5 February , 2020 Fdiindia
Centre’s Move to Promote FDI in Education to Boost Sector
As per education experts, the centre’s decision to expand capital pool in the education sector by promoting foreign direct investment (FDI) and opening up the external commercial borrowing (ECB) route is likely to improve the quality of education in the country.
Rajiv Chugh, Partner & National Leader, Policy Advisory & Speciality Services at EY India said, “The move to promote ECBs in the education sector could contribute to promote education.”
As per existing FDI norms, while 100 per cent foreign direct investment was allowed in the education sector a few years ago, the decision to use external commercial borrowings to fund education infrastructure is a new measure that may lead to improved conditions in the sector.
For the uninitiated, borrowing money through the ECB route results in lower borrowing costs for institutes as they are low-cost financing instruments.
“This in turn, will help create capacity and infrastructure for research and innovation, attract better quality faculty by paying them better as well as attract highly educated professionals from the industry,”Chugh added.
“Any economy will grow on talent and innovation and providing low-cost financing by way of ECB will help promote that,” said Chugh.
ECB interest rates are relatively lower than local borrowing rates. Where rate of interest for ECB stands at 4-6 per cent, local borrowing rates are 12-16 per cent. Opening ECB’s in the sector will result development and enhancement. Currently, educational institutes largely depend on student fees, CSR funds, and local borrowings. Institutes like the IIT’s are also looking at raising capital from overseas.
While delivering the budget for the year 2020-21, Finance Minister Nirmala Sitharaman said: “It is felt that our education system needs greater inflow of finance to attract talented teachers, innovate and build better labs. Therefore steps would be taken to enable sourcing External Commercial Borrowings and FDI so as to able to deliver higher quality education.”