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The education export market
Rajat Kathuria
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April 06, 2006

In March earlier this year, 25 universities from the US, including names such as Indiana and Perdue, arrived in India on a tour of metro cities to recruit Indian students for various courses.

The tour was arranged by a US-based professional organisation that provides not only logistics support, but also helps in mobilising audiences and assists interested students in the visa application process.

This is not an isolated example of student recruitment from India, but reflects a development that is gaining momentum. And it is not only US universities that are evincing interest, but also universities from Australia, New Zealand, the UK and Europe.

The proximate reason for this trend is, of course, the changing global demographics. While the population in the New World is getting greyer, ours is getting younger.

Fifty per cent of India's population is under the age of 20, and hence, it comes as no surprise that foreign universities are targeting Indian students to fill their classrooms.  In a broader sense, it also reflects the recognition of the growing importance of India and Indians in the global economy.

The US is the world's number one educational destination and attracts about half a million students every year. In 2004, nearly 14 per cent of all international students in the US were from India.

A majority of these students seek graduate degrees, but there is mounting interest for undergraduate courses. There are 79,736 Indian students currently enrolled in colleges and universities in the US.

The numbers raise a few interesting issues. One, if we are able to improve both the quality and quantity of our education services, some of the students will prefer to stay back in India.

This is desirable, both from the point of view of retaining talent as well as servicing the growing needs of the Indian economy that is facing shortages of certain kinds of labour market skills. But this is easier said than done.

Private entry in education in India has been riddled with controversy. And without private initiative complementing public investment in education, we are unlikely to fully exploit this opportunity.

Two, "export" of education is likely to become crucial to the survival of US universities in the future. In the language of World Trade Organisation, under its General Agreement on Trade in Services, education is classified as a Mode 2 service.

In Mode 1 of the WTO terminology, trade in services involves arm's-length supply of services. Trade in Mode 1 services is what most economists have meant when they discuss "outsourcing."

As distinct from outsourcing, Mode 2 services are provided by moving the service recipient to the location of the service provider. Besides education, examples of Mode 2 exports include medical care rendered to foreign patients and tourism.

Education itself generated as much as $13.4 billion in export revenues for the US in 2003. The public controversy over outsourcing under Mode 1 and its effects on American prosperity, jobs and wages, must therefore be tempered by US exports under Mode 2 and its attendant benefits.

Three, if we wish to "compete" in the education vertical and try to become a regional (as opposed to global) hub, the time to start thinking about it is now. The domestic market is large will allow benefits of scale.

If the envisaged private initiative in education delivers quality, we could wean away some of this market from the US. What is needed is good policy and an enlightened, but tough regulator. Is it too much to ask for?

The writer is Professor of Economics at IMI.
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