The Government of India ("GOI") has allowed for 100%
Foreign Direct Investment ("FDI") in the education sector
under the automatic route. Recently, GOI also allowed for 100% FDI
in the Construction Development projects which would also include
educational institutions. These investments are also carried
through the automatic route.
However, despite allowing 100% FDI in the education sector,
there has hardly been any investment in this sector and the
response from foreign investors has been very lukewarm, to say the
The primary issue behind the lack of investment is the fact that
the investment has to be done through a not-for-profit entity. The
not-for- profit character would inevitably require the Indian
entity to be either registered as a Society or a Trust (in case of
schools, colleges and private/deemed universities) or a Section 8
Company (mostly in case of schools) under the Companies Act, 2013.
This not-for-profit requirement has become a major bottleneck for
Further, a Trust or a Society is also not eligible to receive
foreign investments under the automatic route. Even if investments
are to be permitted, the entities being of a non-profit nature
would not be able to distribute any returns on the investment.
A Section 8 Company is of a charitable nature and hence would
require applying its profits or other income towards the promotion
of its objects.
In addition, the procedures and conditions are still very much
unclear with regards to how the foreign investment regulations for
education sector would be enforced. This will lead to various
issues with regard to the overlapping regulations of Centre and
Multiple regulators along with the requirement of numerous
approvals and regulatory compliances have hampered investor
confidence in investing in this sector.
Hence, the solution to this problem could be to drop the
mandatory requirement for a not-for-profit character. This would
increase foreign investors confidence since they would be assured
of returns on their investment.
Further the regulatory mechanism can be eased to ensure that
there is clarity with regards to all the approvals and clearances
required for such investments.
Finally, detailed guidelines should be laid down regarding
routing of such foreign investment to ensure that there are no
confusions with regards to the foreign investments in the education
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guide to the subject matter. Specialist advice should be sought
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The issuance of rupee denominated bonds overseas (Masala Bonds) was permitted by RBI's circular dated 29 September 2015 read with the relevant provisions of the Master Direction dated 1 January 2016 on External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers.
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