The education sector in India

In India, foreign direct investment (FDI) can be made in some sectors under the automatic route (where no prior approval is required), and in other sectors with the prior approval of the Foreign Investment Promotion Board (FIPB). In a press release on 17 March 2008, the Ministry of Human Resource Development (HRD ministry) stated that up to 100% FDI is permitted in the education sector under the automatic route. However, other regulatory issues make it challenging to invest in this sector in India.

Depending upon its proposed activities, a foreign educational service provider may be required to obtain approvals from various regulators and governmental agencies, such as the University Grants Commission (UGC), the All India Council for Technical Education (AICTE), the Medical Council of India, the Dental Council of India, the Pharmacy Council of India, the Council of Architecture and the Bar Council of India.

These regulators have varying requirements relating to the activities of foreign educational service providers, such as the award of foreign degrees, curriculum design and the employment of expatriate personnel. For example, a foreign university or institution seeking to provide technical education in India in areas such as engineering, architecture, pharmacy, management or applied arts and crafts, either independently or in collaboration with an Indian university or institution, has to comply with the AICTE Regulations for Entry and Operation of Foreign Universities/Institutions Imparting Technical Education in India, 2005 (AICTE regulations).

The provisions of the AICTE regulations include the following:

a) A foreign educational service provider (the provider) must submit a proposal to the AICTE, supported by specified documents. The AICTE may issue a certificate of registration to the provider for a certain period of time, and may also require payment of a specified amount as a refundable performance guarantee.

b) The provider must furnish an undertaking to the AICTE that the degrees or diplomas awarded to students in India shall be recognized in its parent country, and treated as equivalent to the corresponding degrees or diplomas awarded by the provider in its parent country.

c) The fee to be charged and the intake in each course to be offered by the provider will be specified by the AICTE.

d) The provider must declare in advance the detailed guidelines for admissions, entry level qualifications, fees and examinations, and is also bound by the AICTE’s directions regarding admissions, entry level qualifications and the conduct of courses.

e) The provider may enter into collaboration or partnership arrangements only with Indian educational institutions that are already in existence and have been duly approved by the AICTE.

Separate regulations exist for Indian private educational service providers, and a foreign provider needs to comply with these also. For example, for a private educational service provider to obtain university status in India, it must comply with the UGC (Establishment and Maintenance of Standards in Private Universities) Regulations 2003, as amended (UGC regulations).

Some of the key requirements outlined in the UGC regulations include: a) that each private university should be established by a separate piece of state legislation; and b) that a private university may be established as (i) a society registered under the Societies Registration Act, 1860, or any other corresponding law in force in a particular state, (ii) a public trust, or (iii) a ‘not-for-profit’ company registered under the Companies Act, 1956. (A ‘for-profit’ company does not appear to be permitted to establish a private university under the UGC regulations.)

In addition to the central government regulations, various state governments in India have separate regulations in relation to educational service providers that also apply to insitutions falling within their ambits.

A significant factor for potential investors in the Indian education sector is the requirement to run educational institutions on a ‘not-for-profit’ basis. Judgments by various courts in India (including the Supreme Court) have reiterated that educational institutions should not be established and administered with a profit motive. Other regulations, such as, for example, the rules formulated under the Delhi School Education Act, 1973, also require educational institutions to be managed on a not-for-profit basis.

However, an educational institution is permitted to generate a ‘reasonable’ surplus, provided that such surplus is utilized for the further development of the institution itself, and not diverted for other purposes.

According to recent press reports, the HRD ministry is planning to introduce new regulatory initiatives to encourage private sector participation in the education sector, including legislation relating to foreign educational service providers and permission for the profits of an educational institution to be utilized in the establishment of new institutions. However, the timing and likely details of such initiatives remains uncertain.

Sandip Bhagat is a partner at S&R Associates. S&R Associates provides legal services in the areas of mergers and acquisitions, securities laws, financings, foreign direct investment, regulatory matters, general corporate counselling and arbitration and litigation. S&R Associates’ office is located in New Delhi, India, and it currently has 25 lawyers, including five partners.