The Foreign Educational Institution Bill is running into strong opposition due to complaints about foreign influence and the lack of quotas for students from reserved categories. These debates will no doubt continue, but there is a more urgent question facing India: how can India create a world-class education system for itself?

The problem is an urgent one that will not go away. More than 30% of Indians are aged under 14, and for the next three decades the country?s population will have the youngest median age of any major economy. One of the key indicators of a country?s ability to become prosperous in a short space of time is the ?demographic dependency ratio?, the number of people dependent on every wage-earner. Developed countries that have seen the ratio decline dramatically have prospered (like Ireland in the 1990s), while those with increasing numbers of retired people depending on fewer and fewer workers (like Japan and Western Europe) find that economic growth slows down as public spending requirements increase. Declining birth rates and the size of the current cohort of young people mean that India will be in its demographic ?sweet-spot? for about 30 years from 2020?but if its populace lacks the skills and flexibility needed to drive real economic growth, it may fail to grow as quickly as it should.

Indian business needs the country to have a better higher education system. Executives of major companies have complained that they spend large amounts of time and money training graduates in basic communication and analytical skills. This wastes crores of rupees that would be better spent on strengthening core business models and enabling research and development. Equally, the relatively tiny number of graduates from elite institutions like the IITs is not enough to spur innovation and excellence across the economy. If things do not change, Indian companies may have to choose between spending over the odds to lure talent back to the country and becoming the makers and merchants of others? innovations. This creativity gap is already a serious issue: Indian innovators and firms currently receive only half as many US patents as those from China do.

Allowing foreign universities to set up shop in India is one part of the solution in the medium term. India already sends over 1.5 lakh students to study abroad every year at an estimated cost of over $10 billion (Rs 45,000 crore) in foreign exchange. The hunger for foreign education has increased over recent years, even as the higher education sector in India has expanded, with increasing numbers of students opting for new destinations like Canada and Australia. This has very real costs beyond foreign exchange for student fees and subsistence abroad: many students choose to stay abroad after they graduate, contributing their creativity and expertise to a foreign economy. Giving Indian students access to a prestigious foreign education within the country will allow India to reap the benefits of their skill and expertise instead. Of course, some students will always choose to go abroad if given the choice?for experience of the wider world, in order to gain a foothold to migrate or simply because they have been offered a scholarship to a good school. But India stands to gain a great deal from offering more of its students a quality education on Indian soil, regardless of who provides it.

Having more universities and colleges can only be a good thing for India. There will be greater competition for good instructors and more opportunities for those who can pay a market price for their education. A side-effect of this will be to ameliorate the resentment of those who feel unfairly excluded from the current system by reserved quotas. At the same time, there will be more opportunities for the genuinely disadvantaged: those with money and social connections will lose the incentive to bypass and subvert admissions procedures in the state sector on behalf of their children, leaving more places for those who genuinely earn them. US universities, in particular, are expert at ensuring that the diversity of their campuses reflects that of the world around them without sacrificing talent. State-funded colleges and universities in India can use their example to create for themselves a new chance to provide an affordable education to talented Indians from across the social spectrum.

Indian universities can also use the experience and expertise of foreign institutions to change the business model of higher education. India?s state universities and colleges desperately need massive investments in research labs, libraries and IT facilities. The government will be unable to fund these anytime soon, but Indian corporates can. Learning from the entrepreneurial and fund-raising models of foreign universities could be a key to creating an institutional culture that will attract the donations needed to enable India?s state-funded colleges and universities to grow in the short- and medium-term. Private educational institutions here can learn from US universities? expertise in ensuring that needy students are subsidised by charitable donations and the paid by rich students.

Raising standards in the higher education sector as a whole would have a number of other beneficial side-effects. The most important would be India?s ability to lure back teaching and research talent from foreign universities, something China has already begun to do on a large scale and to great effect. The effect on business, innovation and cultural life would be very striking indeed. Another major change may be a shift in the demographics of the student population. India?s universities and colleges have always attracted small numbers of students from Africa and Central Asia, but a step-change in quality may lead to their becoming the destination of choice for the best and brightest from these regions and from the Gulf. The economic benefits of such a movement would be very large indeed, but the pay-off for Indian cultural diplomacy would be even greater.

The end result of letting foreign educational institutions into India may well turn out to be a satisfyingly ironic one for opponents of the current bill: if things go well, Indian universities may one day be looking to establish their own satellite campuses abroad.

The author is a researcher in the Faculty of Asian Middle Eastern Studies at the University of Cambridge