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Will foreign universities come to India?

By Nandini Lakshman, BusinessWeek
October 12, 2006 15:34 IST
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For decades, India's whiz kids with the financial means have packed up and headed off to foreign universities for their higher education. Many never come back, creating a huge Diaspora of talent abroad.

Around 150,000 students are currently studying in the U.S., Britain, Australia, and elsewhere. An additional 100,000 depart every year to pursue foreign degrees at a cumulative cost in tuition and housing of about $4 billion on average every year.

But what if the best universities -- such as Yale, Stanford, Oxford, the Massachusetts Institute of Technology, and the London School of Economics -- could more easily set up campuses, hire faculty, and conduct research in India?

It would open up world-class education and managerial training to a wider swathe of Indian society, where the number of college degrees on a per capita basis is low compared with China. A fast-track economy such as India's needs a deep pool of skilled managers to secure its economic future.

That's precisely the argument that Indian Prime Minister Manmohan Singh's government is making in trying to open up the country's heavily regulated educational system to foreign direct investment.

Singh's new Commerce Secretary, Gopal Krishna Pillai, thinks Indian competitiveness is being held back and Indian families are needlessly paying huge sums to educate their kids abroad.

Government oversight

So why not bring a Harvard or Oxford to India? "If they are allowed to set up shop in our country, this money can be saved," Pillai told reporters last month.

Yet this being India, things are not so simple. India's Union Human Resource Development Ministry, which has a big say in national educational policy, isn't thrilled by the idea. It wants the government to closely regulate educational offerings from abroad and set faculty salaries of any foreign university settling in the country.

Then there is the issue of whether India's controversial quota system that reserves coveted seats at universities for underprivileged castes would extend to overseas schools entering the market. These issues and others have held foreign higher education investment back, despite the government's lifting of FDI restrictions back in 2001.

Sixty below twenty-five

What's clear is that India needs a dramatic upgrade of its system of state universities and private colleges. True, the various Indian Institute of Technology campuses are world-class and have long turned the country's smartest kids into stars. But that is an exception, and competition for those slots is ferocious.

Few would dispute that India needs better schools to meet the needs of the world's largest pool of young people. Some 60% of India's 1 billion-plus population is below the age of 25.

And there are concerns about the quality of Indian students emerging from the domestic higher education system. A study last year by McKinsey concluded that only 25% of India-trained engineers and 15% of the system's finance and accounting professionals had the skill set to work for a multinational company.

Filling positions

Even Indian companies have started to complain and are hiring foreign talent for critical positions. "With our rigid boundaries in education, we are losing out enormously in a changing environment," says Indira Parekh, president of a soon-to-be-launched group called the Foundation for Liberal & Management Education in Pune.

This could hurt India's phenomenal success in generating growth from the global outsourcing trend in software design and back office operations. McKinsey and the India IT industry group Nasscom have estimated that India has the potential to grab 50% of the estimated $110 billion global outsourcing market expected by 2010. But it will need a quality workforce to do so.

Right now the picture isn't promising. India's educational system in rural areas is in desperate need of investment. Nationwide, only 15% of the 200 million-plus student population makes it to high school, and only half those students actually graduate.

Teach locally

In the 17-to-23-year-old age group, only 11% (or 10.5 million students) sign up for higher education. Compare that to other developing economies: 13% in China, 31% in Philippines, 27% in Malaysia, and 19% in Thailand. New Delhi's annual budget for higher education is $2 billion, or 0.37% of GDP, which also lags most other countries in the region.

All this is why bringing the best foreign universities to India makes so much sense in the eyes of many. "If the students can't move to the schools, the schools will move to the students," says Subir Gokarn, chief economist at India's largest rating agency, Crisil. (Like, Crisil is a unit of The McGraw Hill Cos.)

Big foreign universities have shown interest in India -- it is the third biggest educational market in terms of enrollment behind China and the U.S.

Harvard's Southeast Asia Initiative in Bombay was set up last year not just to facilitate research for its faculty in India, but to also provide the India experience for its interns. Sanjiv Kaura, director of the Harvard program, thinks there is potential not only to educate Indian undergrads but also to provide post-graduate and executive education programs for Indian politicians and business execs. "In a fast-paced life, people want to reflect in an academic setting," he says.

Students waiting

Already, foreign schools are starting to set up field offices and research centers to explore the possibilities of bigger investment down the road. The Indian School of Business in the southern state of Hyderabad was set up in 2001 in association with Kellogg, Wharton, and London Business School for managerial training.

Two years ago the University of Michigan's business school opened an economic research center in Bangalore. "These efforts will not only improve market size but quality of education," says M Shrikant, dean of the S.P. Jain Institute of Management & Research, the Bombay business school that has opened campuses in Dubai and Singapore.

Will foreign universities be allowed to take the next step and set up campuses for an array of undergraduate courses? A lot depends on whether New Delhi will remove the regulations standing in the way. Plenty of Indian students would certainly stay at home if they could earn a quality foreign degree at a fraction of the cost of heading overseas.

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Nandini Lakshman, BusinessWeek

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