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C h a p t e r 111
GLOBAL AND INDIAN TRENDS IN FINANCING HIGHER EDUCATION
In this Chapter, we propose to examine the recent trends in
financing education across the countries and in India. We are also
planning to examine the factors influencing these changes and their
implications The discussion is based largely on secondary data and
other studies
3.1 Crisis in Higher Educat ion
The higher education sector is in crisis throughout the world.
Part of the reason for the crisis is financial. Higher education
which traditionally is dependent heavily on government funding in
all countries, both developed and developing, is reeling under the
impact of compression of government expenditure The fiscal crisis
of the governments are transmitted to higher educational
institutions which are finding hard to preserve the quality of
education in the absence of alternative sources of finance. The per
student expenditure has been compressed and higher education
institutions and Universities operate under adverse conditions. This
has led t o a reduction in physical facilities, overcrowding, lack of
resources for books. instruments e tc .
This w a s not the situation before. A lot of resources were
pumped into higher education during the 1970s and 1980s.
Education expenditure was considered both as an investment and as
an ethical obligat ion o f the state. Consequently enrolment shot up .
The enrolment of the weak and marginalised also went up.
Education, particularly higher education became a good channel for
social mobility Both developed and developing countries invested
heavily in higher education with greater confidence and optimism.
Higher education received high priority in the budgets of the
governments around the world and this trend continued till mid
1980s From then onwards, adverse macro economic conditions and
increased competi t ion for scarce public funds have reduced many
governments' capacity t o support higher education. These trend
taken together with the rising enrolment led to sharp decline in real
per student expenditure.
The f inancial cr is is in higher education is more acute in
developing countries which had to implement economic reforms as
part of the Structural Adjustment Programmes (SAP) emphasising
liberalisation, privatisation and globalisation. There was a lso a
global ideological shift towards greater reliance on the market and
reduction in the role of the state. There was a clear shift from
welfare state to free market economy. This paradigm shift and the
resultant policy changes envisaged to a larger role for the market
mechanism and for private sector in education. There were
demands for reduction of government subsidies which implied
increased cost recovery in education, particularly higher education.
In the developing countries, higher education was pitted
against school education, especially primary education. It was
argued that higher education falls under non-merit goods category
or are purely private goods. The only sector of education with a
merit good label is elementary education (Government Subsidies in
India 1997)'. According t o Altbach (1997)' the cost of higher
education is shifting from "public purse, public purpose t o private
purse and private purpose". The principle of "Let the buyer pay"
got increasing acceptance among governments and public. For
instance, Britain's Labour Government decided to introduce fees
and stop free tuition This has influenced, though to a lesser extent,
the governments in Europe and elsewhere.
The Table 3 1 shows the participation in tertiary education in
selected countries at different periods of time (1980-1996). A
general growth in enrolment is clearly visible from the table. But
the increase is more pronounced in developed countries than in
developing countries
Table 3 .1 GROSS ENROLMENT RATIOS IN HIGHER EDUCATION
Tertiary enrolment as % of relevant age
Year Book 1998)
It is clear from the Table 3.1 that the level of participation in
higher education of the relevant age group has gone up from 34
percent in 1980 t o 58 percent in 1996 in high income countries.
The increase is just nominal in low income countries (4 to 5%)
In most developed countries, higher education has been the
fastest growing segment of the education system. The enrolment
ratio has been increasing o n an average o f 6 .2 percent in low
income countries and 7 . 3 percent in upper and middle income
countries. About 51 percent of the relevant age group (17-23)
population at tend higher education institutions in OECD countries.
This increase has been possible by high level of subsidisation and
growing opportunit ies for employment to graduates.
I n m o s t countries, government is the most important financier
of higher education. Governments act as financiers because markets
cannot provide the required quality o f education and maintain it .
This pattern o f funding by government is also considered important
for equity, efficiency and social control . Therefore, even in market
economies, the governments meet substantially the cost o f public
institutions and sometimes even a portion of the cost of private
institutions Even private Universities look t o the state for help.
This did not last long and the Structural Adjustment Policy,
continued fiscal crisis, slow growth o f economies and rising
unemployment, led t o some sort of control or cut back o n
expenditure, higher education. The countries o f the world as a
whole stepped up the share of the public expenditure on education
in GNP during the period 1980-1996. But there was a decline in the
share of higher education
Table 3 .2 PUBLIC EXPENDITURE ON EDUCATION
--.-pp (Selected countries and groups) I Public I Expenditure per student I
Expenditure on
rducatton % of GNP Secondary % of GNP % of GNP per capita
a s a % of total
publ ic expenditu
Low income
Source World Development Indicators 1999. (UNESCO's S ta t i s t~ca l Year Book 1998.) Human Development Report 2000
countries Middle income countries High income
Note. Public expenditure on education is the % of GNP accounted for by public spending on public education plus subsidies to private education at the primary, secondary and tertiary levels.
Another comparable data available for analysis is the
3 . 4 4 . 0
5 .6
expenditure on education as a percentage of total public expenditure
( C o l 5 of Table 3 . 2 ) . The ratios for the select developed economies
4 . 9
5 .3
9 . 2
l 20.5
..
--
..
23.2
5 9 . 8
40.6 37.6
range between 9 .6 t o 14 .4 percent. India is on par with the United
Kingdom as far a s the share o f education in state 's expenditure is
concerned On this count India lags behind China.
Another parameter t o be employed is the share of higher
education in total expenditure on education and i t s relationship with
GNP The Table 3 3 g ives this share for different countries
Table 3 . 3 PRIORITY FOR HIGHER EDUCATION
Share of h ~ g h e r Educat~on Year Total expend~ture I In GNP
-- --
Source UNESCO 1994
It is clear from the table that most of the developed nations spend
more than one percent of their GNP o n higher education. In the
case of New Zealand, Canada, Netherlands, Sweden, Australia the
ratio was much higher. Norway, USA, UK and Japan were
moderate spenders. But Germany and France spend less than 1
percent (0 81 and 0.73 percent respectively) India figures at the
bottom of t h e table with the share o f only 0 .56 percent o f GNP
earmarked for higher education. According t o the Table t h e only
country which spends more than 2 percent of the GNP on higher
education is New Zealand (2 .5%). The share of higher education in
the total educational budget of the state was very high for the
developed countr ies . The share for India was very low
A global s tudy o f t h e pat tern of funding shows that education
is financed mostly by governments (Tilak, 1997)) The
gobernments j u s t ~ f y t h e ~ r support for e d u c a t ~ o n because e d u c a t ~ o n
generates external i t ies necessary for economic development. Table
3 4 shows clearly public investment in higher education in OECD
countr ies
Table 3 . 4 SHARE O F STATES I N THE INCOME OF THE HIGHER
EDUCATION INSTITUTIONS IN OECD COUNTRIES
~ o u r r ~ x k , J B G. (1995d)
The share o f s tate in the income o f higher education
institutions is general ly above 70 percent in all OECD countries
other than USA, UK, Germany and Japan. The same is above 80
percent in countries l ike Australia, Finland, France, Netherlands,
Spain e tc . It i s above 90 percent in countries like Norway.
The OECD countries consider this high investment by s ta te as
important for preparing themselves to meet the requirements o f the
21"' century. A substantial part of investment in higher education
in developed countries is public investment. Even private higher
education inst i tut ions are partly state supported. 'Self financing'
private inst i tut ions are almost non existent .
3.2 Non G o v e r n m e n t a l Sources of F inances
The Table 3 .5 shows the share o f fees in unit operat ing
expenditure in various countries. One method of reducing the
financial cr is is in higher education is to mobilise more resources by
way o f higher tui t ion fees A large number of countries are moving
in this direction o f higher cost sharing by students. The fee
enhancement prescript ion is based on the assumption that fees are
very low and that there is scope for increasing fees The experience
world over is that public institutions recover only a small
percentage of their unit cost by way o f user charges It is an irony
that more charges a re levied by developing countries than most of
the developed countries. The USA charges only 15 percent of cost
as fees in public inst i tut ions. In private institutions it may g o u p t o
40 percent In most developed countries like France, Germany e tc .
higher education is almost free of cost and it is given t o all who
deserve it Analysing the global trends, one can emphatically say
that raising fees to cover 100 percent of the cost is not in keeping
with global thinking or practice
Table 3 . 5 E
Financing Universities in Developing Countries
These f indings are confirmed by the Table 3 . 6 which shows
the relative importance of income from fees and other non
government sources The share o f fees in the total income is
compara t~ve ly low except in private Universities and other higher
education inst i tut ions of Japan and t o some extent of USA. In
public inst i tut ions share o f fees range from 15 percent in USA to 5
percent in France. In Germany, the share o f fees is negligible. It is
important to not that even when fees are charged by the
Universities, governments pay a large portion o f these fees by
grants or loans to students. I n UK, almost all the fees o f
undergraduate students a re paid ou t o f public funds. This
amounts to about half the fee income o f the Universities. In USA
loans and grants to students accounted for about 80 percent of fees
in 1969-70 and 95 percent in 1984-85. This indicates a decline in
fees actually paid by students in USA, as a result of liberal
s tudents aid programmes. Students loanlaid programmes are meant
to help poor students while t o supporting fee reforms by the
Universities
Another major resource i s the contribution from alumni
industry, philanthropists, foundations etc. As far a s 'other income'
sources are concerned, their share varies between private and
public inst i tut ions. Private Universities in USA generate more than
40 percent as 'other income'. The share o f these sources is higher
than that of fees even in these private Universities. Other countries
like Germany, Spain, UK etc. mobilise 'other sources ' to a
reasonably good extent . The share of non governmental sources
exceeds the share o f f ees in almost all countries other than Japan.
Table 3 .6 NON-GOVERNMENTAL SOURCES OF INCOME OF HIGHER
S Current Pat tern OECD Quoted in the Repor t o f the Committee on UGC Funding o f Inst i tut ions o f Higher Education, New Delhi 1993
Another very important fact to be noted is that household
expenditure in higher education is much higher in developing
countr ies than in t h e developed countries. Household expenditure
(excluding opportunity cost) according t o Ziderman and Albrecht
( 1 9 9 5 ) ~ is very high in developing countr ies . Therefore, reduction
of subsidies and increase in user charges will have a brutal impact
on the weaker sect ions. Under such situation uniform fee
enhancement without corresponding provision for scholarships,
s tudents loans e tc would be fatal t o equity and social justice
Pate1 endorses the above view (1993)'. He says that poor
cannot afford to forgo earnings, especially in poor countries. The
middle class, who flock to universities in developing countries are
not all that affluent and they do make great sacrifices t o keep their
children at Universities. These are issues which will have to be
borne in mind before steep fee increases are imposed in India.
Alternatively, there must be ample provisions for scholarships,
student ships and subsidised student loans.
3.3 Growth Trends in Indian
Before examining the trends in financing of education in
India, it is necessary to note the growth trends of this sector.
Education is one of the largest activity i n India incurring an annual
expenditure of about Rs.7000 crores with more than 20 crores
pupils on rolls and 30 lakhs teachers spread over 750 thousand
institutions The higher education system showed a twelve fold
increase in the number of universities and twenty two fold increase
in the number of colleges since independence. In 1999, the country
had 237 Universities, deemed Universities and institutions of
national importance established through state and central
legislation Besides, it had nearly 11,100 colleges. In addition there
are unrecognised inst i tut ions in higher education. Table 3 .7 shows
the enrolment in recognised higher education institution in India.
Table 3 .7 ENROLMENT IN HIGHER EDUCATION INSTITUTIONS
Source Annual Report 1999-2000 Ministry of Human Resource Development, Government of l n d ~ a
The total number of students enrolled in the Universities in
1999-2000 was 74 . 18 lakhs, out of which 12.25 lakhs were in the
University departments and 61.93 lakhs in the affiliated colleges
The Table 3 . 7 shows subject wise and degree wise enrolment of'
students in higher education institutions. The strength o f the
faculty also went up t o 3 .42 lakh in 1999-2000, out of which 76587
were u n ~ v e r s i t y teachers. In the affiliated colleges, the senior
teachers and lecturers together constitute 260897 and the rest a re
tutors The total enrolled o f women was 25 .74 lakh in the year
1999-2000 This accounts for 3 4 percent of the total enrolment
Eighty percent of women enrolment were in non-professional
faculties of arts, science and commerce and only 13 percent was in
professional courses
The Table 3 . 8 shows the state wise number of recognised
higher educational institutions in India.
3.4 Trends in Financing
Large volume of material and non material resources must
go into education for education process t o take place and yield
some quality output. The investments made over the decades is
substantial, but they have t o be maintained. Many argue that higher
education in India is over invested and that resources must be
reallocated to lower levels of education. But all levels o f
education in lndia suffer from inadequacy of resources Almost all
universities in the country, whether central or state, affiliating or
non affiliating, old o r new, general or professional have been in
financial crisis. The situation of increased cost and diminished
income is the problem faced by All Universities and colleges in the
country.
The educational explosion that has taken place in India since
independence is reflected in educational expenditure. At the time ;
of independence, India was spending Rs. S S crores on higher
education which increased 100 times to reach the level of Rs.5500
crores in 1983-84. Growth rate in per capita and per pupil
expenditure is given in Table 3.9 was even higher ( l 4 percent). But
the growth rate in real terms was much lower.
Table - 3 9
Cost and Financing o f Educat ion in India J B G Tilak, UNDP Project C D S, Trivandrum 1995
Note Up t o 1983-84. based on educat ion in India After 1983-84 Ministry o f Human Resource Development, Government of India
The >hare o f educat ion in Gross N a t ~ o n a l Product (GNP) i s
the most widely used indicator o f priority given t o educat ion in a
country I t may be noted that the Educat ion Commission headed by
D S K o t h a r ~ ( 1 966)"ad fixed 6 percent o f GNP as the target t o be
achieved by the year 1986
Table -3 .10 SHARE OF EDUCATION IN GNP DECADAL TRENDS
% of GNP Avera e 1950-1960 1960- 1970 1970-1980 ~- ~~ ---.-p
1980- 1990 3 .8 Source Studies on Human Development in India
Cost and Financing o f Educat ion in India J B G Tilak, UNDP Project C D S , Trivandrum 1995
Note 1984-85 onwards : government expenditure only .
At the initial year of planning (1950-1951) the expenditure
on education was 1 .2 percent of the GNP. The decadal average
(1950-60) was 1 8 percent (Table 3.10). Every decade except 1990
showed increases. The recommendations of Kothari Commission
however was not implemented. Therefore, the New Education
P o l ~ c y (1986)' and the revised Programme of Action ( 1 9 9 2 ) ~
reiterated the need to invest 6 percent of GNP in education. But
the actual ratio has only declined since then despite the massive
increases i n enrolment at all stages. During the nineties, the ratio
came down from 3.7% in 1991 to 3 .2% in 1997
Public expenditure on higher education as a share of GNP
Table - 3.11 P- EXPENDITURE ON EDUCATION
increased from 0 19% in 1950-51 to 0.56 percent in 1990-91. It can
Year
-~ -. 1950-5 1 1960-61 . .-~ ~- 1970-7 l 1980-81 -- 1990-9 1 .- --
1997-98
be noted that expenditure on higher education as a share of GNP
Source Reforming Education Financing Varghese, N.V. Seminar 494, October 2000.
Note I Education in India (various years) 2 Annual report of Ministry of Human Resource
Development, Government of India
Percentage GNP Educat ion
1.2 2 .5
Percentage GNP Higher Educat ion
0.19 0.39
3.1 2 .9 3 .7 3 .2
0.77 0.98 0.56
-
increased continuously till 1980s. It was very close t o one percent
of GNP in 1980-81, but the trend was reversed in 1980s and dipped
to 0 .56 percent 1990-91 (Table 3 . 1 1 ) . After the introduction of
National Policy o f Education (NPE, 1 9 8 6 ) ~ , the focus shifted
towards elementary education.
Table 3 12 SHARE OF EDUCATION EXPENDITURE IN TOTAL
GOVERNMENT BUDGETS OF CENTRE AND STATES
Note Expenditure on Education Includes Both Revenue and Capital Expenditure
The priority given to education can also be judged by the
share education expenditure in the central and state budgets. If the
central and state budgets are taken together, the share of education
worked out to around 11 percent in 1995-1996 (Table 3.12). The
share o f the education sector in the central budget was only 2 .5
percent in 1995-1996. It increased steadily from 1.1 percent in
1980-81 to 2 3 percent in 1990-91 and to 2.5 percent in 1995-96.
The priority given to education in state government budgets
declined from 25 .5 percent in 1980-81 to 19.6 percent in 1995-96.
The states in India show variations in the proportion of GNP
spent on education. The coefficient of variations increased from 32
percent in 1980-81 to 35 5 percent in 1995-96 (Sherif and Ghosh,
2 0 0 0 ) ' ~ The variations in the educational expenditure of different
states do not fall into any systematic pattern. An economically
backward state like Assam invested 6 . 6 percent of its SDP on
education in 1995-96. But Punjab with the highest per capita
income invested only 2 . 6 percent.
3.5 Allocation in Five Year Plans
'Table 3 13 shows allocations to education in five year plans
The table 3 14 gives the relative share of higher and technical
education i n the plan expenditure on education.
Table 3.13 ALLOCATIONS TO EDUCATION IN FIVE YEAR PLANS
Plan I Plan I1 Plan 111 Plan IV Plan V Plan V1 Plan V11 Plan V111 Plan
Total Education 7.8 5.8 6 . 9 5 . 8 3.3 2 .7 3.1 4 .5
Source: Reforming Education Financing, N . V . Varghese Seminar 494, October 2000.
Allocation t o education in five year plans denotes
government's commitment t o new initiatives. Based on the relative
allocation of resources t o education, the plan periods can be
categorised into three phases. During the first four plan periods,
the allocation to education had been more than 5 percent. The 51h,
61h and 71h plan periods constitute the second phase which was
characterised by a sharp decline in plan allocation to education.
During the third phase, the decline was chequered and attempts
were made to increase the allocation t o education. But we have not
yet got figures of actual expenditure during the eighth plan We are
not sure to what extent the plan outlay actually materialised.
Table 3 .14 PLAN EXPENDITURE ON DIFFERENT SECTORS OF
EDUCATION
Source Government of India (1995) Budgetary resources o f education ( 1951-52) to 1993-94) New Ministry o f Human Resource Development
Note Figures in Parenthesis is millions o f rupees
'She share o f higher education reached the peak in the 4th plan
period Thereafter. it showed a steady decline to reach 8 percent
during the 8th plan. Technical education had a good start in the 1st
plan period and t h e al location grew fast t o reach 21 percent in the
third plan period and thereafter reached the peak o f 25 percent
during 1966-1969, the period o f Plan holiday. But a sharp decline
took place during the fourth plan period to 13% and further i t
declined t o 12 % and 11% respectively during the fifth and the sixth
plans It stood at 14 percent during the eighth plan period
Growth in enrolment and increase in prices pushed down the
rate of growth in per student expenditure at constant prices. (Tilak
1987) ' ' and Tilak and Varghese (1983)" . Expenditure per s tudent
in real terms increased from Rs.1584 in 1950-51 to an all t ime high
level of Rs 2069 by 1965 and ever since it has been declining
consistently
About 99 .2 percent of the total government expenditure was
on revenue account during 1995-96. Even within the revenue
budget, salaries constitute more than 90% leaving very little for
other educational inputs. The already low share of capital
expenditure in the total educational expenditure came down from
1 3% rn 1990-91 to 0 8% in 1995-96 Another feature is that the
bulk of education expenditure is on the non plan account
The following are some of the major trends in financing
higher education in India during the post independence era (see
Table 3 15) (a) The share o f the government in the total
educational expenditure has increased significantly (b) The share
of local bodies is very low, but is increasing
All these are depicted in the Table 3.15
Seminar 494, October 2000.
Table - 3.15 SOURCES OF FUNDING FOR HIGHER EDUCATION
Year
1950-5 1 1960-61
Government Local bodies
1970-7 1 1980-81 1985-86
~ o u i c e c r ~ h e s e
49.1 5 3 . 1
0 . 5 p--
0 . 8 1.4
60 .4 72 .0 79 .7
Fees
0.3 0 .4
25.5 100.0
Others
17.4 14.4
Total
36.8 34.8
1 0 8 4.5
13.8 11.7
1 0 0 0 100.0
100.0 100.0
(c) There is a s teep decline in the share of fees is quite s teep. (d)
The share of other non governmental sources has been coming down
steeply But today the government which is the main partner in
funding higher education f inds it difficult to maintain the level o f
funding as in the pas t .
In this chapter we have examined the recent t rends in
f inancing higher education across the countries and in India. The
higher education sector is in financial crisis throughout the world
A number of countries have responded to the funding crisis by
introducing innovative policies and programs. The policy makers
of education in India t o o have introduced some reforms like self
f inancing colleges, the impact of which on quality and equity
remains to be probed.
END NOTES
1 . Govt of India. Department o f Economic Affairs [DEA] Government Subsidies in India. New Delhi: Ministry of Finance, 1997
2 Altbach, Phil ip G . " 'Let the Buyer Pay ' : International Trends In Funding Higher Education." University News 15 Sept . 1997.
3 Tilak, JBG "The Dilemma for Reforms in Financing Higher Education" Policy, International association of Universities, Elsevier Science Ltd , No 10 1, 1997
4 . Panchamukhi, P .R. "Compressing Higher Education Budgets: Some Reflections." University News, 1998.
5. Ziderman, A. and D. Albrecht., Financing Universities in Developing Countries. London: The Falmer, 1995.
6 World Bank "Higher Education in Economic Development " By Patel, I G EDI Seminar Series. Washington D C, 1993
7 . Tilak, JBG (1997), op. cit.
8. Kothari, D.S. , Education and National Development. New Delhi: Govt of India Press, 1966.
9 . Govt of India. The New Education Policy. NPE. 1986. Ministry of Human Resources Development, New Delhi.
10 Sherif, A and Ghosh, P .K . , "Indian Education in Scene and the Public gap, Economic and Political Weekly, April 15, 2000.
1 l .Tilak, JBG. Economics of Ineaualitv in Education. New Delhi: Sage, 1987.
12.Tilak, JBG and N.V. Varghese. Resources for Education in India. Occasional Paper 2 . New Delhi: NIEPA, 1983