International Joint Ventures and Merger & Acquisitions

Indian Education Industry-Setting up a University and FDI Rules

August 10, 2020

In India, education is governed by both central and state legislation. The Ministry of Human Resource Development ("MHRD") is the main body concerned with the governance of the education sector in India.

In India, education is governed by both central and state legislations. The Ministry of Human Resource Development ("MHRD") is the main body concerned with the governance of the education sector in India.

The education sector in our country, is thus categorized on the basis of whether it possesses a regulatory or a non-regulatory structure. The primary, secondary and higher education in our country is covered under the regulatory framework whereas higher education which comprises of bachelors or undergraduate degrees, masters or post-graduate degrees, pre-doctoral or doctoral programs and also diploma courses, is further divided into two segments, namely:

(i) The technical segment
(ii) The non-technical segment.

The Technical segment of education is regulated by the All India Council of Technical Education ("AICTE") and the non-technical education is governed under the University Grants Commission ("UGC"). Furthermore, all private universities in India are established by several different State Acts which adhere to the provisions mentioned under the UGC Act, 1956.

In India, the laws profusely state that all private universities are required to be a singular entity which has sufficient teaching, examination and research facilities along with certain specified extension services as well. Any private university created according to the State Act strictly under the territorial boundaries of the state where it’s inauguration had taken place.

Private Subsidiary Education Units

Every university is allowed to begin an off-campus centre, a study centre and off-shore campuses after a period of 5 years from its inauguration. This kind of a special permission however, is only given under special circumstances and requires the fulfillment of the following conditions:

  • These study centres, in case of off-campus centres can be established with the prior consent of the UGC as well as the ruling government of the state where the facility is structured.
  • All off shore campuses can only be opened after the procurement of necessary permissions from the Union Government of India and the government of the country where the center is formed.
  • The total performance of this centre shall be monitored by either the UGC or an agency selected by the UGC. Further, these centres will be required to follow the management, improvement and academic development related guidelines provided by the UGC from time to time
  • The remittance of funds of the off shore campuses will be done according to the relevant guidelines and laws mentioned under the Reserve Bank of India and in case the UGC realises that the performance of these centres is not up to the mark, then it can order these universities to stop all operation.

Steps for opening a new University

All private universities in India are required to satisfy the basic minimum guidelines for several areas, which have been provided below:

  • With respect to their programs
  • Basic Infrastructure
  • Sufficiently qualified faculty
  • The financial feasibility
Moreover, there are some statutory organizations which also need to be ahdered to, aside from the University Grants Commission (UGC) whose guidelines must be followed by the all such new universities in India:

  • All India Council for Technical Education (AICTE)
  • Indian Nursing Council (INC)
  • Bar Council of India (BCI)
  • Medical Council of India (MCI)
  • Distance Education Council (DEC)
  • National Council for Teacher Education (NCTE)
  • Dental Council of India (DCI)
  • Pharmacy Control of India (PCI)
With regards to the fee and the process of admission, the university in question is separately required to follow the norms given under the UGC along with all other statutory bodies as well.

Composition of the University Curriculum

Each degree as well as the diploma programs under a new university at the undergraduate and the postgraduate level need to have the formal consent of the following constituent bodies:

  • The Board of Studies
  • The Governing/Executive Council
  • The Academic Council
Every new university is to strictly adhere to the norms related to this curriculum which may have been laid down by the UGC or any other relevant statutory body. It is also required to follow all the modifications which are introduce to any of the existing guidelines. Such a private organization must provide all sorts of detailed information regarding the following areas of its various programs to the UGC before their initiation:

  • The Curriculum structure
  • The System of evaluation and examination
  • The Content
  • The Eligibility criteria for admitting students
  • The Process of teaching and learning
The UGC shall be required to conduct a thorough analysis of the information provided by these universities and also look into the feedback and complaints from the students regarding the curriculum, if there are any. The UGC also seeks additional opinion on whether the proposed programs have followed the UGC norms and every stipulation regarding any areas with which a problem may have arisen. Post this, the UGC shall be obliged to inform the concerned university about its shortcomings. After this, the university will consequently need to address these areas and further provide solutions for the programs mentioned as problematic.

The Process of Inspection of Universities in India

  • The inspection of all such universities is conducted by the UGC at certain definite intervals and this same process is applied to every off campus centre, offshore campus and study centres belonging under the same university as well.
  • The UGC also collects all such relevant and important details of the university in question according to the UGC (Returns of Information by Universities) Rules, 1979. There have been certain amendments to these rules which are also followed strictly herein.

Foreign Direct Investment within the Education Sector in India

  • At present, the Government of India ("GOI") has permitted 100% Foreign Direct Investment within the education sector under the automatic route. As of late, the GOI has also extended 100% FDI in the Construction Development projects which would include these educational bodies. These investments are also carried through the automatic route..
  • The primary issue is the lack of enthusiastic investment in this sector from foreign universities and this can be attributed to the fact that the investment is required to be made only through a not-for-profit organization. This not-for- profit character would inevitably require the Indian entity to be either registered as a Society or a Trust or even a company under Section 8 under the Companies Act, 2013. This not-for-profit requirement has thus become the only impediment for attracting foreign investments. Moreover, a Trust or a Society is not eligible to receive any foreign investments under the automatic route and even if any investments are to be permitted, these entities being of a non-profit nature would not be able to distribute any returns on the investment, thereby leading to no real benefit for investors.
  • The total amount of foreign direct investments (FDI) inflow into the education sector in India currently stands at about US$ 1,171.10 million from April 2000 to June 2015, which has been recorded by the Department of Industrial Policy and Promotion (DIPP). Moreover, it is to be noted that Ivy League schools like Harvard and Yale could set up campuses in India soon with the government asking its policy think tank, Niti Aayog, to prepare a framework for opening doors to such prestigious foreign universities.
  • This initiative, part of the “Make in India” campaign which has primarily sought to draw foreign investment, is said to eventually fetch millions of dollars and revolutionise the country’s higher education sector. The government has sent the go ahead to the Niti Aayog, HRD ministry, UGC and commerce ministry for accommodating the possibility of transforming India into an Asian higher education hub with several foreign universities expressing interest in setting up campuses in India.
  • The features of the foreign educational institutions bil which will enable the setting up of foreign campuses in India are given below:
  • No foreign institution can provide a degree to any Indian student unless such an institution is confirmed as a Foreign Educational Provider by the Government of India.
  • Such a university must have at least twenty years of establishment in its own country.
  • This university must maintain a fund of at least 500 million rupees.
  • The quality of education, curriculum, method of imparting and the faculty employed must be in accordance with the UGC guidelines.
  • A maximum of 70% of the income raised from the funds can be utilized in the development of institution in India and rest must be added to the fund. Further, no part of such income could be used for any other purpose other than the growth and development of the institution established by it in the country.
  • The Institution is required to publish a prospectus, which clearly states information regarding its fee structure, refund norms and the amount, number of seats, condition of eligibility with the minimum and maximum age limit, details of faculty, process of admission, minimum pay payable to each category of teachers and staff, infrastructure as well as other facilities, syllabus, rules, regulations, etc. at least sixty day prior to date of commencement of admission within the university.
  • In case of violation of any guidelines, a penalty of a minimum of 10 million and a maximum of 50 million rupees along with the tuition fee must be refunded to the student in question.
  • A foreign institution not confirmed by the Indian government as a Foreign Education Provider which is awarding any certificate to Indian students msut submit a report regarding the course to the commission for the same.

Process and opportunities for foreign investors

Any educational society which provides primary, secondary or higher education in India is clearly required to be established as a not for profit entity. However, here are still immense opportunities to invest within this sector by collaborating or partnering with Indian educational institutions for the provision of infrastructure and management services. The UGC Collaboration Regulations regulate and facilitate collaborations between Foreign Institutions and Indian Institutions which intend on devising programmes for awarding degrees along with post graduate diplomas, as long as they are not specifically covered by regulations formulated under AICTE. According to the UGC Collaboration Regulations, Foreign Institutions that have been accredited with top grades in their respective countries are allowed to collaborate with the Indian Institutions having at least a B-grade accreditation from the National Accreditation and Assessment Council. However, each collaboration still requires UGC's prior approval before continuing with any collaboration. The AICTE governs all forms of technical education in India. The AICTE Technical Regulations further provide a framework for all Foreign Institutions which intend on providing technical education which results in the award of a degree, diploma, post graduate diploma and post diploma level, under any mode of delivery system. Even though all forms of primary, secondary and higher education in India is strictly governed by a structured regulatory framework, the education sector has various opportunities for Foreign Institutions.

Most of the means for investing in the education ector for any foreign entity has been provided belwo:

  • A Public Private Partnership (PPP) – A PPP model incorporates all private sector participation along with the Government of India. This is an effective structure via which investments can be made through upgradation of the infrastructure facilities of Indian Institutions and in certain scenarios arrangements can also be made between private investors and the Government, wherein all private investors also provide operation and management services for such Indian Institutions along with the provision of infrastructure services, while the Government pays the private investors for the specified services so provided.
  • Twinning or Pathway Programs – A twinning or pathway program is also a popular structure in India wherein a student can complete part of the course with the Indian Institutions and the remaining part with the Foreign Institution. A twinning or pathway program can be implemented either through collaboration or a partnership agreement. The UGC Foreign Collaboration Regulations govern the collaboration between Foreign Institutions and Indian Institutions for this purpose.
  • Education Services Company – In light of the present regulatory framework, investments can be made through an education services company providing managerial, administrative, infrastructure and other services to the entity set up to run the school, college or university in India
  • Strategic Partnerships – One of the most popular alternative entry route for Foreign Institutions in the education sector in India is through the formulation of strategic partnerships with Indian Institutions by signing the Memorandums of Understandings for developing the course curriculum, trainings, affiliations, undertake research and development projects and focus on industry issues.
  • Technical Collaborations – SAs per the AICTE Technical Regulations, Foreign Institutions or foreign universities can provide technical education leading to the award of a degree, diploma, post graduate diploma and post diploma level, either by collaborating with Indian Institutions or on their own as well.
  • Education Services Company – In light of the present regulatory framework, investments can be made through an education services company providing managerial, administrative, infrastructure and other services to the entity set up to run the school, college or university in India
  • Other Collaborations – These collaborations comprise of academic and financial collaborations between well-established Foreign Institutions and Indian institutions for facilitating greater academic exchange amongst students, distance education programs and the setting up of an entity in India or entering into arrangements with Indian parties for assistance with student recruitment activities for universities in foreign nations
  • Setting up of Foreign University Campus – The MHRD has proposed the regulations through which foreign universities can set up campuses in India and issue foreign degrees, subject to adherence with the prescribed qualification norms. Once enacted, these regulations must provide a huge leap for the Foreign Institutions intending to set up campuses independently in our country.

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