Allow higher education institutions to invest surplus in alternative asset classes: FICCI

New Delhi: 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.