It wants to expand its university system to meet the aspirations of a growing middle class, to widen access, and become a "knowledge powerhouse".
It will mean increasing the country's student population from 12 million to over 30 million, and will put it on course to becoming one of the world's largest education systems.
"We will very likely be number two if not number one in terms of numbers," says Pawan Agarwal, a former civil servant and author of Indian Higher Education: Envisioning the Future.
With US enrolment stagnating and the UK cutting back on university places, "Indian graduates will become more visible globally, particularly in technical and engineering fields", Mr Agarwal predicts.
'Great leap forward' KN Panikkar, vice chairman of the Kerala State Higher Education Council, describes India's higher education spending as undergoing a "great leap forward".
The amount of money in the central budget for higher education in the current five year plan (2010-2015) is nine times the amount of the previous five years.
But there is a steep hill to climb. India's National Knowledge Commission estimated the country needs 1,500 universities compared to around 370 now.
Hundreds of new institutions are being set up, including large new public universities in each state. The number of prestigious Indian Institutes of Technology (IITs) and Management (IIMs) are being expanded from seven to 15.
India's private university sector is also growing rapidly, particularly in professional education in information technology, engineering, medicine and management where there is huge demand from the burgeoning middle classes.
But that will not be enough. To bridge the gap the government last year tabled legislation to invite foreign universities to set up branch campuses. The Foreign Providers Bill is currently making its way through parliament.
'Fever pitch' Last year there were reports of up to 50 foreign universities being interested in setting up in India. The hype reached fever pitch in November during the visit of US President Barack Obama and a large group of US university presidents.Continued