How FDI helps in the Development of the Indian Education Sector
Given the vast population base and young demographics, it is no surprise that India has among the largest amount of education seekers in the world. This is one of the main reasons why the country is a hotspot for investment in education. FDI in education sector of India gives huge returns and is beneficial to those seeking long-term investments.
The strong fundamentals of India and the long-term structural growth drivers, such as a youthful working population, increased urbanization, the rapid growth of the middle class, and the rise in disposable incomes, makes it an attractive destination for investment for long-term investors.
The Current Investment Scenario
With a diversified collection of public and private ownership, there are several institutions all over the country, ranging from the pre-primary level to all the way to the university level, catering to the needs of a lot of students constituting over one-third of the country’s population.
Various measures have been taken by the Indian government in order to improve the quality of education in the country and make secondary as well as higher education easily accessible to a huge chunk of its population.
- Investment Strategy and Policy of the FDI
The policy of foreign direct investment allows up to 100 percent foreign investment in the education sector under the automatic route (that is, without requiring prior approval from the government).
Further, FDI in organizations engaged in construction development projects (including inter alia educational institutions) is permitted up to 100 percent under the automatic route, subjected to compliance with certain conditions.
- The Compulsion for being “not for profit”
Despite the liberal norms of foreign direct investment, FDI in education sector, also grapples with regulatory hurdles, thus restricting greater expansion.
This is happening as the government has mandated the not-for-profit entity structure, as education is treated as a service and not as a business.
FDI is not allowed in Section-8 companies which are trusts, societies, school fee management, etc. The aim of the National Education Policy is to stop the commercialization of higher education and that all institutions for education are audited to ascertain their not-for-profit entity status.
This has led to many foreign players employing structures that are multi-tiered for investing in India. For example- A commonly observed structure is adopted by the Business World, a three-pronged model where the educational institution is run by a not-for-profit entity such as a public trust.
The infrastructure of the educational institution is housed within a separate “for-profit company” that acquires, constructs, and develops the school building and associated infrastructure to lease it to the educational institution for the long term in exchange for lease rentals.
Certain Management and supporting services, such as the provision of specialized content, teacher training, marketing and admission, maintenance and support, transportation, catering, housekeeping, and security services, etc., are outsourced by an educational institution to another “for profit” entity, on the basis of an arm’s length.
It is precisely due to how complicated the structures of multi-layered investment can be that foreign and domestic stakeholders seek business opportunities outside the traditional formal educational system.
Attractive segments of education include pre-schools, private coaching and tutoring, teacher training, the development and provision of multimedia content, educational software development, skill enhancement, IT training, and e-learning. These features can make FDI in education sector extremely profitable.
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