Indian higher education may find capital at home rather than in FDI

The data shows that much capital can be tapped domestically through alumni and corporate endowments

The Union education ministry is seeking foreign capital to improve the quality of Indian universities as part of its goal under the National Education Policy 2020, but is it missing a trick when it comes to raising capital at home?

Apart from hoping that collaboration with foreign universities will improve the standards of higher education, India would like foreign capital for infrastructure and research laboratories. 

But the data shows that India has been successful in tapping corporate endowments and alumni networks to raise domestic capital. In the period from 2017-18 to 2020-21, some of the IITs saw a record rise in alumni and corporate endowments.

For instance, annual donations and endowments at IIT Madras rose from Rs 55 crore in 2016-17 to Rs 101.49 crore in 2020-21, one of the highest among IITs, based on annual reports. 

IIT Bombay saw an increase from Rs 17.12 crore in 2017-18 to Rs 77 crore in 2020-21. And IIT Kanpur has recorded a quantum leap from Rs 7.62 crore in 2016-17 to Rs 84.39 crore in 2020-21.

Apart from endowments, Higher Education Institutes, led by IITs, have also seen a rise in fund raising through loans given by the Higher Education Financing Agency, HEFA. 

HEFA was a joint venture between Canara Bank and the Human Resources Development Ministry. It disbursed loans to IITs, National Institutes of Technology and other centrally funded institutions for research and infrastructure.

According to Jay Kumar, managing director of HEFA, the cumulative disbursements to IITs, NITs, CFIs and central varsities has been to the tune of Rs 14,675 from 2018 to June 2022. Of this, Rs 5686 crore was raised by IITs alone.

Moreover, despite 100 per cent foreign direct investment (FDI) allowed in the sector since 2002, industry data pegs the cumulative inflow from 2000 to 2020 at $3.89 billion. Compare this figure with edtech startups in India alone raising over $2 billion worth of funding in just one year, 2020.

Private education data, according to Venture Intelligence, shows private equity and venture capital investments in the brick and mortar education sector growing from $5195 million in 2018 to $19790 million in 2021, followed by $6466 million in 2022.

So successful were the efforts to tap alumni and corporations that, in a 2019 letter to higher education institutes, the University Grants Commission (UGC) asked them too to create an active network of alumni on lines similar to those of the IIMs and IITs.

The UGC wanted universities to seek help from their alumni for placements and funding for research, among other things.

Yet academics and experts believe that, despite the availability of multiple sources of capital, especially for public institutions, the Indian education system is left wanting for more capital.

“Higher education institutes tend to be capital heavy in terms of infrastructure, faculty, student accommodation and research laboratories. Unlike other sectors, the returns are not commensurate and there is a long gestation period in education,” said Narayanan Ramaswamy, national leader for education and skill development at KPMG in India.

He added: “Who will invest in higher education when the market usually desires 20-25 per cent returns? This kind of capital can only come through fellow institutions and large corporations, whether domestic or foreign.”

Many believe that if the sector has not been getting the levels of capital it needs, the cause is the lack of quality in Indian education.

A director of one of the IITs, on condition of anonymity, said that for India to attract FDI, it needs quality in education and human capital in terms of quality faculty. It is this that has been a limiting factor.

“Hence, the alternative is foreign and private capital in the form of corporate and alumni. Otherwise, and this is what the Indian government is working on, getting foreign capital through strategic collaborations with foreign private universities and institutions,” said the director.

Further, according to IIT Kanpur director Abhay Karandikar, despite the availability of sources like government grants and HEFA loans, there is a dire need for public institutions like IITs to strengthen their internal incomes further through the creation of large endowments that tap into alumni and corporate CSR funds. 

While he concedes that the IITs have already increased the levels of domestic capital, more can be done.

“Large endowments are an untapped source. We have still not seen the kind of endowment sizes in India that are prevalent in foreign universities, particularly in the US,” said Karandikar.

The need for capital at public institutions continues to be more towards research and related infrastructure than for campus or faculty.

“For public institutions the availability of funds for offline campus infrastructure and faculty/ staff salaries is not a major constraint and is adequately budgeted for. However, research needs to be seen differently as it may either not be adequately budgeted for or is budgeted for insufficient length of time to have the required impact. Therefore, most times it’s a challenge for the public institutions to participate in significant research,” said Ajit K Motwani, senior director — advancement, ISB Hyderabad.