Boston University (BU), a mid-sized private research university in the US, has around 700 Indian students who pay an average of ₹50 lakh annual fee and spend another ₹20 lakh on living expenses. The total money coming from these students into Boston from BU alone comes to about ₹490 crore. Northeastern University, in the same city with similar fee, has around 2,000 Indian students who bring about ₹1,500 crore annually to Boston. For a city of 650,000, this implies that Indian students from these two universities alone are stuffing ₹30,000 into every Bostonian pocket, in a manner of speaking. And these are just two of the 44 institutions of higher education in this city with a sizeable Indian student community. If one sums up the city’s total international student population, its universities will look like the spinal cord of its urban growth. For an estimated 465,000 Indian students pursuing their higher education in the US, the country collects almost $19.24 billion annually from us (by way of comparison, Himachal Pradesh’s state GDP last year was about $23 billion). No wonder that after covid (when foreign students couldn’t go), many American universities removed the requirement of a four-year undergraduate degree for qualification to their Masters’ programmes.
What economic needs do universities fulfil in modern societies? Prominent scholarly responses to this question focus on employment opportunities for graduates, learning that may lead to innovation, startups by graduates and so on. In that way, universities provide an impressive range of positive externalities, benefitting third parties that get to enjoy the fruits of a more educated society. While all this is indeed true, the prevailing discourse eclipses another crucial factor: universities and colleges serve as growth engines for local economies. The benefits of knowledge spillovers are spread over time and space: their employment benefits materialize over time and accrue to communities across the world.
We argue that there are substantially large and immediate benefits to local economies where colleges and universities are located that are hardly considered in policymaking.
People do talk about how colleges could spur economic growth in small towns. We see buzzing economic activity around a college or university. This is not only about shops, paying-guest hostels or taxi services around campuses, but also visible in the way student crowds go about the city living their daily lives. Every year, hundreds of thousands of students leave their homes and move to a new town to pursue higher education, infusing a new energy into those local economies. During summer breaks, many of those places look as if their lifeline is gone. Indeed, the prosperity of local businesses in such towns is closely linked to the presence and activities of a student community.
But these discussions are anecdotal. The more important question is: Have we recognized the full potential of a university as a growth engine for a town?
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Western countries have recognized the significance of hosting both local and international students. According to 2022 data from India’s ministry of external affairs, there are 1.33 million Indian students pursuing education abroad and 60% of them study in English-speaking countries. The US has about 465,000 Indian students, followed by Canada, with around 183,000. Australia and the UK have roughly 100,000 and 55,000 Indian students, respectively. When we estimate the total amount of money pumped into these countries’ economies (assuming the average fee structure and living expenses mentioned earlier), the numbers are telling. For instance, the US earns around $19 billion from Indian students alone. Measured per head, this is like saying every American earns an average of $57 annually from Indian students alone. The aggregate value of income from all foreign students per capita would be much higher. According to estimates, the per capita annual inflow from international students ranges from $43 in the UK to $237 in Canada. In rupee terms, this implies that Indian students are putting some ₹1,600 into every Canadian’s pocket every month.
This is not simply a positive externality. This is direct earning. Universities need to be seen as a powerful engine of economic growth locally. It is no surprise that in most parts of the world, fees for international students are significantly higher than that for local students. Attracting foreign students, or even local ones, can therefore be seen as an effort in generating greater opportunities for local businesses.
In India, we only see such benefits in the form of dhabas, chai stalls and other small eateries near our campuses that are sustained by students. What we don’t see is the huge underexploited opportunity.
India suffers from what we can call a sizable international student deficit. While we sent 1.33 million students abroad in 2021, we received only around 47,000 (and mainly from countries with lower per capita income). To unlock the potential of our universities and revitalize local economies, we need world-class institutions, with substantial investments in human capital (higher salary for faculty), infrastructure (where learning spaces flourish), and interdisciplinary collaboration (for large research projects).
India’s budget allocation for education is about 3%, with only one-third of it for higher education. In countries with far lower international student deficits, the share is much higher. The solution lies in high public investment in higher education. As they say, build it and they will come. Only, this time, we must build excellent universities.
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