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Foreign Aid or Aiding the Foreign?

01 May, 2010, C.P. Chandrasekhar

The cabinet has reportedly passed a version of the Foreign Educational Institutions (Regulation of Entry and Operations) Bill, and this modified version of a draft bill is to be soon tabled in Parliament. The debate has, however, already begun, with protagonists and opponents expressing a range of views on the subject. One view is that it favours foreign players against domestic ones, both public and private, which seems unfounded when the draft bill is read as it is. While debate is normally a process of bringing clarity to an issue, there is a real danger that this would not be true of the ongoing debate on the subject of expanding higher education, improving it and rendering it inclusive. 

The case for permitting freer entry for private domestic institutions and foreign private and public institutions is that higher educational facilities are woefully short in India. For example, the proportion of the population in the 18-24 age group accessing higher education is about half the 15 per cent average elsewhere in Asia. Part of this is because of a shortage of higher educational facilities. Moreover, it is argued, even where such facilities are available, quality is uneven. An important reason is the low level of resource allocation for higher education. Public spending-central and state-on higher education has indeed been low, amounting to less than half a per cent of GDP over the last two decades, even though the government itself targets a spending rate of 1.5 per cent of GDP. If, besides private sector participation, public spending and enrolment are low, the emphasis must clearly be on increasing these with more allocations to 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 ensure quality. 

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, if an educational service provider 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. It also cannot 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, and 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. 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 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 has clauses which subvert its very intent. For example, it 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 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.



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