idea is to regulate only those who have been coming and would come, then a separate law just for foreign operators as opposed to all non-state players is inexplicable.

This suggests that the process underway is one of creating a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity. This may explain the fear that the field would be skewed against domestic private players.

Thus, the case for this Act is weak and controversial. If the supply of educational facilities is low and of poor quality because public spending is low, the emphasis must clearly be on increasing allocations for education. This is likely to be extremely effective since India has the requisite institutional framework.

But there is no reason to believe, especially given past experience, that just allowing private entry, whether domestic or foreign, and the resources associated with it would indeed improve access and ensure quality. Unless the state pays the bill, which it claims in the first place it cannot.