The Economist caused a stir recently with a cover story highlighting the extent to which the Indian middle class has been over-hyped as a ‘successor’ to the Chinese middle class. It had point. But there’s more to be said.

India has indeed made spectacular economic progress. But income distribution is more skewed than generally recognised and this has consequences.

Notwithstanding a huge total population that will shortly pass China, the size of India’s middle class is very much smaller and its purchasing power is less than half that of China’s. The Economist was at pains to point out that leading foreign firms expecting to find big consumer markets in India are being disappointed. Estimates of a middle class 300-400 million strong are frequently tossed about, but the mean GDP per capita is US$1,700 and eight in ten Indians earn less than this. This is not just a function of time, and China having taken off earlier.

The following chart helps to explain what’s going on in India: the top 10% has prospered disproportionately at the expense of the middle 40% and bottom 50%. In other emerging economies – including other high performing Asian economies – the picture is less skewed.

I’m interested in universities and global higher education markets. If big multinationals selling consumer goods are experiencing tougher than expected conditions in India, what might this mean for universities looking to engage?

Optimistic estimates put the number of Indians in post secondary education by 2020 as high as 42 million, but the competition among local institutions is already strong – there are some 35,000 colleges and 700 universities – and some Indian institutions are looking overseas to reach the global Indian diaspora. Prominent exemples include Amity University, BITS Pilani and Manipal Academy of Higher Education.

Foreign universities bring a distinctive value proposition to the Indian market. Australia is working hard on deepening engagement with India, and higher education is a prominent part of this effort. My home state of Victoria has recently launched an admirable India strategy. And my university is making good progress with its own strategy of building deep research and education partnerships with Indian institutions. Should we be lowering our hopes and expectations?

Certainly realism is essential. The number of families that can afford a premium international education will not be on the same scale as China any time soon. Furthermore, foreign universities seeking not just to receive students coming from India but to engage directly in India itself, face a very much more restrictive regulatory environment than in, say, China.

As against this, several points are worth keeping in mind. First, the structure of the global higher education market is fundamentally different to that of, say, mobile telephones or cars. Ours is an industry with a very large number of suppliers (universities) world-wide, each seeking only a tiny increment of available demand (students). Even though, in macro terms, we do indeed need to factor in the much smaller size of the addressable market in India than China, for individual universities the prospects are still promising.

Second, as in many other successful emerging economies, education is a high priority for Indian families: way ahead of regular middle class consumables.

Third, price is a key factor in determining the size of the addressable market: less expensive Chinese mobile phones are spreading much faster than premium competitors like the iPhone. Those foreign universities that are able to develop strong partnerships with local institutions and sustain price-points aligned with what the Indian market will bear, have reasonable prospects.

National higher education markets have distinctive characteristics and challenges, and India is no exception. The trajectory of India’s higher education market is different from that of China. As is the trajectory of its own higher education institutions and the regulatory environment that shapes them.

India may indeed be challenging, but some foreign universities will succeed in forging sustainable partnerships that enable them to make significant and distinctive contributions to India’s continued socio-economic development.