The Cabinet has cleared the Foreign Educational Institutions Bill, 2010. The UPA-2 announced big-bang 100-day agendas and only three elements remain?education, legal reform and direct taxes code. Since 1991, reforms in every sector (to the extent that they have happened) have been driven by competition and choice. That?s been good for producers (it improved efficiency) and consumers. Of course, inefficient producers suffered and even closed down. But what?s wrong with that? There is no reason why this message of competition, choice and efficiency shouldn?t apply to education, too, including higher education. Let us forget about the deemed (or doomed) university issue for the moment. We have more than 20,000 colleges and almost 370 universities. This business of affiliating universities makes cross-country comparisons difficult. It is also true that the gross enrolment ratio in higher education (there are some methodological issues in estimation) at around 10% is low and should increase. But that is in the future. As of today, these colleges and universities should have no problems in catering to the enrolment of 14 million. In that macro sense, there is excess capacity. There is slack in the system. Why should there be suicides because of failure to obtain admission into institutions of higher education?

Why should better students head off to the US or Britain and inferior ones to Australia and New Zealand (and get beaten up there)? An estimated 1,20,000 students go abroad every year. Why does faculty disappear abroad? Why do Indian institutions of higher education prefer to set up shop abroad? Why do third-rate foreign universities set up shop in India, using a grey area of the law? The answer is obvious. We have a problem with higher education, with quality dished out by several of those colleges and universities, with regulation that actually amounts to licensing and control, leading to rent-seeking. The solution is simple. We need competition, and the colour of competition (foreign versus domestic) shouldn?t matter, as it hasn?t in other sectors. There is a minor tactical issue that is a bit of a red herring. Why should we open up unilaterally? Shouldn?t we open up through service sector negotiations under WTO and obtain some market access in other countries as quid pro quo? Despite a slight element of truth in this argument, higher education is in too much of a mess to postpone reforms because of some expected quid pro quo. However, one shouldn?t expect that Cabinet clearance of a Bill amounts to reform.

That?s only a first step. This Bill now has to become legislation through Parliament and one doesn?t know what will get watered down. A lot is also contingent on who the regulator will be. While applications for entry are no longer open-ended and approvals have to be granted (or refused) within eight months, UGC doesn?t inspire confidence and its successor is uncertain. Some parts of the jigsaw are in other Bills floating around?unfair practices, an educational tribunal and accreditation. There is no dearth of recommendations (the National Knowledge Commission?s is only one) on what the reform infrastructure should be. Indeed, ideally, one would have liked education and higher education to become profit-making and even tap the capital market. However, that would have been too much for India to take. Consequently, the Bill doesn?t allow profit-making in education proper, in the sense that profits have to be ploughed back. Profits are allowed in consultancy (and can be repatriated), and there will be allegations that siphoning off occurs. Siphoning off and circumvention are inevitable if one bans anything. If there aren?t profits to be made, why is the domestic Indian private sector falling over backwards to enter higher education? There, too, there is circumvention.

But as one said, this Bill isn?t legislation yet. As in other sectors, there will be arguments about level playing fields. There will be arguments that Indian institutions of higher education must be allowed to adjust and reform first. They aren?t ready for competition. When Kapil Sibal floated his 100-day agenda, such arguments were voiced in public by Jairam Ramesh, who occasionally projects himself as reform-minded. All that has happened is obstructionist elements haven?t thrived within Cabinet. But the broader debate remains. The average Indian college teacher is paid for little work, has zero accountability and earns post-retirement benefits with a secure tenure. Why should he/she welcome competition, even if he/she doesn?t travel by Air India or use MTNL/BSNL phones? There will be arguments that poor students will suffer since foreign entrants will charge high fees (there are rejoinders to this argument, but that?s not the point). Add to that the prospect of good faculty being poached. Existing operators with shady tie-ups will join the fray since foreign universities will no longer need them. None of this is meant to imply that Cabinet clearance of the Bill is unwelcome. But there is still a long haul.

?The author is a noted economist