According to the head of Universities UK, a representative body of the country's major universities, overseas students were being made to feel unwelcome and turning to the US, Canada and Australia.
"What universities are reporting to us (is that) they are seeing significant drops, particularly from India, from Pakistan and now from China and Saudi Arabia. These are countries that send large numbers and also they are important countries in terms of international engagement and industry engagement, so we want to be promoting and fostering relations with them, not erecting barriers," Nicola Dandridge, chief executive of Universities UK, told the Guardian.
Overseas students are estimated to bring 8 billion pounds a year into the economy, a figure projected to rise to 16.8 billion pounds by 2025, according to a study by the UK's Department for Business, Innovation and Skills.
Indian students form a major chunk of this slice after China, which represents the largest group of foreign students in the UK.
During his visit to India in November last year, London Mayor Boris Johnson had expressed concerns, revealing a 9 per cent fall in the Indian students applying to study in the UK last year.
A further drop of 25 per cent is forecast for this year.
"The government is right not to open the door to those who will simply be a drain on the state, but it's crazy that we should be losing India's top talent and global leaders of the future to Australia and the United States," he said.
Indians students have also been put off by changes to the post-study work visa rules that came into force last April, which withdrew the right from most overseas students to work in the UK for two years after completing their studies. (MORE)