Higher education financing agency gets green light

The move could result in a market-linked fee structure in central government-funded institutes such as IITs

prashant k. nanda
Updated13 Sep 2016
Photo: Ramesh Pathania/Mint<br />
Photo: Ramesh Pathania/Mint

The Union cabinet on Monday cleared a proposal to set up a higher education financing agency (HEFA) that will raise Rs20,000 crore from loans and bond sales to fund infrastructure development at central educational institutions.

The agency, which will be a special purpose vehicle (SPV) and work from a state-run bank, is expected to ease pressure on the government, which currently is the sole funder of such institutions.

In turn, the move may mark the beginning of a market-linked fee structure in central government-funded educational institutions, including the Indian Institutes of Technology (IITs), National Institute of Technology (NITs) and central universities.

The agency will have a capital base of Rs2,000 crore, of which Rs1,000 crore will be equity from the central government. It will leverage the equity money to raise funds from the debt market. The SPV will be a quasi-sovereign agency, which will borrow funds at close to the 10-year gilt rate, which is around 8% at present. It will lend to institutions at a slightly higher rate.

“We shall strive for the lowest interest rate,” said human resource development (HRD) minister Prakash Javadekar.

HEFA will finance institutions through a 10-year loan. The principal portion of the loan will be repaid through the ‘internal accruals’ earned through fee receipts, research earnings, etc. The central government will service the interest portion through the regular plan assistance.

Since the institutions will borrow money and return it, they have to be revenue-surplus, which may make a fee hike the first possibility.

“HEFA will instill accountability in higher educational institutions. If you are going to pay back, you need to garner enough revenue, and for that a market force-driven fee structure cannot be ruled out,” said Rohin Kapoor, director (education practice) at consulting company Deloitte Haskins & Sells. “For charging more fee, you need to provide better facility, better infrastructure, and for better infra, they need to borrow. The cycle will instill accountability for sure.”

He said fees charged by centrally funded institutions are far less than those charged by private counterparts. For example, at Jawaharlal Nehru University, a central university in New Delhi, the annual tuition fee is less than Rs300.

The IITs, India’s premier engineering schools, increased their fee from Rs90,000 per annum to Rs2 lakh this year at the BTech level. More than 75% of IIT students pay a highly subsidized fee as the government does not want to burden underprivileged students.

In contrast, SRM University, a private deemed university in Tamil Nadu, charges between Rs90,000 and Rs1.04 lakh per year at the undergraduate level. At VIT University, another leading private institution in Tamil Nadu, the tuition fee is Rs1.55 lakh per annum at the BTech level.

Although Javadekar said the cabinet decision will not lead to a fee hike, officials in his ministry say it’s tough to rule out an impact on fees.

“If they hike fee, they will have more money to put in the escrow amount and will be eligible for more funds from the HEFA,” said a ministry official, who declined to be named.

All the centrally funded higher educational institutions would be eligible for joining as members of the HEFA. For joining as members, an institution should agree to contribute a specific amount from its internal accruals to an escrow account for a period of 10 years.

“This secured future flows would be securitized by the HEFA for mobilizing the funds from the market. Each member institution would be eligible for a credit limit as decided by HEFA, based on the amount agreed to be escrowed from the internal accruals,” the HRD ministry said in a separate statement.

HEFA would also mobilize corporate social responsibility funds from corporate entities, which would in turn be released for promoting research and innovation in these institutions on a grant basis.

The Cabinet Committee on Economic Affairs also approved the third phase of the Technical Education Quality Improvement Programme—a joint effort between the central government and the World Bank for improving the quality of education in engineering colleges. The total project outlay for this will be 3,600 crore.

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