Sibal's new booster plan: Priority sector loans to new educational institutions

The HRD ministry plans to approach the finance ministry with a proposal to extend priority sector lending by banks to new institutions, to meet India's estimated need for over 1500 additional universities by 2020.

New educational institutions may soon benefit from softer loans to kick-start their plans, under a human resource development ministry plan to incentivise private sector participation aimed at helping India meet its higher education capacity targets.

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The HRD ministry plans to ask the finance ministry to include bank loans to new colleges or universities in the priority sector that needs to repay at lower interest rates than others, top government sources have told HT.

The plan is a key component of the government’s strategy to encourage the private sector to enter higher education. HRD minister Kapil Sibal has set a target of increasing India’s gross enrolment ratio (GER) in higher education from 12.4% at present to 30% by 2010.

This increase in GER – identified as a priority by Sibal – is critical for India to capitalize on the demographic dividend it has earned because of its massive young population, government sources pointed out. Failure to capitalize on this advantage could equally easily lead to a demographic curse – a large, euneducated and unemployable youth.

The HRD ministry wanted to offer loans at ultra-low interest rates – about 4 % -- to new educational institutions through a proposed National Education Finance Corporation (NEFC) which will also act as guarantor to student education loans. But the Planning Commission has objected to the proposed NEFC offering ultra-cheap loans to new institutions.

The HRD ministry’s new proposal – for priority sector lending to new educational institutions – will, if accepted, mean loans at interest rates of about 7%, higher than the 4% the NEFC would have offered, but lower than ordinary bank rates.