People's Democracy

CONSULTATION PAPER ON TRADE IN EDUCATION SERVICES

Higher Education in India and GATS: A Disastrous Proposal

Vijender Sharma

THE Trade Policy Division of the Department of Commerce, Government of India, has recently circulated a consultation paper on trade in education services. Titled “Higher Education in India and GATS: An Opportunity,” it is in preparation for the ongoing services negotiations at the WTO. While pointing out the problems of higher education in India, the consultation paper has argued that with a multi-billion dollar industry involving foreign education providers, distance learning and franchisees, “GATS could provide an opportunity to put together a mechanism whereby private and foreign investment in higher education can be encouraged.”

It should be noted at the outset that the government had given revised offers at the WTO on August 24, 2005, opening higher education sector in various respects despite the protests by the people at large. The government did not resort to any consultation process at that time. Now it seems the commerce ministry has come out with this consultation paper in order to make a case for further strengthening what it has already committed at the WTO.

PRIVATE GOOD OR MERIT GOOD?

In 1997, vide its paper “Government Subsidies in India: Discussion Paper,” the finance ministry had proposed that higher education including secondary education as a “non-merit good” for which the government subsidies needed to be drastically cut. Due to opposition from the CPI(M), other Left Parties and academia, that discussion paper was rejected. The finance ministry has again described education (other than elementary) as “merit II good” in its report “Central Government Subsidies in India” submitted in December 2004. The report points out, “While the merit goods deserve subsidisation in varying degrees, Merit I dominates Merit II in terms of desirability of subsidisation.” That is Merit II goods will not be subsidised by the state at the same level as the Merit I goods.

The consultation paper of the commerce ministry has once again raised the debate as to whether higher education is a merit good or a private good. According to it, education is generally considered more of a merit good than a public good. However, this is based on the assumption that “the government steps in to provide education services, because it is ‘good’ for society. If this assumption is relaxed, education could as easily be considered a private good (emphasis added).” 

Thus a case is being made to relax the aforesaid ‘assumption’ in order to shift higher education from the category of even ‘merit II goods’ to ‘private goods,’ more so because “higher education does display many characteristics of private goods in a number of countries.” This would lead to further degeneration of our higher education system rather than solving its problems.

HIGHER EDUCATION: INDIAN SCENE

Today, India is the third largest higher education system in the world (after China and the USA) in terms of enrolment which in 2005-06 was over one crore five lakhs. However, in terms of the number of institutions, India is the largest higher education system in the world with 17,973 institutions (348 universities and 17,625 colleges). Of these, there are 63 unaided deemed universities with enrolment of 60,000 students, and 7,650 unaided private colleges with enrolment of 31,50,000 students. Thus nearly one-third of total students are studying in unaided private institutions. Therefore, the consultation paper concludes that unaided institutions are ‘growing rapidly’ and others are ‘not growing.’

Even with such a huge system in place, higher education in India is in a miserable condition. Student enrolment grew at an estimated rate of 7 percent between 1987 and 1993 but has now declined to 5.5 percent compound rate of growth. Even then, after nearly six decades of independence, higher education is not accessible to the poorest groups of the population. Hardly 7 or 8 percent of the population in the age group of 17-23 years is enrolled in the institutions of higher education. 

QUALITY MANPOWER

In order to strengthen the case for trade in education services, the consultation paper quotes a recent McKinsey-NASSCOM study that “the total addressable global offshoring market is approximately US 300 billion dollars, of which US 110 billion dollars will be offshored by 2010.” It asserts that India has the potential to capture about 50 percent of this market and in the process “generate direct employment for about 2.3 million people and indirect employment for about 6.5 million people. However, high quality manpower would be required for such jobs.” 

The consultation paper further refers to this study to point out that “only 25 percent of Indian engineers, 15 percent of its finance and accounting professionals and 10 percent of Indian professionals with general degrees are suitable to work for multinational companies.” Therefore, reforms in higher education have been advocated for “better human resource development.” However, it has not been justified as to how trade in education services would lead to the production of quality manpower.

THE FINANCIAL SITUATION

Interestingly, the consultation paper points out that since higher education has low price elasticity, “cost recovery through higher fees will not reduce enrolments. Hence, private funding of higher education is not only more efficient, but also more equitable” (emphasis added). We have been arguing all along that even with the existing fee structure, only about 7 or 8 percent of the population in the age group of 17-23 years is enrolled in the institutions of higher education. Raising the fees will not lead to equity; rather it will further decrease the enrolment. The public investment in higher education is just about 0.37 percent of the GDP and is much below the required levels.

In the context of reservations in higher education institutions, raising the seats in the institutions of higher learning by about 50 percent would require about Rs 20,000-25,000 crore. Since this huge amount cannot be provided by the public exchequer at one go, the consultation paper recommends “a mix of the following steps would seem to be necessary: increasing seats in government colleges/universities in a phased manner, allowing these institutions to raise their own resources and finally provide a more liberal regime for private and foreign education providers” (emphasis added).

This recommendation is clearly in line with its thinking that higher education can be converted into a ‘private good.’ The institutions of higher education are being called upon first to increase the number of seats and then raise their own resources. It is childish to believe that, with these recommendations, the institutions of higher education can survive. It is also not understandable as to how a more liberal regime for private and foreign education providers would help solve the reservation problem.

COMPARISON WITH OTHER COUNTRIES

Enrolment in India has been below the average for the Asian countries. Of the latter, the South East Asian countries show much higher enrolment: Philippines (31 percent), Thailand (19 percent), Malaysia (27 percent) and China (13 percent) as compared to 7-8 percent (11 percent according to the consultation paper) in India. The enrolment figure for the USA is 81 percent, in the UK 54 percent and in Japan 49 percent. 

India also has one of the lowest public expenditure on higher education per student at US 406 dollars, which compares unfavourably with Malaysia (US 11,790 dollars), China (2,728 dollars), Brazil (3,986 dollars), Indonesia (666 dollars) and Philippines (625 dollars). This expenditure in the USA is 9,629 dollars, in the UK 8,502 dollars and in Japan 4,830 dollars.

Thus the consultation paper shows that India’s public spending on higher education and gross enrolment ratio levels are quite low, even when compared with several other developing countries. Therefore, the commerce ministry should have stressed commerce ministry should have stressed the need to increase the public spending several times over. However, the consultation paper that has been drafted to facilitate the entry of foreign education providers says, “there appears to be a case for improving (only improving and not increasing --- author) the effectiveness of public spending and increasing the participation of private players, both domestic and foreign” (emphasis added). This recommendation, in any case, does not flow from the status of public expenditure as given above.

ON EXPORT OF EDUCATION SERVICES

The USA is the largest exporter of education services in the world. The other large exporters are the UK, Australia and New Zealand. Developing countries such as India and China are the largest importers of education in the world. According to the consultation paper, the Asian countries had 3,25,000 students in US colleges and universities in 2004-05, including 80,466 from India, 63,000 from China, 53,000 from South Korea and 42,000 from Japan. Further, 15,000 Indian students were enrolled in the UK, 22,279 in Australia and 2,567 in New Zealand. 

In 2004, nearly 14 percent of all international students in the US were from India. Education itself generated as much as 13.4 billion dollars in export revenues for the US in 2003. The US has therefore benefited enormously as a result of these revenues, which have come in through Mode 2 (consumption abroad). 

The consultation paper therefore asserts that “there is a huge excess demand in India for quality higher education,” which is being met by “foreign campuses.” Indian students studying abroad keep these “foreign universities going and even subsidising foreign students.” In comparison with 105 lakh students enrolled in the higher education institutions in India, a meagre 1.4 lakh students enrolled abroad does not amount to a “huge excess” demand. It is only 1.3 percent! These students could have been retained in the country if the government had invested in higher education as promised in its National Common Minimum Programme. In any case, the consultation paper has clearly shown that India was not spending even as much as was being spent by other South East Asian countries.

A DISASTROUS RECOMMENDATION

Even then the commerce ministry recommends “services negotiations (in WTO --- author) could be used as an opportunity to invite foreign universities to set up campuses in India, thereby saving billions of dollars for the students travelling abroad.” Therefore, the consultation paper recommends striking “a balance” between “domestic regulation and providing adequate flexibility to such Universities in setting syllabus, hiring teachers, screening students and setting fee levels” (emphasis added).

The WTO has identified certain barriers to trade. These barriers/obstacles include the restrictions on free movement and nationality requirements of students and teachers, immigration regulations, types of courses, movement of teachers, modalities of payments or repatriation of money, conditions concerning use of resources, direct investment and equity ceilings, existence of public monopolies, subsidies to local institutions, economic need tests, exchange controls, non-recognition of equivalent qualifications, etc. The goal of 'free trade' regime under the WTO is to get these barriers removed in order to further liberalise the world economy. Therefore, the ‘adequate flexibility’ and a ‘balance’ between domestic regulations and ‘removal of barriers’ will prove DISASTROUS for the Indian higher education system. 

The foreign education providers have been and are insensitive towards cultural and educational ethos of any country. And India is no different for them. This shall lead to the killing of the indigenous nature and functions of Indian universities.

HIGHER EDUCATION IN OTHER COUNTRIES

It is noteworthy here to point out that many countries, which allow foreign educational institutions, vigorously protect their national interests and priorities set by their public policies. Case studies of all such countries cannot be provided here, but a few examples can indeed be given.

In China, the entry of foreign institutions is by invitation only and the conditions under which the foreign educational provider can come to China include: (1) foreign institutions must partner with Chinese institutions; (2) partnerships must not seek profit as their objective; (3) no less than half the members of the governing body of the institution must be Chinese citizens; (4) the post of president or the equivalent must be held by a Chinese citizen residing in China; (5) the basic language of instruction should be Chinese; and (6) tuition fees may not be raised without approval. There is no provision for online and distance learning.

In Malaysia also, foreign institutions can enter only by invitation from the ministry of education. Such an institution has to establish a Malaysian company with majority Malaysian ownership and has to be registered with the government. Permission for each course is required. Courses should be accredited and approved in the home country and recognised by an appropriate professional association in Malaysia.

In Singapore also, foreign institutions can enter by invitation and only elite universities are invited. Their collaboration with local partner is permitted, but they cannot use terms like university, college and academy. Applications for setting up higher education institutions are considered on a case-to-case basis. There is no regulation governing foreign education providers and it has also not made any offers under GATS in higher education. 

SITUATION IN INDIA

At present there are 150 foreign education providers (FEP) in India with 8,000 students at an average enrolment of just a little over 50 students per institute. With these figures, it is not known as to how the consultation paper describes them as “emerging on the scene.” These institutions have entered India as India permits 100 percent equity holding for foreign direct investors under the automatic route in the educational services and repatriation of surpluses or "profits" earned through such activity. Foreign participation through twinning, collaboration, franchising, and subsidiaries is also permitted.

The problem with the commerce ministry and FEPs is that the FEPs cannot call themselves universities. In India, only a central or state act can incorporate a university. They are then under regulation of the UGC or bodies like AICTE and cannot operate for profit. Even if the ‘deemed to be university’ status is given, the institution comes under regulatory control of these bodies.

Therefore, there cannot be a less regulatory mechanism with “adequate flexibility” for foreign universities compared to domestic institutions, as suggested by the consultation paper.

GATS AND INDIA’S HIGHER EDUCATION

The objective of the General Agreement on Trade in Services (GATS) is to liberalise trade in services as quickly as possible. It is clear from the preamble of the GATS that it is a “multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalisation.” It covers not just cross-border trade but every possible means of supplying a service, including the right to set up a commercial presence in the export market. The WTO has explicitly stated that one of the advantages of the GATS is that it will help “overcome domestic resistance to change”(emphasis added). Though WTO membership consists of nation states, its agenda is shaped by the transnational corporations (TNCs).

A general framework of obligations that applies to all member countries of WTO includes two principles. According the first principle of “Most Favoured Nations (MFN) Treatment” there cannot be any discrimination between the members of the agreement. According to the second principle of “National Treatment” there cannot be discrimination between foreign service providers and other domestic service providers in the country.

The rules of “most favoured nations” and “national treatment” are aimed at eliminating all restrictions. Under these rules, governments must treat each nation's corporations equally, which will effectively end all attempts by the developing countries to insulate their economies to some degree from the world market. There are a host of “market access rules” making it illegal to restrict competition or place national restrictions of any kind on foreign ownership. 

Article I.3 defines “services” to include “any service in any sector except services supplied in the exercise of government authority;” and “a service supplied in the exercise of government authority” means “any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers.” 

That is, a service has to be entirely free in order to be out of the purview of the GATS rule. However, when services have been provided either by the government partially or some prices are charged (as happens in education where some fee is charged) or provided by the private providers, it shall fall under the GATS rule. 

The idea behind this is the creation of an open, global marketplace where services, like education, can be traded to the highest bidder. Since total public monopolies in education (without any fee charged) are extremely rare, almost all of the world's educational systems fall under the GATS umbrella.

India cannot get exemption in education from the application of GATS because education at all levels, particularly at the higher education level, is not entirely free as some fee is being charged for it. The consultation paper correctly points out that the market access and national treatment obligations apply only to the sectors in which a country chooses to make commitments. India has already chosen to make commitments in higher education. Therefore market access and national treatment rules shall apply in India, which will prove to be disastrous for Indian higher education system.

It has been pointed out in the consultation paper that only four countries (Australia, New Zealand, USA and Japan) out of the 21 countries with higher education commitments have submitted a negotiating proposal. The European Union has put clear limitations on all modes of trade in higher education except ‘consumption abroad,’ which means foreign students coming to their countries and paying the full cost. The consultation paper has not made it clear as to why these countries have put limitations on foreign direct investment in their countries. 

The consultation paper asserts that public education services provided free of cost on a non-commercial basis and not in competition with other service suppliers are outside the purview of the GATS. But, then, education has to be entirely free. This is not the case in India, since some fee is charged here. That is why WTO members have chosen to impose considerably more limitations on trade in educational services in Mode 3 (FDI/commercial presence). It is also feared that education could be positioned as a ‘trade off’ for gains in other sectors.

However, the consultation paper brushes aside all such real problems of bringing higher education under the GATS umbrella. It states, “Given that India needs all the investment that it can get in the higher education sector, such fears and reservations seem to be somewhat overstated.” It goes on further that trade in higher education is already taking place through the movement of students, teachers, programmes and even institutions. India should also put in place “a sound regulatory framework to govern private players (both domestic and foreign), which can focus on setting the rules of the game and have student interest as the main objective.”

NEGOTIATING PROPOSALS

If one goes through the negotiating proposals of countries annexed with the consultation paper, one finds that the commerce ministry’s claim that foreign investment would improve quality and there would be no problem to the public funded higher education system in India, gets fully exposed. Three countries --- Australia, New Zealand and USA --- have in their proposals not mentioned the issue of quality at all. The USA has demanded the removal of all barriers identified by the WTO and pointed out the above (including minimum) requirements for local hiring of people causing uneconomic operations. 

Obviously, these institutions want to open business houses in higher education for making profits. They want the removal of all such barriers that are uneconomic to their operations. 

The consultation paper recommends a “viable financing model, with a mix of public and private participation has to be put in place. Cost recovery through suitable tuition fees and access to loans for students would help in alleviating the financial constraints faced by higher education institutions.” These old proposals --- full cost recovery and students loans --- have proved to be against the interests of lower middle class, deprived sections and girls and will lead to their dropout and further privatisation and commercialisation of higher education. 

INVEST MORE IN HIGHER EDUCATION

The World Bank-WTO-GATS dictated policy on higher education, prescribed in the consultation paper, must be reversed. The C N R Rao committee had cautioned against a hasty approach on the issue. When ministers of state governments met in January 2005, they too took this view. A draft bill seeking to address our national concerns was circulated, which sought to regulate the entry of FEPs. Unfortunately, the vested interests have apparently succeeded in delaying the same.

India’s top priority should be to invest more in higher education, start more public funded colleges and universities and cater to the needs of indigenous people rather than trying to be an exporter of higher education. The UPA government must abandon its policy of foreign direct investment in education and private universities. The unaided deemed to be universities should be reverted back to their original status. India must keep out education at all levels from the ambit of GATS. As citizens of India, we have to ensure that the government takes care of public interests and act to protect public services like education from the predatory elements that preach the ideology of the marketplace as the solution to every issue.

(The author may be contacted at [email protected] or [email protected]).