India, with the world's second largest higher education system and a rapidly growing economy as one of the BRIC nations, faces significant challenges in building both capacity and excellence in higher education. India's higher education system is characterized by "islands of excellence in a sea of mediocrity." The mainstream universities are recognized as lacking in quality. Only the Indian Institutes of Technology and related institutions garner international recognition. This article analyzes the challenges facing India's higher education system in the twenty-first century.