Financing Higher Education in India

Kamal Prasad Khanal, University of Oslo

Introduction

India is one of the largest developing countries in the world. The higher education

system in India is very complex. It is normally found that the higher education

system got more flourished after the country got its independence. As the

financial strength is one of most important factors for the appropriate

development of higher education, India like other developed countries has been

practicing different methods of financing higher education throughout the

different time periods.

The present essay deals with the analysis of financing of higher education in

India. The first part of the essay briefly talks about the Higher Education in India.

The second section of the essay deals with the financing of higher education in

general. The third section of the essay tries to analyze the various sources of

financing higher education that are being put in practice. The fourth section

attempts to suggest some alternative methods of financing higher education.

Finally, the concluding remarks have been drawn as the ending part of the essay.

Higher Education in India

Quality Higher Education is significantly related to the human development index

and greater for disadvantaged groups (Joshi 2006) as the greater the level of

higher education in a society, the greater the level of human development can be,

through its influence on two main components of human development index: life

expectancy and GDP per capita (Tilak, 1994).

Considering the importance of higher education , India has been trying to focus

more on the development of higher education throughout the different time

periods of its history, especially after it became independent (Agarwal, 2006). In

terms of its size and diversity, India with its 600 universities and 35,000 colleges

is the third largest education system in the world, next only to China and the

United States. Talking about the enrollment ratio, India with a Gross Enrollment

Ratio (GER) of 15% is still below the world average (Ahir and Joshi, 3013).

There are different higher education institutions where the share of state

universities is the highest (44%) followed by private universities (22%), deemed

universities (18%), institutes of national importance (10%) and central universities

(6%) (ASHE, 2013 p. 8). As per the target of the Twelfth Five Year Plan, Central

HEIs are expected to show the highest annual growth of 14.9% in student

enrollment as compared to private institutions (7.6%), state institutions (5.6%),

and open and distance learning (4.4%) (FICCI, 2012 p. 49). To fulfill this target,

the financing system of each type of institutions should be well managed and

strong enough.

Financing Higher Education in India

In India, the responsibility of financing higher education is shared by both public

and private sectors. Public sector includes central government and state

governments (Ahir and Joshi, 2013). The central government spending is inclined

more towards central universities. Even if the trend is always upwards, the total

public expenditure on higher education at about 1.25 per cent of the GDP , is by

any standards certainly insufficient (UGC, 2012). The private expenditure on

higher education has increased about 12.8 times during last one decade (Ahir and

Joshi, 2013).

The mode of funding higher education in the public sector is central to higher

education policymaking because it reflects how education is provided to society

and what price (Chattopadhyay, 2007: 4251). The Government has planned

expenditure of INR 1,107 billion on higher education during the Twelfth Five

Year plan (2012-2017), 1.3 times higher than the planned expenditure in Eleventh

plan (FICCI, 2012, p. 15). The given bar graph shows the expenditure on higher

education in India from 2006 to 2011 as percentage of GDP:

Source: UGC (2013)

It is vivid from the above bar graph that the public expenditure in higher

education is just above1% of the country's Gross Domestic Product (GDP) over

the years. It seems quite low in proportion to the growing requirements of this

sector. As a result, private sector institutions have been growing rapidly. The

following extract from the report of ASHE (2013) is worth mentioning here:

The public expenditure in education sector, especially in higher education has

remained very low over the years, only a little over 1% of the GDP. The

National Education Policy 1968 and 1986 (revised in 1992) recommends

government expenditure on education at 6% of GDP, whereas the 2010-11

(BE) expenditure was only at 3.8%. Realizing the need to provide a good

quality higher education to the growing young population of the country, the

11th Five Year Plan saw a 4.6 fold increase in allocation over the 10th Five

Year Plan. This constituted 19.4% of the overall central plan allocation. To

continue the trend, the 12th Five Year Plan proposes an outlay of Rs.1,10,700

crore for higher education, an increase of 30% over the 11th Five Year Plan.

However, given the burgeoning requirements of this sector, the government

funding alone may not be sufficient and significant involvement would be

required of the private sector as well. (ASHE, 2013, pp. 17-18).

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006-7 2007-8 2008-9 2009-102010-11

% GDP

Year

Expenditure on Higher Eduction in India (As % of GDP)

Expenditure in Educationper %GDP

Expenditure in HE per %GDP

Ongoing Methods of Financing Higher Education

Funding is one of the most important aspects of higher education. The extent to

which a country invests in its higher education sector determines the development

of that country. Therefore, it is very essential to follow the suitable methods to

bring reforms in the financing of higher education which seems always a great

challenge. In regards to this, World Bank (2007) states a major challenge faced

by governments throughout the world, in both industrialized and developing

countries, is how to reform the finance of higher education (HE) in response to the

twin pressures of rising private demand for admission to HE and heavily

constrained public budgets. Higher education institutions can run smoothly if

there are good sources of funding. There are different sources of financing higher

education which are in practice in India:

Public Funding: Providing education is considered as a public good in India.

Therefore, the Central Government and the State Governments are more

responsible for providing education from basic to higher education level. In

concern with the public funding of higher education, about 80 percent has been

sourced from the State Governments while about 20 percent has been sourced

from the Central Government (FICCI, 2011). The central universities receive

more funds from the Central Government than the state universities do. However,

there is more dominance of state universities in India. Hence, it is essential to

promote such universities by providing necessary funding.

Income from Student Tuition and Fees: Clark (2003, p. 105) and Chattopadhya

(2007, p. 4255) mention that student tuition and fees is a university generated income

when and where the institution is free to set and change student payments. Based on this

idea, the universities can review in the student tuition fees and involve the students in cost

sharing. Universities in India have been practicing this source. But, it is very noteworthy

that there should be some considerations to safeguard equal access while enacting this

option of raising income.

Education Loans: Students can have education loans to finance their higher

education as they are the primary beneficiaries of higher education. The

Government of India is making an attempt to promote education loans and this

has got acceptance among a selected group of students. This is clear in the union

budget for 2007-08 as a change has been mooted to allow deductions of interest

payments on loans taken for higher education for assessing taxable income

(Chattopadhyay 2007, p. 4256).

Alternative Methods of Financing Higher Education

Though the union government has raised budgetary allocation for higher

education in the budget for 2007-08, the question of looking for other sources of

financing remains in view of the rising demand and fiscal constraints being faced

by the states, in particular, under the ongoing fiscal reform programme

(Chattopadhyay, 2007, p. 4251).

State universities nearly cover 50% of total higher education institutions in India.

These universities cater to a large number of students in spite of having severe

constraints in terms of access to finances, particularly in relation to central

institutions. Plan and Non-Plan grants from state governments, funding from the

UGC and other Central government projects as well as fees and other university

receipts through avenues such as affiliations are the major sources of funding such

state universities. However, State government support to state institutions has

been inadequate, with resources spread thinly over an increasing numbers of

institutions. Plan expenditure on higher education in states has been declining

with the expenditure on higher education as a proportion of the Gross State

Domestic Product (GSDP) at an average of only 0.5% (ASHE 2013 p. 22). The

most important challenge for such universities is how to become financially

autonomous by finding some other possible sources of funding. According to

Pillay (2010, p. 37) , tertiary education and research institutions need to undertake

managerial and financial reforms to reinforce their autonomy and competitiveness

within given resource constraints.

The changing trend shows that the universities are inclining towards the autonomy

for which they should not rely on public funding (Watson, 2008, p. 49). Hence, it is

necessary to find out suitable methods of financing to maintain proper autonomy of the

higher education institutions.

Clark (2003) mentions about the diversified funding base. There are three streams

of income: mainline support from a governmental ministry or department; funds

from governmental research councils; and all other sources lumped together as "

third-stream income". According to him, there is a movement from the first

towards the second to the third to raise more money and increase local discretion

in how to spend it. It helps the university to become independent. Most of the

universities in India still seem in the first stage even if the support is not enough

as it should be. Hence, it is a great challenge for the universities to move towards

the second and to the third. It is better for such universities to extend their plan to

raise the income from the other government sources and private organized

sources. Clark (2003, p. 102) asserts that many government agencies want to link

up with universities in order to receive useful services in return or to promote

economic progress. Along with this, he also asserts that income can be generated

from private organized sources like business form with whom the university

becomes involved in contract research and contract education.

Some more possible alternative university generated sources of income,

forwarded by Clark (2003) and some other sources discussed by Chattopadhyay

(2007) can be of better options for the change oriented universities in India.

Income from Endowment: The University can build an endowment and utilize it for

specific purposes like- scholarships or research activities. Clark (2003, p. 104) mentions

that the building of endowment has become a primary tool in university transformation

that moves from state control to self-reliance.

Income from Alumni Fundraising: Income from the alumni can be an another possible

alternative source of income for the universities. Clark (2003, p. 104) specifies that

income obtained from alumni fundraising, earmarked for long-term general support or to

be spent in the here-and-now, is a first class source. Hence, the university can establish a

good contact with the alumni for raising some funds.

Earned Income from Campus Operations: The universities can collect the small

amount of funds from various other operational works such as- property leasing, printing,

photo copying, student residence and so on. Warwick (1996 as cited in Clark 2003, pp.

105-106) asserts that the total amount of income from these sources over direct running

expenses is totaled as 'gross surplus', a minor part of which is paid to departments and

special funds, with remainder taken as 'net surplus' available to 'the university' for

reallocation to other purposes.

Royalty Income: Royalty income is an another important source of the university. Clark

(2003, p. 106) mentions that the source that can be brought under direct university

determination is royalty income from patented inventions and licensing of intellectual

property. It is highly appreciated that the university should increase the internal and

external funding on the research and inventions areas. The universities can adopt the

output-based model of funding as per the idea presented by Jongbloed (2000). He

states that allocations are made on the basis of results in output-based model.

Graduate Tax: According to Chattopadhyay (2007, p. 4257), graduate tax is a

tax in addition to the general income tax, which can be imposed on graduates if

income exceeds a certain threshold limit. This idea of generating income can be

one of one of the many options. However, this may not be justifiable for those

graduates who are graduated from privately-aided institutions with little or no

financial support from the government.

Self-Financing Market Determined Courses: Chattopadhyay (2007, p. 4257)

has discussed about this option. As per this idea, universities can offer market

oriented self-financing courses, which are in demand and the university can give

affiliations to self-financing private colleges. This can generate some income for

the universities. But this may mistreat and dominate other disciplines. Hence, it

can be one of the options for raising income but may not be the best one in Indian

context.

Better Governance (Reducing Cost Per Student): Chattopadhyay (2007, p.

4257) asserts the view that running colleges and universities should ensure

efficient functioning, similar to that of a firm trying to maximize profit. It can be

done by adopting various techniques such as- minimizing teachers' salaries in

small ratios, maximizing class size and so on. However, it is not good to

compromise quality in the name of better governance.

Endowments from Industry: Funding can be developed by establishing the

linkages among Government, universities and the business community. The

relation among these has been termed as the notion of 'triple helix' (Pillayy 2010,

p. 12).

Academic capitalism i.e. commercialization of research may be a good strategy to

expand university revenue to support and control the pressure of growing number

of students and declining of state support per student (Slaughter 2010, pp. 300-

304). For this, the institutional research capacity of the universities need to be improved

as the changes in the criteria of allocation at the system level have been executed for the

emergence of performance-based budgeting and the introduction of market-type

mechanism (Jongbloed and Knoop 1999).

Conclusion

The essay has looked at the financing of higher education in India in general and

the sources of generating income in particular. Due to fiscal constraints and

greater need for more spending on elementary level, the public funding in higher

education is not sufficient. As a result, exploring some more income generating

options has been an mandatory task. Though the fee enhancement and education

loans have been practiced as the income generating sources for financing higher

education, they do also seem of limited significance in terms of equity and access.

Different sources of financing higher education may be suitable for different

countries having different economic status. For example, the options applicable

for the high income countries may not be applicable for the low income countries.

Hence, it is justifiable to utilize the best sources in accordance with socio

economic structure of the nation, which will ultimately make the economy and

efficiency of the higher education stronger.

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