The cabinet on Monday approved a proposal to allow foreign universities to set up campuses, a minister said, in a move that could reduce the flow of Indian students abroad.
Tens of thousands of students head to universities in the United States, Britain and Australia among others for quality education each year.
The long-standing proposal to reform the education sector will now go to parliament for ratification, Road and Transport Minister Kamal Nath told reporters following the cabinet meeting.
Political parties have in the past opposed the entry of foreign universities, saying the poor will not be able to afford the fees.
But experts have called for a revamp of the education system, which focuses on learning by rote.
Goldman Sachs counts the lack of quality education as one of the 10 factors holding India back from rapid economic growth. Analysts say it raises costs, including salaries as firms vie for the best recruits, and reduces firms’ competitive edge.
The demand for graduates over the next five years is likely to be 13.8 million, analysts have estimated. But with only 13.2 million students graduating over the same period, the country will face a shortfall of 600,000 graduates.
India’s large English-speaking population and growing middle class are expected to make the country a desirable destination for top foreign universities.