Education

India - Higher Education Sector

Opportunities for Private Sector Participation*

*connectedthinking
01 Overview
The Market
With a median age of 25 years, India has over 550 million people
below the age of 25 years. According to Census figures, over 32
per cent of the 1.1 billion population is between the age group
0-14. This means that the number of people in India needing
primary and secondary education alone exceeds the entire
population of the USA. Since these students will be seeking
higher education in India over the next decade it illustrates
the sheer size of the Indian education market. Presently about
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
target which still falls short of the world average.
With the emergence of India as a knowledge-based economy,
human capital has now become its major strength. This has put
the spotlight on severe inadequacies of India’s infrastructure
for delivery of education, particularly higher and vocational
education.
Demand-Supply Gap
Indian society puts a premium on knowledge and its acquisition
- spending on education has figured as the single largest outlay
for a middle class household after food and groceries. With its
rapidly expanding middle class, India’s private expenditure on
education is set to increase manifold.
India’s public expenditure on education (2006-07) at 3.6 % of
its GDP and on higher education at 0.4% of its GDP, compares
India’s Expenditure
As % of public expenditure
As % of GDP
Source: Economic Survey 2007-08
unfavourably even with sub-Saharan Africa’s median.
While there has been some private investment in setting up
educational institutions, there remains a glaring mismatch in
demand and supply, particularly in high quality institutions.
Example - only 1 out of approximately 150 applicants gets
admission into the elite Indian Institute of Management (IIMs)
compared with the ratio of 1:10 for MIT. It is therefore not
surprising that an industry chamber has recently reported that
450,000 Indian students spend over USD 13 billion each year in
acquiring higher education overseas.
Policy Response
• 100% FDI in education allowed through automatic route.
• A high-powered advisory body - National Knowledge
Commission (NKC) set up.
• NKC recommendations tremendously successful in
increasing Government’s focus and plan outlay on
education.
• 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
for quality education.
• Government has identified expansion, inclusion and rapid
improvement in quality throughout higher and technical
education system as the core focus of its 11th Five-Year
Plan.
• An outlay of USD 8.6 billion has been projected for the
sector during the 11th Plan period, an increase of 9 times
over the 10th plan outlay.
The Opportunity for Private Participation
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
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.
PricewaterhouseCoopers
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
Education
• 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.

Private
Sector

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

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

PricewaterhouseCoopers
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
constrained the actual flow of FDI. The major bottle-necks have
been the “not for profit principle” and over regulation.
AICTE regulations for Foreign Universities
AICTE has in place regulations for any Foreign Universities /
Institutes which propose to collaborate / enter into twinning
arrangement (where a student does a part of the course in India
and part overseas) in Technical Education. The broad features of
these regulations are:
• Franchise is not permitted
• Fee / seats prescribed by AICTE
• Degree / institution to be recognized in the home country
• Compliance with affirmative action mandatory.
• For degree granting institutions, affiliation / tie-up with
Indian University mandatory.
Awaited
The Regulation of Foreign University Entry and Operation
(Maintenance of Quality and Prevention of Commercialisation)
Bill, 2007 is pending introduction in Parliament. Key features of
the Bill (based on newspaper reports) are:-
• Own Campus
• franchise route not permitted
• Prior UGC approval mandatory
• Embassy to certify antecedents of the University
• Reservation applicable
• Fee and admission policy will be regulated
• No profiteering / commercialisation allowed
• Few universities of excellence would be exempted if they
fulfil certain conditions.
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

PricewaterhouseCoopers
04 Growth, Key Issues &
Challenges
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

PricewaterhouseCoopers
pwc.com/india

Contact us

Jairaj Purandare
Markets and Industries Leader
+91 22 6669 1400
jairaj.purandare@in.pwc.com

Dhiraj Mathur
Tax and Regulatory Services (Education)
+91 11 4115 0309
dhiraj.mathur@in.pwc.com

Indraneel R Chaudhury
Tax and Regulatory Services
+91 80 4079 6001
indraneel.r.chaudhury@in.pwc.com

Debashish Mishra
Government Reforms & Infrastructure Development
+91 22 6669 1287
debashish.mishra@in.pwc.com

Joebin Devassy
Tax and Regulatory Services (Education)
+91 11 4115 0219
joebin.devassy@in.pwc.com

PricewaterhouseCoopers has taken all reasonable steps to ensure that the information contained herein has been obtained from reliable sources and that this publication is accurate and
authoritative in all respects. However, this publication is not intended to give legal, tax, accounting or other professional advice. No reader should act on the basis of any information contained in
this publication without considering and, if necessary, taking appropriate advice upon their own particular circumstances. If such advice or other expert assistance is required, the services of a
competent professional person should be sought.

This publication (and any extract from it) may not be copied, paraphrased, reproduced, or distributed in any manner or form, whether by photocopying, electronically, by internet, within another
document or otherwise, without the prior written permission of PricewaterhouseCoopers. Further, any quotation, citation, or attribution of this publication, or any extract from it, is strictly
prohibited without PricewaterhouseCoopers’ prior written permission.

© 2008 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers”, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the
context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.