Union Budget: Investing in the future of India, the youth

Written by Vijay | Updated: Jul 8 2014, 02:21am hrs
The primary focus of the new government should be to invest in Indias intellectual talent, i.e. the youth. Reports indicate that, by 2020, India is set to become the worlds youngest country with a substantial part of its population entering into the working age group. The question to ask is: While the youth will reach the working age, have we as a country skilled them enough to be gainfully employed There clearly is a crying need for creating the right infrastructure to equip the youth for tomorrow such that they can contribute to the economy in a meaningful way. A good education system coupled with growth and opportunities in the Indian economy will enable restricting flight of intellectual capital.

On the policy front, the government needs to roll up its sleeves in order to reform the sector by getting key regulations such as Foreign Education Bill, Unfair Trade Practices Bill, Universities for Innovation Bill cleared in Parliament. The public expenditure on education needs to be increased in addition to incentivising the sector for private investment. The proposed incentives could be on the lines of the investment-linked incentive provided to the health and hospitality sector, viz allowing 100% deduction for capital expenditure (excluding land, goodwill and financial instrument) incurred by an entity that builds and operates, anywhere in India, an educational institution. The government can consider formulating rules such that education institutions having a prescribed capacity and education streams are provided this benefit. This will help in creating world-class infrastructure in the much-needed education sector.

While a significant part of primary and secondary education sector operates on a not for profit basis, this proposition has created its own challenges in creating further infrastructure in this domain. In order to encourage investments in the sector, the government may consider encouraging private investments in this area as well with the investor being entitled to recover an agreed upon return on investmentakin to what has been prescribed for certain infrastructure projects like the power sector.

The government has included education within notified CSR activities. The inclusion of education does help but a sector as critical as this has to compete with other activities that have been notified. Further, there is no clarity on deductibility of expenditure on CSR-related activities. The government can provide clarity in this regard and consider weighted deduction for grants made to the education, skill development and teacher-training institutions.

In order to provide a level-playing field and improve the existing infrastructure (read government schoolsthat meets the larger social cause), there is a need to invest further by channelling funds to meet the requirements. The government may consider creating a Fund (on the lines of Infrastructure Development Fund) that will have the ability to raise funds for onward investments (by way of debt) into the existing infrastructure of primary, secondary and higher education. While the government can consider providing complete tax exemption to investors investing into the said Education Development Fund, in order to reduce the cost of funding to the existing infrastructure, the government could consider providing a subsidy to mitigate the cost of funds provided by the Education Development Fund.

Apart from creating excellent infrastructure, there is also a need to formulate a policy that will encourage a career in the education sectorwith specific focus on career in government institutions. Recent news reports indicate that the government is considering permitting foreign universities to set up base in India. While this is definitely a welcome move as it will benefit Indian students to have access to quality education without having to spend valuable foreign exchange, it may also result in India receiving foreign exchange by way of offshore students in the region joining these universities.

Lastly, while the current tax legislation does provide for a tax exemption to university/educational institutions, there are far too many strings attached to be able to secure tax exemption. The approval process for securing tax exemption as well as conditions in relation to investments of surplus funds should be relaxed.

Education tourism could be the next opportunity for India. We could very well see India being the intellectual capital of the world in the near future.

The author is partner with Deloitte Haskins & Sells LLP