The stakes could not be higher as far as Rajiv Kumar is concerned. "Higher education is the most crucial sector in India today," says the director of the Indian Council for Research on International Economic Relations.

With a population of more than 1.1 billion, India is predicted to become one of the world's leading economies in just a few decades. It grew by almost 7 per cent last year after successive years at 9 per cent, leaving it poised to defy the global recession.

But the nation's emergence as a superpower could be stymied if it fails to sort out its higher education system - and quickly - says Kumar.

"We can't achieve growth without major reform of higher education," he says. "Higher education is crucial to India's hopes of being able to participate fully in the global knowledge economy. Its competitiveness depends on its large pool of qualified manpower. If the education system remains as it is, we do not have a chance in the unfolding world."

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But the country has a new Government with a new mandate, and to Kumar and others, this represents an unprecedented opportunity to make the necessary changes - not least opening India up to overseas university providers. "These next five years could be the most amazing India could have," he says.

India's deep-rooted problems have been painstakingly documented. In his landmark 2006 paper, "Higher Education in India: The Need for Change", Pawan Agarwal, a former director of the Ministry of Human Resource Development, pulls no punches. "Higher education in India has grown fast over the past two decades ... most (institutions) face a severe financial constraint, which is reflected in their sloppy standards," he writes. "The regulatory bodies have miserably failed to discharge their responsibility towards the maintenance of standards ... and have erected formidable barriers for the entry of new institutions to be set up through private enterprises."

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Jamil Salmi agrees that India's higher education system faces serious problems. The tertiary education co-ordinator for the World Bank, who has just written a book on world-class universities, notes that outside a few world-leading institutions such as the Indian Institutes of Technology (IITs) and the Indian Institutes of Management (IIMs), things do not look good. "Enrolment is still low, and quality is substandard in many universities. System-wide governance is still traditional, with lots of central controls and a constraining regulatory framework for private institutions."

Even India's few world-class institutions find it difficult to attract and retain qualified faculty because private firms offer higher salaries, he laments.

Official assessments of the sector are just as frank. An interim report for the Government on the "Renovation and Rejuvenation of Universities" by the Yash Pal Committee contains a section on the "problems of the Indian higher education sector". Among the topics it discusses are: the undermining of undergraduate education; low pedagogic quality; the divide between research bodies and universities; poor governance; interference in university functioning; loss of autonomy; multiple regulatory systems ... the list goes on.

The committee, led by Yash Pal, the former chair of India's University Grants Committee (UGC), complains that rote learning and out-of-date curriculums unreflective of the real world have led to high levels of graduate unemployment, despite the demand for skilled workers. It criticises the insularity of academic disciplines that have "grown in complete ignorance of each other".

It says that "universities remain one of the most undermanaged organisations in society", with a "high propensity for corrupt practices" such as "manipulation in the appointment of senior functionaries", including vice-chancellors. It cites "horrible instances" where academics were not paid as promised.

This bleak picture is completed by equally damning statistics.

According to India's five-year plan for 2007-12, the participation rate in higher education is about 11 per cent. This, the plan notes, is "very low compared with the world average of 23.3 per cent". It looks even worse when compared with an average of 54.6 per cent in the developed world, or even stacked against the 22 per cent average for all Asian countries.

Figures from the research data company Evidence, part of Thomson Reuters, show that Indian academics generated 29,535 "substantive articles and reviews" in 2007, a dramatic increase on the 16,519 produced in 1998. However, the UK churns out about 80,000 a year. India, which has almost 17 per cent of the global population, accounted for just 3 per cent of the world's research output in 2007.

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Despite the sector's weaknesses, even its harshest critics, including Kumar, feel genuinely optimistic about the prospects for dramatic and much-needed reform.

The thumping majority won by the Congress Party in May's elections has given Manmohan Singh, Prime Minister and a renowned economist to boot, the freedom to govern without the Government's previous dependence on a loose and unruly coalition.

The party's rejuvenation was led by Rahul Gandhi, its 38-year-old General Secretary, who orchestrated the popular rejection of religious fundamentalism and regionalism under a decidedly youthful banner of secularism, good governance and economic growth.

Kumar believes the new Minister of Human Resource Development will make a difference. Kapil Sibal, whose remit includes higher education, has studied at Harvard Law School.

"The previous Government was held back by its reliance on the Left from implementing some necessary reforms to higher education," Kumar says. "But there were lots of things it could have done that it did not do."

Kumar places the blame for this inaction on Sibal's predecessor, Arjun Singh, a septuagenarian "dinosaur minister". "He was old-fashioned. He didn't let anything move.

"Now we have Sibal - a minister who has experienced the best education in the world and knows how important it is. He can really push the agenda forward. I say, let's do what has been on the drawing board for too long, and then push even more if we can."

In fact, the first step on the road to reform has already been taken. The Government has agreed and signed off its most pressing priority - the huge expansion of higher education, with potentially millions of additional places for students.

India's five-year plan for 2007-12 forecasts an increase in enrolment from about 9 per cent of the population to 15 per cent by 2011 and 21 per cent by 2017 - an extra 870,000 students in universities and 6.1 million in colleges.

New institutions are planned, and the Government appears to be willing to spend. It has pledged to raise public spending on education to 6 per cent of gross domestic product, a level similar to the UK's and above the 5.8 per cent average among members of the Organisation for Economic Co-operation and Development. In the five-year plan, the Government envisages an outlay of about 2,700 billion rupees (?34 billion) - a fivefold increase on the 2001-06 plan's allocation of 540 billion rupees.

But it is not just the promise of cash that cheers observers. The report from the Yash Pal Committee is very encouraging, too, says Tim Gore, director of the University of Greenwich's Centre for Indian Business and former head of education at the British Council in India.

The committee's final report was submitted to Sibal in June and immediately accepted by the minister, and Gore praises much of the committee's work - not least its simple but bold reiteration of the idea of the university.

"A university is a place where new ideas germinate and strike roots," the committee's March interim report says. "It covers the whole of the universe of knowledge. It is a place where creative minds converge, interact with each other and construct visions of new realities. Established notions of truth are challenged in the pursuit of knowledge. To be able to do this, universities have to be autonomous spaces ... teaching and research have to be inseparable."

Gore says: "This is impressive thinking. It is really quite refreshing. Even reaffirming the philosophy of what a university is in the context of so much institution-building is genuinely optimistic."

The other recommendation that impresses Gore is the committee's call to sweep away the sector's current regulatory system.

In 1950, India had 25 universities, but by 2008 it could boast 431, with thousands of affiliated colleges. There has been a huge expansion of private provision, which now accounts for more than half of all enrolments, compared with a third in 2001.

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The pace of change has created a complex and multi-layered system overseen by a variety of agencies. As well as the two major regulatory bodies - the UGC and the All India Council for Technical Education (AICTE) - there are 13 professional councils, such as the Medical Council of India, that also monitor institutions.

All have helped to "fragment the higher educational sector in the country from a policy perspective", says the Yash Pal Committee's report, which warns that a "highly over-regulated system consists of interference by multiple agencies that tend to stifle innovation and creativity, increase inefficiency and breed corruption and malpractice".

The committee has called for the establishment of a single "all-encompassing Commission for Higher Education" to replace the UGC and the AICTE, and the Government has indicated that it intends to do just that. The new body will take a holistic view of the sector, managing expansion by treating higher education as an integrated whole while eschewing inspection-based regulation and respecting institutional autonomy.

But for many, the most dramatic and eagerly anticipated initiative, directly related to the overhaul of the regulatory regime, is the plan to open India up to overseas providers.

The idea, which is already creating a buzz of excitement internationally, is not new, but previous attempts to introduce the necessary legislation have been scuppered by a lack of government consensus, which no longer appears to be an issue. When Sibal announced that he would press for legislative change under the Congress Party's new mandate, he said: "I would hope that come 2010, universities around the world will be sprinting to India."

The World Bank's Salmi is impressed by the move, which he says "would foster more attention to quality and relevant issues among institutions interested in competing in the marketplace".

Not everyone shares this sentiment. The growth in domestic private provision has been punctuated by accusations of exploitation. Agarwal has cautioned that "the bulk of those who come will be second-rate".

There is a risk that the overseas entrants will be no better, and perhaps worse, than India's best while charging much more, says Suresh Goyal, professor of business at Canada's Concordia University, who left India to take his first degree in the UK and has worked overseas ever since.

"I believe that only the best overseas universities should be allowed to offer higher education in India," he says. "Second-grade institutions providing higher education to Indian students with the help of local instructors, or overseas faculty on short-term contracts, are unlikely to match the quality offered by the IITs and IIMs.

"In my view, the IITs and IIMs offer the best-value higher education anywhere in the English-speaking world."

Currently, about 160,000 Indian students go abroad to study each year. "Thousands of Indian parents are spending their lifetime savings sending their sons and daughters overseas in search of the mirage of quality in higher education," Goyal concludes.

Even if India already has some outposts of international quality, the sector as a whole needs a great deal more investment. Kumar believes that opening the doors to overseas institutions is the best way to get it.

"There is huge demand and there is money to be made, so investors should be allowed to come in. But the higher education system is populated by some awful (private domestic investors) who should not be there. We want honest investors who want to do a good job."

For Gore, proposals for a single regulatory system go hand in hand with plans to open the sector to overseas institutions - and both initiatives create opportunities for universities in other nations, not least those in the UK.

"I would see these changes as being potentially very positive for the Indian higher education sector, as well as for the UK-India partnership," he says. "A more transparent and united regulatory regime would make the development of partnerships much simpler and would reduce the risks currently associated with collaborative ventures.

"A lot of UK universities and their Indian partners are not clear on many aspects of the regulatory process and even on whether their collaboration will be seen as legitimate."

This leaves many UK universities in a tight spot, with the potential for reputational damage added to the other risks of new partnerships.

There is, Gore says, tremendous demand for quality higher education in India, with its huge number of potential students. He believes that although India could provide a bonanza for UK higher education, which already has strong academic ties to the country through the UK-India Education and Research Initiative (see box, page 33), there are still many legislative hurdles and vested interests to overcome.

He says: "Is this an epiphany moment for India? There are bound to be hiccups along the way, but it is certainly a very good moment for Indian higher education. There is huge intellectual capacity in India, and it will benefit the whole world to engage with that."

Anglo-Indian accord

Launched in 2006 with great fanfare, the UK-India Education and Research Initiative (UKIERI) was designed to make the UK India's "partner of choice" in education.

And for Liz Dempsey, higher education adviser at the British Council, it is succeeding.

"We have seen for some time that there are tremendous opportunities for the UK to work with India," she says. "But this initiative is not just about opening student-recruitment markets or collaborating in research; it is also about help with the bigger issues India is facing nationally. It is about how we can make the best possible system for India and how India can become a world power in education."

The project has three main strands: higher education and research; schools; and a third focused on "professional and technical skills".

The UK has pledged ?23 million in funding for the project, with additional cash from the Indian Government and "corporate champions" BAE Systems, GlaxoSmithKline and Shell.

Under the higher education strand, six major research grants of about ?500,000 each have been awarded, as well as 61 awards of up to ?150,000 each, 20 PhD scholarships and 43 research fellowships.

The initiative has put the UK well ahead of international competitors in the race to build long-lasting links with India, Dempsey says.

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"Australia and the US have followed suit," she says. "But the UK is now very well placed, and India really is going places."

India facts

• With a population of 1.13 billion, India is expected to overtake China as the world's most populous country by 2030
• India currently has the 12th largest global economy, but is predicted to be in the top three by 2050
• It has 378 universities, up from 201 in 2002
• It has 18,064 colleges
• There are almost 300 agents representing UK education institutions in India, up from 40 in 1999
• About 160,000 students leave India each year for higher education institutions overseas
• The UK's share of the Indian student market is about 30 per cent, up from 16 per cent in 1999
• India has 492,000 faculty members and 14 million students.