Integrating India’s Service Sector with
the Global Economy
-Case Study-Higher Education
National Consultation
Services Trade and Domestic Regulation in India
New Delhi, Thursday, November 29, 2007
Pritam Banerjee
George Mason University
Debashis Chakraborty
Indian Institute of
Foreign Trade
Dipankar Sengupta
University of Jammu
Why Higher Education?
 India’s boom in service exports has been
almost entirely attributable to IT and ITES
services
The nature of these services particularly in the
IT segment is skill-intensive and requires
constant knowledge upgradation given the
swiftness of technological obsolescence
 The most important input - skilled manpower
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if this sector is to keep on maintaining its current
rates of growth ever increasing flows of skilled
manpower must be forthcoming
every batch of these skilled entrants must be more
skilled than the previous batch- they must be
trained in the latest technology.
Dichotomy of India's IT Sector
 The paradox of India’s IT and ITES boom- it
has grown away from the heavy hand of the
government to carve a niche in most dynamic
and knowledge intensive sector
 But is almost entirely dependent on Stateowned/controlled educational institutions often
characterized by institutional and academic
inflexibility.

India’s IT and ITES sector have taken
advantage of the fact that their services use
skilled human capital most intensively, a factor
long available in India in quantities that have till
recently greatly exceeded demand.
Higher Education in India:
Background
 The Indian higher education system has been growing
substantially post-Independence
 High level of investment in higher education was a
political-economic decision designed to create a selfreliant economy in terms of human capital
requirements.
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The numbers of universities in India increased from 28 in
1950 to 348 in 2005
Colleges from 578 in 1950 to 17625 in 2005
The total enrolment increased from around 200 000 in
1950 to about 10.50 million in 2005
Colleges that are affiliated to 348 universities constitute
the bulk of the higher education system in India, which
contribute around 90 percent of the total enrolment.
Today, India offers the third largest higher education
system in the world in terms of enrolment ranked behind
China and USA
Evolution of Higher Education in
India
 Aggarwal (2006) -3 phases in the development
of Higher Education
Phase 1 (1947-80)- State-led expansion of
public university system as well as publicprivate aliances via Grants-in-aid
 Phase 2 (1980-2000)-emergence of private
institions affiliated to State Institutions- State's
role declines relatively-fuelled by middle-class
demand
 Phase 3 (2000-)professional courses geared to
the IT and ITES boom
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Also witnesses the entry of foreign players in
collaboration with Indian partners, twinning
programmes
The Nature of this boom
 Development of Professional Education in India ( Raychaudhari and
De (2007),)
Type of Professional Education
Engineering
Pharmacy
Hotel Management
Architecture
Applied Computer Training
Business Administration
Physiotherapy
% Increase in Number of Institutes % Private
in period 1999-2006
Sector
121
208
70
51
25
55
294
88
94
90
67
62
64
92
 Development of Professional Education in India ( Raychaudhari and
De (2007),)
Type of Professional Education
Engineering
Pharmacy
Hotel Management
Architecture
Applied Computer Training
Business Administration
Physiotherapy
% Increase in Number of Institutes % Private
in period 1999-2006
Sector
121
208
70
51
25
55
294
88
94
90
67
62
64
92
Higher Education and the
Economy
 The IT and ITES sectors are skilled-manpower
intensive
 As the economy “climbs” the technology
ladder, other industries will require increasingly
skilled manpower
 investors.
Annual Tertiary Student Output in India in the period 2007-2016 (assuming 5% p.a. growth in
tertiary education sector)
3500000
3000000
2500000
2000000
1500000
1000000
1
2
3
4
5
6
7
8
9
10
 India will be producing about 25.2 million
students with tertiary education assuming 5%
p.a. growth in capacity for this sector
NASSCOM-McKinsey report of 2005, India
would need about 2.2 million new workers in
the IT and ITES sector alone by 2010- 3 million
by 2016
 12% of India’s new tertiary level graduates
could be employed by the IT and ITES sector
alone
 growth of around 7-8% p.a. then requirement
for skills by other sectors of the economy,
including agro-processing and retail would also
increase substantially.

25.2 million might not be enough -around 35
million by 2016
 India’s competitive trajectory and economic
expansion (in terms of both domestic and
external sector) may be able to efficiently
absorb that skilled output
 Would mean the creation of approximately 120
million new middle-class consumers and
investors

Regional Dimensions
Regional Dimensions
Regional Dimensios..
Implications
 Accentuation of Regional Inequality and
Growth
 What figures do not reveal-The poor quality of
education imparted in many of the poorer
states

Three Challenges of General
Tertiary Education
 gradual decline of demand for general tertiary
education (pure sciences, social sciences and
liberal arts) and a preference for professional or
applied courses that have better job prospects.
 Number of colleges offering general education
went up by 79% between 1992 and 2002Number of institutes offering technical
education increased by 172% in 1992-2002
 Quality of most general tertiary education is
extremely poor, further diluting the importance and
demand for such education
 Incentive Structure- subsidized fees and the
subsidized boarding and lodging facilities used
students who use these facilities while pursuing
other career options.
Importance of General Tertiary
Education and Role of the Private
Sector
 strong tertiary general education infrastructure
provides the intellectual diversity that creates
competitive managers, entrepreneurs,
administrators and social sector workers.
 The need for contextual, information intensive
skills imparted by such disciplines is an asset
for the business processing profession,
hospitality and the creative arts.
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Industry bodies- CII recognized the shortage of
such skills relative to the projected requirements of
India’s growth.
Enormous amount of effort is required to upgrade
quality, link it to job strategies and practical
applicable skills and invest in infrastructure
 A big part of that strategy has to be incentives to
attract private investment, including foreign direct
 Strong tradition of public-private collaboration
in the general tertiary education sector,
especially at the undergraduate level

Private colleges that are affiliated to public
universities are common in India and many
such private colleges receive up to 80% of their
funding from public resources with student fees
and other endowments making up the rest
Opportunities for Foreign
Players
 India's import-$ 291 mill. (2005)
 Asian Imports of Education (Mode 2) from
OECD economies (Bohm et al)
China
India
Number of Students
2010 2020 2025
760000 1900000 2900000
272000 500000 630000
Market Access and Nature of
Foreign Presence
 Market access in education services in the
Asia-Pacific region
Comparing Market Access in Education Sector in the Asia-Pacific Region
Primary Secondary Higher Adult
Other
India
Y
China
Y
Y
Y
Y
Y
Japan
Y
Y
Y
Y
Australia
Y
Y
Y
Thailand
Y
Y
Y
Nature of Foreign Presence
Mode 3 presence there approximately 131 Indian institutions
collaborating with foreign institutions
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107 providing vocational courses, 19 technical courses and only 5 for
general education.
Some of the foreign institutions have been operating in India before
the guidelines for foreign educational institutions came into effect-did
not take permissions accordance with the law of the land nor
registered with concerned governments
Such unregulated presence can present potential problems for both
customers as well as well reputed education service exporters as
students receive poor quality education which in turn affects the
reputation of quality education providers who have not yet entered the
field
Despite the substantial liberalization of the higher education
sector by India, partner WTO countries continue to seek
greater market access
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India has received requests (for opening up of education services from
Australia, Brazil, Japan, New Zealand, Norway, Singapore, USA. These
requests focus adult education, and other education services that remain
closed.
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Domestic Regulations governing
Foreign Players
 AICTE
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The fee to be charged and the intake in each
course to be offered by a Foreign University/
Institution leading to a degree or diploma shall
be as prescribed by the AICTE, giving due
hearing to the concerned Foreign
University/Institution
The Foreign University / Institution shall be
bound by the advice of AICTE with regard to
admissions, entry qualifications and the
conduct of courses / programs in technical
education, as may be communicated to them
from time to time
Potential Impact
 Creation of a market for lemons
 institutional inflexibility
 Potential Barrier of Entry
Regulations that affect Private
Domestic and Foreign Players
 Lack of Uniform Guidelines as Education is a
State level subject
 SC judgements though give considerable
powers to the UGC
 Private Universities Establishment and
Regulation Bill (2005)
 Allowed to lapse- lack of political support
Private Universities Establishment
and Regulation Bill (2005)
 Key provisons
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Private universities will have to maintain a permanent
endowment fund of Rs. 100 million.
No authority to affiliate other colleges or institutions
Only 1 campus
Within three years of establishment the private
university will have to get accreditation for the
University Grants Commission (UGC) and renew it
every five years
One representative each of the state and federal
governments and one academician will be nominated
to the governing body of this university by the UGC
All officer and employees of the University shall be
deemed to be public servants
 Role of UGC
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Jurisdiction of the private university is restricted to
the state where it is established. Special
permission is to be granted in rare cases for to
open out-of-state campuses or study centres.
Prior permission is required for from UGC for
starting any diploma or degree courses. This
requires the submission of curriculum, information
on teaching methods and processes and
examination methods and processes.
Admission procedure and fee fixation shall be
according to the norms of UGC and those of other
applicable statutory bodies such as AICTE
 Summing up-Regulatory barriers facing foreign
higher education in India
Invisible Barriers in Education Services
Non recognition of specific degrees
Restrictions on Electronic material
Insistence on local partner
Insistence that provider be accredited in
exporting country
Insistence that local partner be from from
formal academic stream and not a
professional group/organization
Difficult regulations for approval
Regulations on Fee and price controls
Modes Affected
1, 3
1, 3
1, 3
1, 3
Problem in India
Yes
No
No
Yes
1,3
No
1,3
1,3
Yes
Yes
To Sum Up..
 India’s IT and ITES sector caters to a clientele
that is not only technologically the most
advanced, but also the one where technical
change is the most rapid.
 Demand of skilled personnel increase, but
these personnel must be trained in skills more
advanced than preceding batces. shortages of
skilled personnel at various levels.
`
 The regulatory regime must ensure the
following
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The sector must be open to players from Developed
Countries so as to allow advanced educational
incorporating inputs that embody the latest advances in
various fields and disciplines
There must be sufficient institutional flexibility for
upgradation of courses as well as introduction of new
courses to take care of niche and new areas
The institutes must be free to generate sufficient
resources so as to ensure that resource persons
engaged in human skill formation and training are
adequately compensated so that the quality of
instructors remain high.