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India - Higher Education Sector

Opportunities for Private Sector Participation*

01 Overview

The Market unfavourably even with sub-Saharan Africa’s median.

While there has been some private investment in setting up
With a median age of 25 years, India has over 550 million people educational institutions, there remains a glaring mismatch in
below the age of 25 years. According to Census figures, over 32 demand and supply, particularly in high quality institutions.
per cent of the 1.1 billion population is between the age group Example - only 1 out of approximately 150 applicants gets
0-14. This means that the number of people in India needing admission into the elite Indian Institute of Management (IIMs)
primary and secondary education alone exceeds the entire compared with the ratio of 1:10 for MIT. It is therefore not
population of the USA. Since these students will be seeking surprising that an industry chamber has recently reported that
higher education in India over the next decade it illustrates 450,000 Indian students spend over USD 13 billion each year in
the sheer size of the Indian education market. Presently about acquiring higher education overseas.
11 million students are in the Higher Education system. This
represents just 11% of the of the 17-23 year old population. The
government hopes to increase this to at least 21% by 2017- a Policy Response
target which still falls short of the world average.
• 100% FDI in education allowed through automatic route.
With the emergence of India as a knowledge-based economy, • A high-powered advisory body - National Knowledge
human capital has now become its major strength. This has put Commission (NKC) set up.
the spotlight on severe inadequacies of India’s infrastructure
• NKC recommendations tremendously successful in
for delivery of education, particularly higher and vocational
increasing Government’s focus and plan outlay on
• NKC has recommended that the number of universities
increase from the present 370 to 1500 by 2015, considered
a highly ambitious target, but inadequate to meet demand
Demand-Supply Gap for quality education.
• Government has identified expansion, inclusion and rapid
Indian society puts a premium on knowledge and its acquisition improvement in quality throughout higher and technical
- spending on education has figured as the single largest outlay education system as the core focus of its 11th Five-Year
for a middle class household after food and groceries. With its Plan.
rapidly expanding middle class, India’s private expenditure on
education is set to increase manifold. • An outlay of USD 8.6 billion has been projected for the
sector during the 11th Plan period, an increase of 9 times
India’s public expenditure on education (2006-07) at 3.6 % of over the 10th plan outlay.
its GDP and on higher education at 0.4% of its GDP, compares

India’s Expenditure The Opportunity for Private Participation

As % of public expenditure
Goverment resource allocation is inadequate to meet its own
targets leaving enough scope for private participation. Recent
research has indicated that the private sector opportunity in
Indian education can be estimated to be almost 5 times the
Government allocation in its budget for FY09. A report by CLSA
has estimated the Indian education market at USD 40 bn, the
Kindergarten to Grade 12 (K-12) segment being the largest
valued at USD 20 bn. Other segments are - private professional
As % of GDP colleges -USD 7bn, tutoring -USD 5 bn, vocational training
-USD 1.4 bn, test preparations - USD 1.7 bn and pre-schools
-USD 1 bn.

Source: Economic Survey 2007-08

02 Regulatory Framework

Central theme of Regulators and Courts:

“Education should be a not for profit activity”

India has a federal set-up and the Indian Constitution places Though a significant part of the Indian higher education system
‘Education’ as a concurrent responsibility of both the Center is regulated, there are certain areas that are not. As a result,
and the State. While the Center co-ordinates and determines the opportunities for the private players can be divided into two
standards in higher and technical education, school education segments as given below:
is the responsibility of the State. The key policy making agencies
for higher education are:
• Ministry of Human Resource Development (Higher
Education Department) - lays down the National Policy on
• Central Advisory Board of Education (CABE) - coordination
and cooperation between the Union and the States in the
field of education
• State Councils for Higher Education – coordination of roles
of Government, Universities and apex regulatory agencies in
higher education within the State.


Regulated Unregulated

Institutions need to be registered as Trust/ Society/ S.25 company Institutions can be registered
as private / public companies

Regulated Sector Unregulated Sector

Multiple agencies regulate higher education at the federal level, in addition to those at the State Government level Provision of innovative services to
and these are listed below. educational institutions (school, higher
and vocational) as well as students and
corporations is a rapidly growing area of
University Grants Commission All India Council for Technical Specialised Professional Bodies opportunity. There are a number of private
(UGC) – Governs Universities Education (AICTE) - Governs Grant approval for establishment of companies operating in this sector, some
Technical Institutes institutes and determine standards of which are listed. There have also been a
• Coordination, determination and Responsible for maintenance of • Medical Council of India number of M&A’s in this sector. Provided
maintenance of standards in standards of technical education • Dental Council of India that such institutions do not provide
Universities which currently includes education, • Indian Nursing Council education leading to award of a degree
• Prescribes conditions that research and training in: • Council of Architecture or certificate, they can be incorporated
University / Colleges must fulfill • Engineering • Bar Council of India as a company, are beyond the regulatory
• Provide funds to institutions of • Technology including MCA • Pharmacy Council of India regime described earlier and can distribute
higher education • Architecture • Indian Council for Agriculture profits. Examples of such institutions
• Town Planning Research include:
• Management • Rehabilitation Council of India • Language Training
• Pharmacy • Central Council of Homeopathy • Tutorials / Coaching
• Hotel Management & Catering • Central Council of Indian • Education services companies
Technology Medicine • Content providers
• Applied Arts and Crafts • Veterinary Council of India • Corporate Training
• Test preparation and administration

University / College Vocational Education
A University can be set up only through a legislation passed The Government has been actively encouraging private
by Parliament or a State Legislature. Alternately, UGC can participation in vocational education – both through private
confer ‘deemed university’ status to an institution which can enterprises and public private partnerships. The government
then grant degrees. has also announced incentives including financial assistance
for public private participation in Industrial Training Institutes.
Colleges are either affiliated to a University or are
independent. Only students of colleges affiliated to
Universities can get degrees. Services in the Education Sector
The Regulatory authorities, entity options and implications There is a vast opportunity for provision of innovative services.
for setting-up Universities / Colleges are set out in the chart Given regulatory constraints, lack of infrastructure and severe
below. competition for quality education, there is a large and rapidly
growing market for coaching and tutoring services imparted
Since these need to be registered as not for profit entities, through new and innovative means, particularly the internet. In
they cannot distribute profits. However, it is possible to addition corporates are increasingly outsourcing skill training
structure provision of services to them through private activities to specialised institutions.

Regulatory Heat Map in Higher Education

University Deemed College Affiliated Institute granting Institute granting

University to University Diploma in Completion
technical areas Certificate*

Regulating • Government • Government • Government

Authority • UGC • UGC • UGC • AICTE • AICTE*
Choice of • Charitable • Charitable • Charitable • Charitable • Charitable
Entity Trust Trust Trust Trust Trust
• Society • Society • Society • Society • Society
• S 25 Company
Some • Government • Government • Degree of • Fee Regulated • Not a Degree /
Implications nominees in nominees in University • Not a Degree Diploma
Management Management • University
• Setting • Fee Regulated nominees in
up is time • Admissions Management
consuming regulated • Fee regulated
• Fee Regulated
• Admissions
*There is lack of clarity on whether AICTE regulations apply

03 Regulatory Framework –
Foreign Players

Entry of Foreign Entities Foreign University Campuses – Legislation

While 100% FDI in companies engaged in higher education is
allowed on the automatic approval route, regulatory issues have The Regulation of Foreign University Entry and Operation
constrained the actual flow of FDI. The major bottle-necks have (Maintenance of Quality and Prevention of Commercialisation)
been the “not for profit principle” and over regulation. Bill, 2007 is pending introduction in Parliament. Key features of
the Bill (based on newspaper reports) are:-
• Own Campus
AICTE regulations for Foreign Universities
• franchise route not permitted
AICTE has in place regulations for any Foreign Universities /
• Prior UGC approval mandatory
Institutes which propose to collaborate / enter into twinning
arrangement (where a student does a part of the course in India • Embassy to certify antecedents of the University
and part overseas) in Technical Education. The broad features of
• Reservation applicable
these regulations are:
• Fee and admission policy will be regulated
• Franchise is not permitted
• No profiteering / commercialisation allowed
• Fee / seats prescribed by AICTE
• Few universities of excellence would be exempted if they
• Degree / institution to be recognized in the home country
fulfil certain conditions.
• Compliance with affirmative action mandatory.
• For degree granting institutions, affiliation / tie-up with
Indian University mandatory. Possible Collaborations by a Foreign University /
Institution in the current regulatory framework
Although there are regulatory hurdles it is possible for an
overseas education provider to look at opportunities in India,
subject to appropriate transaction structuring. These are
summarised below:

University College Technical Institute Non – Technical Institute/

Content Providers
Provision of Provision of Provision of 100% owned
Course content Course content Course content institute
Provision of Provision of
Foreign Degree* Foreign Degree*

*Affiliation/tie-up to local university mandatory

04 Growth, Key Issues &
Growth Trends

Type No. Growth trends Examples

Universities (under Govt.) 275* Growing Slowly Delhi University
Private universities 21*** Emerging on the scene Amity University
Deemed universities 110** Growing Manipal University
Govt Colleges 4225**** Growing slowly Government Law College
Private Colleges 13460**** Growing Sri Ram College of Commerce
Distance Learning 146* Growing IGNOU
Vocational :-
- Govt. ITIs 1913^ Growing slowing Industrial Training Institute, Shahdara
- Private ITIs/ ITCs 3552^ Growing NSIC Technical Service Centre
Foreign Institutions 150**** Growing slowly Asia Pacific Institute of Information
Technology (APIIT), tie up with
Staffordshire University, U.K.
* UGC Annual Report 2007-08 **11th Five Year Plan Document *** Ministry of Human Resource Development **** ICRIER
Working Paper Higher Education in India - June 2006 ^ Ministry of Labour and Employment- Annual Report 2007-08

Key Issues and Challenges for Foreign Participation

• To be run on not-for-profit basis
• Admission procedures, fees, number of seats regulated
• Approval procedures cumbersome
• Multiple Regulators
• Bill for Foreign Universities pending in Parliament
• Regulatory ambiguity on FDI in higher education
• Incidence of rent-seeking, non-transparent fee structures rampant

Your requirements - PwC’s Service offerings

Tax & Regulatory Structuring • Advice on evolving a tax efficient and regulatory compliant structure keeping in
mind regulatory restrictions relating to entities, level of return, repatriation,
exchange control and other related issues
• Implementation assistance
• Tax advice in relation to various tax incentives, special dispensations,
transaction taxes, corporate tax, expatriates taxation and transfer pricing
• Transaction documentation drafting and review

Regulatory Approvals/ Representations • Assistance in obtaining relevant regulatory approvals

• Assistance in making representations / seeking clarifications from
regulatory authorities

Advisory Services • Joint venture partner search and due diligence

• Transaction support including valuations
• Performance improvement
• Feasibility study and market assessment
• Developing State-level education sector vision
• Sector/ Organisational restructuring
• Institutional strengthening


Contact us

Jairaj Purandare
Markets and Industries Leader
+91 22 6669 1400

Dhiraj Mathur
Tax and Regulatory Services (Education)
+91 11 4115 0309

Indraneel R Chaudhury
Tax and Regulatory Services
+91 80 4079 6001

Debashish Mishra
Government Reforms & Infrastructure Development
+91 22 6669 1287

Joebin Devassy
Tax and Regulatory Services (Education)
+91 11 4115 0219

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