Indian Higher Education may find Capital at Home : Daily Current Affairs

Relevance: GS-2 - Education, Human Resource; GS 3 – Economy, Foreign Direct Investment

Key Phrases: National Education Policy 2020, Research & Development, University Grants Commission, Higher Education Financing Agency (HEFA), Endowment, Foreign Universities, Foreign Direct Investment

Why in News?

Union Education Ministry is seeking foreign capital to improve the quality of Indian universities as part of its goal under the National Education Policy 2020.

Need for Foreign Capital:

Collaboration with foreign universities will improve the standards of higher education.
Foreign capital is also needed for developing infrastructure and research laboratories.

Investment from alumni & domestic corporates:

Data shows that India has been successful in tapping corporate endowments and alumni networks to raise domestic capital.
In the period from 2017-18 to 2020-21, some of the IITs saw a record rise in alumni and corporate endowments. For example:
- Annual donations and endowments at IIT Madras rose from ₹ 55 crores in 2016-17 to ₹ 101.49 crores in 2020-21, one of the highest among IITs, based on annual reports.
- IIT Bombay saw an increase from ₹ 17.12 crore in 2017-18 to ₹ 77 crores in 2020-21, and IIT Kanpur recorded a quantum leap from ₹ 7.62 crores in 2016-17 to ₹ 84.39 crores in 2020-21.
Apart from endowments, Higher Education Institutes, led by IITs, have also seen a rise in fundraising through loans given by the Higher Education Financing Agency, HEFA.
HEFA was a joint venture between Canara Bank and the Human Resources Development Ministry. It disbursed loans to IITs, National Institutes of Technology and other centrally funded institutions for research and infrastructure.
Private education data, according to Venture Intelligence, shows private equity and venture capital investments in the brick and mortar education sector growing from $5195 million in 2018 to $19790 million in 2021, followed by $6466 million in 2022.
According to HEFA, the cumulative disbursements to IITs, NITs, CFIs and central varsities have been to the tune of ₹ 14,675 from 2018 to June 2022. Of this, ₹ 568 crores were raised by IITs alone.
The efforts to tap alumni and corporations were so successful that in 2019 the University Grants Commission (UGC) asked higher educational institutes to create an active network of alumni on lines similar to those of the IIMs and IITs.

Lacklustre Approach of FDI towards the Sector

100 percent foreign direct investment (FDI) is allowed in the sector since 2002, industry data pegs the cumulative inflow from 2000 to 2020 at $3.89 billion.
As compared to this figure, Ed-tech startups in India alone raised over $2 billion worth of funding in just one year, 2020.

Need for more capital

Despite the availability of multiple sources of capital, especially for public institutions, the Indian education system is left wanting for more capital.
Higher education institutes tend to be capital heavy in terms of infrastructure, faculty, student accommodation and research laboratories.

Why is not market attracted towards the sector?

Unlike other sectors, the returns are not commensurate and there is a long gestation period in education.
Market usually desires 20-25 percent return, which is not there in this sector.
The required capital can only come through fellow institutions and large corporations, whether domestic or foreign.
It has also been opined that the sector has not been getting the levels of capital it needs, the cause is the lack of quality in Indian education.

What can be done to attract FDI?

To attract FDI, India needs quality in education and human capital in terms of quality faculty.
Another alternative is foreign and private capital in the form of corporate and alumni.
Strategic collaboration with Foreign private universities and institutions which the Indian government is working on, is another way of getting foreign capital.
There is a dire need for public institutions like IITs to strengthen their internal incomes further through the creation of large endowments that tap into alumni and corporate CSR funds. IITs have already increased the levels of domestic capital, more can be done.

Need of Capital for Research

For public institutions the availability of funds for offline campus infrastructure and faculty/ staff salaries is not a major constraint and is adequately budgeted for.
However, research needs to be seen differently as it may either not be adequately budgeted for or is budgeted for insufficient length of time to have the required impact.
Most of the times, it’s a challenge for the public institutions to participate in significant research.
Therefore, the need for capital at public institutions continues to be more towards research and related infrastructure than for campus or faculty.

Additional Information

India has the world’s third largest higher education system, after China and the U.S., with more than 13 million students.
The education falls under the concurrent list, with the Union and the states both responsible for it.
Both private and public sectors exist in the country which are regulated at union, state and local levels.
Though the higher education is one of the largest in the world, it caters to only around 12% of the age group.
Only 7-8% of the population in the age group of 17-23 years is enrolled in the higher education institutions.
There is a great need to improve the educational infrastructure in the country by infusing capital as only 0.7% of India’s GDP is spent on the higher education.

Source: Business-Standard

Mains Question:

Q. Why does India require FDI in the higher education sector? Mention the various steps that Union Education Ministry is taking to attract the investment.