In the 2022-23 Union Budget announcements on February 1, 2022 (“Budget”), the Finance Minister introduced a proposal to allow the entry of world-class foreign universities and institutions in Gujarat International Financial Tec-City IFSC (“GIFT IFSC”), to offer courses in subjects pertaining to financial management, fintech, science, technology, engineering, and mathematics, to facilitate the availability of skilled human capital for financial services and technology. The announcement is seen as a progressive step, giving further impetus to promoting GIFT IFSC as the preferred International Financial Services Centre (IFSC) globally.
This announcement is also in alignment with the National Education Policy, 2020 (“NEP”), which proposes to facilitate operation of world-class universities (top 100) in India. The key distinction, however, between the recent announcement and the NEP proposal is that foreign universities that operate from GIFT IFSC will be exempted from domestic regulations. They would be governed by separate regulations, issued by the International Financial Services Centres Authority (“IFSCA”), providing a light-touch regulatory environment, aimed at offering ease of doing business in the IFSC, without interference from domestic regulations and regulators. This may offer various channels for liberalisation in the sector, including in terms of setting up presence within India and offering the same method of delivery of programmes to prospective students.
Scope of Necessary Amendments to the Existing Legal Framework and New Enabling Provisions
Whilst the proposal to allow the entry of foreign universities in GIFT IFSC is a step in the right direction, there are many issues in the current legal framework that need to be addressed to implement this proposal. New enabling regulations governing foreign universities operating in GIFT IFSC are also needed. These amendments and enabling provisions must aim at:
Expanding the threshold of IFSCA’s supervision
(a) Expanding the scope of powers of IFSCA: The role of IFSCA extends to developing and regulating financial products, financial services and financial institutions under the International Financial Services Centres Authority Act, 2019 (“IFSCA Act”), within the IFSCs, and the regulation of ‘educational institutions’ operating in the IFSC is not clearly covered within the scope of the existing IFSCA framework. While the Central Government has powers to notify new entries within the ambit of ‘financial services’, it may not be appropriate to add ‘educational institutions’ within its ambit. As a result, broader amendments may be required to the IFSCA Act itself to provide regulatory powers to IFSCA over educational institutions (and consequently to formulate a framework to govern higher educational institutions), while in parallel empowering the Central Government to restrict application of domestic regulations relating to educational institutions, to the institutions operating within the GIFT IFSC.
Domestic regulatory exemptions
(b) Exemptions from domestic regulators: As detailed in our blog, the multi-layered regulatory landscape governing the Indian education sector requires foreign universities to obtain multiple approvals from various domestic regulators that oversee higher education in India. It is proposed that foreign universities operating in GIFT IFSC will be exempted from such domestic regulatory purview (including the University Grants Commission (“UGC”), the All India Council for Technical Education (“AICTE”), the Higher Education Commission of India (proposed pursuant to the NEP), and other related bodies including the National Assessment and Accreditation Council and the National Board of Accreditation). This needs to be legislated and necessary exemptions may be required in the relevant domestic legislations. These domestic legislations may also set out mechanisms for inter-regulatory coordination between the IFSCA and domestic education regulators (to facilitate deputation of personnel and to advance knowledge transfer).
(c) Autonomy from domestic regulations: The proposed foreign universities may likely require autonomy in matters such as admissions, entry-level qualifications, examination patterns, fee structure, curriculum, qualification offered and accreditation requirements. We understand that domestic regulations in these subject areas may not apply to foreign universities in GIFT IFSC. Hence, applicable regulations such as the UGC (Promotion and Maintenance of Standards of Academic Collaboration between Indian and Foreign Educational Institutions) Regulations, 2016, the UGC Guidelines for ‘Internationalisation of Higher Education in India’, the AICTE Regulations for Entry and Operation of Foreign Universities in India imparting Technical Education, 2005, etc, and their applicability to foreign universities operating in GIFT IFSC may require a review. Accordingly, suitable requirements may need to be incorporated in the legal framework to be implemented by IFSCA to maintain the right balance and provide necessary autonomy to such foreign universities.
Provisions relating to entry conditions and structuring
(d) Eligibility and entry conditions: Eligibility and entry conditions under the IFSCA framework may rely on accreditation or recognition in the home jurisdiction of the foreign university or institution. Such reliance may be pursuant to MOUs/ bilateral arrangements between the IFSCA and the regulators of the higher education sector in other jurisdiction.
(e) Nature of the corporate entity: Educational institutions in India are set-up as not-for-profit organisations. This requirement makes it difficult for foreign universities to invest in the education sector in India and also acts as an impediment when it comes to repatriating the returns on investment. It is unclear at this stage whether the foreign universities setting up in GIFT IFSC will be allowed to operate for profit, which is an important consideration to incentivise foreign universities to make an investment to set up campus in GIFT IFSC. Foreign universities may seek to establish either a standalone presence or they may enter into collaborative arrangements with Indian partners. In case of the latter, the IFSCA framework must outline defined structures – whether through a JV arrangement or otherwise.
Provisions relating to conduct of operations of foreign universities
(f) Foreign exchange control regulations: Profits earned through the provision of services delivered in GIFT IFSC must be allowed to be freely repatriated to the home jurisdiction, in accordance with FDI Policy and laws and provisions under Foreign Exchange Management Act, 1999. Restrictions on the draw of foreign exchange and outward remittances in the context of the Liberalised Remittance Scheme (“LRS”) would also require to be reviewed to enable domestic students required to pay fees in foreign currency to be able to do so under the LRS to foreign universities operating in GIFT IFSC.
(g) Delivery of courses for personnel in GIFT IFSC entities: Special tax incentives may be made applicable for GIFT IFSC entities, boosting enrolment in GIFT IFSC foreign universities/ institutions as this would give a fillip to GIFT IFSC human resource capacity building and talent development. It could also help provide an initial student stream for those educational institutions that establish themselves in GIFT IFSC.
The Way Forward
Allowing foreign universities to set up shop in GIFT IFSC is certainly a welcome step. It now remains to be seen how the government plans to turn this announcement into reality. A webinar hosted by the Ministry of Education on February 21, 2022, discussed a roadmap on entry of foreign universities in GIFT IFSC, and noted the Government’s intent to engage with key players in the education sector. Some of the other key takeaways from this webinar include:
- ISFCA will soon come up with detailed criteria to establish foreign universities in GIFT IFSC, including aspects related to setting up physical campuses with 100% offshore operations to run all three levels of higher education (undergraduate, post-graduate and PhD).
- As opposed to the entry of top 100 foreign universities as set out in the NEP, top 500 universities (assessed as per Times Higher Education Ranking for the past 3 years) would be permitted to set up campus at GIFT IFSC.
- In terms of procedural aspects, foreign universities would be required to abide by the IFSCA compliances and regulations, however, authorisations (such as obtaining no-objection certificates) would have to be sought from the relevant regulators of foreign universities in their home jurisdictions.
- Aspects governing land requirements and other real estate compliances may also be specified in the legal framework to be implemented by IFSCA.
The Budget announcement offers a win-win partnership to foreign universities that are looking to set up a presence in India and provides for an alternate path to such foreign universities to enter the Indian higher education sector, free from domestic regulations. In return, GIFT IFSC will have the opportunity to build financial services sector-specific international talent and competencies to attract and retain institutions setting up a presence at the GIFT IFSC. While the implementation process is at a nascent stage and the timelines are unclear, nonetheless, the wheels are in motion and the government is likely to ensure swift implementation of this announcement.