Foreign funds in education remain scant

NARAYANAN V Chennai | Updated on January 29, 2021

Edtech firms are investor favourites, but negligible FDI/ECB goes into schools

In her 2020-21 Budget speech, Finance Minister Nirmala Sitharaman said India’s education system needs a greater inflow of finance to attract talented teachers, innovate and build better labs. She added that steps would be taken to enable sourcing of External Commercial Borrowings (ECBs) and FDI so as to deliver higher quality education.

A year on, external funds flow into India’s education sector has failed to take off. According to RBI data, only three companies under the education sector tapped ECB funding between January and November 2020. Together, these companies raised $1.86 million (around ₹13.5 crore) and that too for ‘working capital’ purposes.

FDI inflows in education looks no different. Although 100 per cent FDI was allowed in the sector since 2002, total FDI inflow to the sector between April 2000 to September 2020 stood at $3.89 billion or 0.77 per cent of the overall FDI inflows during the period. On the other hand, Indian edtech start-ups received over $2.22 billion funding in 2020 alone.

Why the chasm

“Gaps in quality of education between rural and urban areas and imbalanced ecosystem in research and infrastructure development are some of the reasons for poor FDI inflow into the sector,” said Vishal Yadav, CEO, FDI India, a consultancy firm that connects Indian businesses with foreign investors.

Vidya Mahambare, Professor of Economics at the Great Lakes Institute of Management, said the government needs to re-think the ‘not-for-profit’ principle for the education sector not just for FDI inflows but also to attract domestic investors in the sector.

“There needs to be more freedom granted for deciding and revising tuition fees and the number of seats,” Mahambare said. “The New Education Policy (NEP 2020) has recognised that there are multiple regulators causing conflicts and raising the compliance burden on educational institutions. There must now be a concrete time-bound move towards streamlining the regulatory environment.”

NEP 2020 has set a target to increase public investment in the education sector to 6 per cent of GDP at the earliest.

Budget expectations

Budget 2020 increased the allocation for the education sector by 5 per cent to ₹99,312 crore in FY21. With Centre and State finances already overstretched due to pandemic-led expenditures, any substantial increase in allocation to education looks unlikely in the upcoming Budget.

The pandemic also exposed the systemic gaps in education. The shift to online education spiked the digital divide, worsening the inequalities and reversing the dropout control achieved in previous years.

“In the coming Budget, we expect the government to open up FDI in school education, allowing international fund infusion to help amalgamate technology and academics to enhance the innovations around teacher training,” said FDI India’s Yadav.

Great Lakes’ Mahambare said a large part of government spending on education goes in the operational expenses of running the government schools/colleges and for teachers’ salaries, leaving very little for infrastructure spending.

“If the government can incentivise the private sector to invest in infrastructure in return for a stream of annual payments or via some other mechanism, it may help improve the infrastructure,” she added.

Published on January 29, 2021

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