FDI low in education, finger at bar on profit

BASANT KUMAR MOHANTY

New Delhi, Dec. 19: Foreign direct investment in education has been stuttering in India more than a decade after it was allowed, apparently because education is a not-for-profit sector where surplus revenue has to be ploughed back into expanding the institution.

India's education sector has witnessed significant expansion since the government approved FDI in April 2000, thus providing a huge opportunity for investment. Yet FDI remained zero in the first three years, increased till 2008-09 and then kept falling again. (See chart)

In the past 11 years, the total FDI in education has stood at Rs 2,051 crore, the yearly average of Rs 186 crore being one-tenth of one per cent of what the Centre and state governments annually spend in this sector.

The main reason is the curb on profit-making, said Anand Sudarshan, MD and CEO of Manipal Universal Learning Pvt Ltd, which has received more than half the total FDI in education that has come to the country.

"I am not arguing whether this policy is right or wrong, but this is the main reason why FDI has remained low. Whatever FDI is coming, it is in the area of education services, such as technology or education software development, vocational training or assessment services," he said.

Education services, which also include preparation of course material or working out a better exam system, are an area where profit is allowed. However, if a foreign institution or company wants to provide education — and not just services to existing Indian institutions — they are barred from making profit.

So far, only seven foreign institutions have invested in education itself (which they now have to do in collaboration with Indian institutions; setting up their own campuses will be possible only after Parliament passes a revised Foreign Educational Institutions Bill).

Sudarshan added that many countries, including the United Arab Emirates, allow profit from education.

(Private engineering and medical colleges in India earn profits by charging capitation fees but not showing them, says a report by former University Grants Commission chairman Yashpal.)

A Union human resource development ministry official said the low FDI in education should be attributed to the absence of a specific policy for the sector. He suggested the matter would be rectified once the revised Foreign Educational Institutions (Regulation and Entry and Operations) Bill, soon to be sent for cabinet clearance, is enacted.

"There is now no law in the country to regulate the entry and operations of foreign education providers. That is why FDI inflow is not happening for setting up institutions or offering courses," he said. "The proposed law provides for a proper mechanism for investment in this sector."

Sudarshan was less confident, citing how the bill retains the not-for-profit mantra. This newspaper has reported how the bill requires foreign universities to compulsorily deposit between Rs 25 crore and Rs 100 crore as a sort of security, and prods them to open campuses in backward regions.

Under current rules, 100 per cent FDI is allowed in education through the "automatic route". This means a foreign company can directly invest in an Indian firm without prior approval from the government or the RBI. However, within 30 days of the receipt of the FDI, the Indian company is required to report to the RBI's regional office.

Over 75 per cent of the FDI in the past 11 years has come from Mauritius, a tax haven — most of it to Manipal Universal Learning from the Mauritius-based MEMG International Ltd. Educomp Solutions Ltd, too, has received Rs 93 crore in FDI, mostly from various Mauritius-based companies.

"Mauritius is a haven for money-laundering. It is said that the black money of the Indian business class is routed to India via Mauritius," alleged Birendra Nayak, a retired Utkal University professor who opposes FDI in education on ideological grounds.

Sudarshan ruled out black money coming from tax havens to education. "These transactions are done in a transparent manner. MEMG is the investment arm of the same group (to which Manipal Universal Learning belongs)," he said.

The department of industrial policy and promotion, a commerce ministry arm from which The Telegraph obtained the data, says it has no information about black money being invested as FDI in education.

While the total FDI in education since 2000 has been about Rs 2,051 crore, the outflow of money from India through the expenditure incurred overseas on education by Indian students is $5.5 billion (about Rs 30,000 crore) a year, according to human resource development ministry estimates. Over 2.64 lakh Indian students are studying abroad.