the number of student visas issued from India in 2010 was 41,000, which dropped to 32,000 in 2011.
Further reduction in the number of Indian students studying in the UK is expected with stricter rules coming into effect from April 2012.
Concerned over this, Paul who is the Chancellor of Wolverhampton and Westminster Universities, said government must remove international students from net migration figures and allow them to work in the UK for two years after their studies to show to the world it is open to genuine, hard-working students from all nations.
Paul said that he along with 67 other fellow University leaders in the UK Higher Education sector wrote to Prime Minister Cameron, who reaches India tomorrow, outlining their concerns about these changes and asked the government not to include international students in the net migration statistics.
"However, the Government chose to ignore our request and we are now seeing the repercussions," Lord Paul said in an interview to PTI.
He added: "I ask the Government to reflect and make adjustments to protect the UK's previously enviable position".
Lord Paul, a leading NRI industrialist, said over the last six months, he has been dismayed by negative worldwide publicity regarding changes to the UK student visa system and the effect it is having on current and potential international students.
Under the new policy, highly skilled international students are allowed to stay provided they have a job offer of minimum of 20,000 pounds a year from a government-approved employer. But only 20,700 such workers will be allowed annually.
Lord Paul said at Wolverhampton and Westminster Universaties, for example, the new immigration policies have caused "a significant decrease in the number of postgraduate students from abroad".
"The fundamental issue is the removal of the Post-Study Work visa which allowed undergraduate and most post-graduate students to work in the UK for up to two years.
"The new student visa policy means they must return home after completing their studies unless they find an employer to sponsor them here," he said.
The Vice Chancellor pointed out that international study is a huge investment for students and their families.
"UK tuition fees can be ten times those of, say, Indian universities. Until now, the value of a UK degree outweighed the cost but without the ability to stay and work here on completing a degree, UK study is becoming unaffordable".
He said that besides economic benefits, the opportunity to work in UK industry for up to two years provided international students with invaluable experience to take back to their home nations.
Lord Paul said it is also a great benefit to the British students to have large number of overseas students because, apart from education in the universities, they gain from each other when they meet a larger number of nationalities.
"That itself is education on its own. We are depriving the local students that opportunity by reducing the number of students," he said.
Arguing that at the moment, a lot of students go to the US and Australia, he said England is a natural place for the Indian students to come because parents feel more comfortable sending their children.
It is because "most of them have some relations, some people they know and it is always nice to send your child to places we know.
"We are depriving them of that opportunity which will do a long term damage. People of India and UK have some of the best relationship. By denying that to the students, we are demoting that relationship," he said.