SME Times News Bureau | 02 Jan, 2020
Industry body FICCI
has suggested to the Union Finance Ministry during a pre-budget interaction
that higher education institutions should be allowed to invest their surpluses
in a wider range of asset classes.
FICCI had recently organized a roundtable
discussion with various stakeholders from the higher education sector on
alternative investment financing strategies in the sector.
According to Dr Rupamanjari Ghosh,
Co-chair, FICCI Higher Education Committee, for international institutions drawdowns from endowments contribute significantly to
the operating revenue of these institutions, thereby allowing them
to undertake quality enhancement initiatives such as scholarships,
professorships and research investments. She also mentioned that, with respect to Indian institutions allowing university endowments to
invest in alternative investment funds and other asset classes will bring in
greater transparency and better governance practices in the system.
The Gross Enrolment Ratio (GER) in India
is still only around 26%. The draft National Education Policy (NEP) 2019 aims
to achieve an ambitious GER of 50% by 2035, which would mean doubling student
enrolment to 7 crore and beyond. With the evolving need for a knowledge economy
along with internationalization and massive human capital, the higher education
sector in India is set to witness a host of reforms.
A KPMG working paper on 'Alternative
Investment Financing for Higher Education Institutions in India' in this regard
captures some of the national and the international trends in the financing of
higher education institutions and discusses ways to appropriately channel
surplus funds existing in the system to enable the growth of both public and
private higher education institutions.
There is a clear demand to formulate
strategies for innovative sources of funds to meet the GER target and enhance
the quality of higher education institutions, according to Mr Narayanan
Ramaswamy, National Head (Education), KPMG India.
The operating revenue generated by higher
education institutions in India is estimated to be upwards of Rs 1 lakh crore.
This would constitute around 20% of the overall size of charitable
institutions, in which the total operating expenditure is estimated to be
around Rs 5 lakh crore as of 2017-18.
Clearly, there is a significant surplus
being generated in the higher education system annually. It amounts to around
Rs 15,000 crore.
However, there are constraints around
investing surplus funds generated in the higher education system in India.
Currently, these funds are invested in real estate and there are transparency
issues in these investments. Debt and related instruments constitute another
significant asset class in which surplus funds are invested. The returns
generated by investing in these asset classes are not high and, in some cases,
even lesser than education inflation.
Globally, higher education institutions
have been investing in various asset classes such as domestic and foreign
equity, alternative investment funds, real estate, and infrastructure investment
trusts to generate additional income. These investments have generated higher
returns and have contributed to the growth of endowment funds of these
institutions.
While
in the long run, fundamental changes such as allowing for-profit entities to
operate higher education institutions can be explored, as an immediate measure,
allowing higher education institutions to invest their surpluses in wider asset
classes such as alternative investment funds will help to generate additional
funding. Apart from benefiting the higher education ecosystem, this will also
provide capital to sectors such as infrastructure where there is a shortage of
funds.