Special articles

Public Subsidies in Education in India

Though public subsidisation of many social and economic services is a common feature of
most countries of the world, of late with increasing budgetary constraints, many began raising
questions on the rationale of government subsidies, and arguing in favour of drastic reduction,
if not eliminating altogether of subsidies. Concentrating on education sector, this paper
reviews some of the well known arguments in favour of, and counter arguments against public
subsidies. Since much of the controversies are around subsidies in higher education, the paper
focuses on the same, though discussion on lower levels of education is also included. The
paper reviews the recent trends in public expenditures on education in India, and the available
estimates on the rates of subsidy and cost recovery. Distribution of some specific subsidies in
education, such as free education, fee exemptions, textbooks, noon meals, etc, is also briefly
analysed. Some of the important issues on, for example, the size of the subsidy, targeting
versus universalism, and methods of cost recovery are also briefly discussed. It has been
shown that the level of subsidies in education in India is not particularly high, nor is the rate
of cost recovery particularly low, in comparison with other developed and developing
countries. It has also been found that some of the specific subsidies in education are fairly
progressively distributed.
JANDHYALA B G TILAK

Everyone has the right to education. Education shall be free at in many sectors.1 For example, government of India (1997)
least in the elementary and fundamental stages. Elementary edu- identified a large set of social and economic services, classified
cation shall be compulsory. Technical and professional education them into public goods, merit goods and non-merit goods, and
shall be made generally available and higher education shall be proposed to reduce subsidies to non-merit goods.2 In case of the
equally accessible to all on the basis of merit.
education sector, education up to elementary level is considered
– Article 26 (1), Universal Declaration of Human Rights
(United Nations) as a merit good, and education beyond elementary level, i e,
secondary and higher education, is labelled as a non-merit good,
I as falling outside the ambit of merit category.3 It is proposed
Introduction to reduce the scale of subsidies to non-merit goods, including
higher education, to a level of about 50 per cent through phased

G
overnment subsidies can be a powerful welfare instru- increases in user charges or cost recovery rates. The raison d’etre
ment of fiscal policy, inter alia, to improve the welfare given was “a significant portion of subsidies in higher education
of the people. Subsidies can also promote growth by is appropriated by middle to high income groups…subsidy regime
increasing, say the level of health and education of the labour is not tangibly progressive” (p 16).4
force. Public subsidies in many countries cover both economic Mainly realising the growing budgetary constrains, and partly
and social goods and services. Subsidies can be implicit in the by conviction that public subsidies in education are inherently
form of concessions in tariffs and taxes that can range from inefficient, some people strongly advocated drastic cuts in public
provision of land at concessional prices to tax exemptions/ subsidies [e g, Dandekar 1991; Rao 1992], and even complete
concessions; and they can also be explicit in the form of transfer withdrawal of the government from higher education sector and
payments. Subsidies aim at reducing the price of the goods, so its wholesale privatisation [Prime Minister’s Council 2000]. It
that they are available to larger sections of the population. is also contended that there is ability to pay and also willingness
Subsidies are advocated generally in case of public goods to pay on the part of the people, which need to be tapped. While
and merit goods, and also in those cases where economies of many do not favour withdrawal or even reduction in public
scale operate. subsidies to higher education, they nevertheless suggest increase
Public subsidisation of many social and economic services is in cost recovery rates and several ways of mobilising non-
a common feature not only of welfare societies, but also of the governmental resources [e g, UGC 1993; AICTE 1993], which
market economies. Of late with increasing budgetary strains, would amount in the long run, to reduction in the relative
governments in developing countries began feeling the burden proportion of public subsidies.
of public subsidies and ways and methods are being explored to In this general background, the present paper presents, con-
reduce substantially, if not eliminate altogether, public subsidies centrating on education sector, a critical examination of some

Economic and Political Weekly January 24, 2004 343

of the important arguments made in favour of, and the counter provided a strong case for public subsidisation of school edu-
arguments made against pubic subsidies in education in devel- cation to capture external benefits. In the absence of public
oping countries (Section II). There is some consensus, or at least subsidies, social investments in education would be at under-
less disagreement in case of public subsidisation of school – optimum levels. Further, when viewed democracy, reduction of
elementary and secondary – education. Since much of the contro- crime, economic growth, redistribution of resources, etc, as other
versies are around subsidies in higher education, the paper public goods, it is important to note that education helps in their
concentrates on the same, though discussion on lower levels of fulfilment [Lott 1987].7 In the literature basic education is
education also finds place here. After presenting a brief account considered as a pure public good, and higher education as a quasi-
of the trends in public financing of education in India during or semi-public good.
the decade of the 1990s, i e, after the economic reform policies A closely similar aspect ii education is also a merit good
were introduced, it attempts at presenting a detailed set of estimates [Musgrave 1959; see also Arcelus and Levin 1986]. It is a merit
of subsidies, and rates of recovery in higher education as a whole, good, consumption of which needs to be promoted. People could
and on a select few universities and institutions in India be ignorant of the benefits of education, or may not be appre-
(Section III). Section IV concentrates on a few specific subsidies ciative of value of education, or may not be able to foresee the
in education and how are they distributed. The paper concludes implications of their investment decisions in education, and may
with a discussion on a few key issues on the desirability and be unwilling to invest in education. But governments are expected
feasibility of reducing subsidies and on the size of the subsidies to have better information than individuals or families, and should
(Section V). Discussion on very closely related issues such as be wiser and more able to look into the future and accordingly
privatisation of education and comprehensive discussion on even take wise decisions regarding investment in education. The
financing of education are outside the scope of the present paper.5 important aspect is that not the others, but the individual recipient
him/herself benefits to a greater extent than he/she is aware of.
II For instance, the effect of education on wages may be known,
Education Subsidies: The Rationale but the likely impact on productivity in general, on family health
and nutrition, ability to make decisions regarding one self, or
Education is publicly provided by every nation. The dominance about his/her family members relating to education, employment,
of the state subsidies is an outstanding feature of most education etc, is less likely to be anticipated and understood. In other words,
systems. Such a unique position is shared only by a very limited it is highly implausible, to argue that individuals can be repre-
range of goods and services such as national defence, internal sented as economic agents who can be relied on to make choices
security, courts, police, etc. Even in those cases, where education that are in all cases rational; or that they are infinitely clear headed
is not publicly provided, it is subsidised by the state. Education, about how to go about realising their goals, and that they are
including higher education, is heavily subsidised by the state in capable of foreseeing all of the consequences of their actions,
almost all the countries of the world – not only in developing and can discover which is the best strategy to service their chosen
countries, but also in developed countries [see Blaug and Woodhall ends [Lane 1993]. It is widely held that governments would be
1979; OECD 1990; Tilak 1993d; 1997b]. Conventionally why wiser than the individuals in understanding the implications of
has education been given such a treatment? There seems to exist investing in education. Consumer ignorance is a typical case that
a powerful persuasive economic logic, and a social, political and necessitates public subsidisation. The provision for making
historical rationale for this. education – elementary education – compulsory in several national
legislations is based on the same principle.
Case for Public Subsidies for Education Thirdly, subsidies in education are advocated on the grounds
of providing equality of opportunity. Ensuring equality of op-
There are several arguments in the literature that justify public sub- portunity in education to everyone irrespective of not only social
sidisation of education: Education is a public good [Vaizey 1962; background, but also economic background is considered an
Eckaus 1964; Blaug 1965; 1970:107; Levin 1987; Tomilnson 1986], important function of the modern state. It is held for a long time
producing a wide variety and huge magnitude of externalities. and by many that “it is necessary to provide free education at
Consumers of education confer external benefits on those not all levels and also to subsidise students’ living expenses in post-
acquiring education. The social benefits of having a large higher secondary schooling so as to guarantee ‘equality of educational
educated population go beyond the increase in GNP. It is also opportunity’ ” [Blaug and Woodhall 1979:352]. Education is
argued that social benefits of education cannot be reduced to found to be an effective instrument of equity. In the absence of
individual self interest [Levin 1989]. Hence by taxing those who public subsidies, only those who could afford to pay would enrol
receive these benefits and subsidise the provision of education, in schools. The concern for equality of opportunity has led to
the welfare of both groups, and thereby the society as a whole, almost universal agreement that the government should subsidise
can be improved. The externalities include improvement in health, education.
reduction in population growth, reduction in poverty, improve- A strong argument accepted by many in support of public
ment in income distribution, reduction in crime, rapid adoption subsidies is the existence of imperfections in capital markets.
of new technologies, strengthening of democracy, ensuring of As Arrow (1993) observed, imperfections in capital markets and
civil liberties, etc, and even dynamic externalities, which are asymmetric information are possible justifications for the public
necessary for technical progress and economic growth and to subsidisation of higher education. In several developing countries
arrest diminishing marginal returns.6 These positive externalities markets are ‘incomplete’ and credible markets do not exist
constitute a powerful justification for public subsidies [Nerlove [Joseph Stiglitz 1986]. Education credit markets are also incom-
1972]. The externalities or the ‘uncompensated’ benefits from plete [Kodde and Ritzen 1985]. Imperfect capital markets inhibit
education are regarded to be legion [see Bowen 1987; Snower students from borrowing against the uncertain future returns of
1993; Wolfe 1995; Solmon and Fagano 1995; Behrman and higher education. Problems of offering human capital as collat-
Stacey 1997; McMahon 1987, 1999]. Even Friedman (1955: 124-25) eral, lead to underinvestment in education, especially among the

344 Economic and Political Weekly January 24, 2004

poor families. People may not prefer to borrow to invest in expenditures can be reduced relatively easily.
education, whose gestation period is relatively very long, and There are also several other arguments. Public subsidisation
may not be ready to take risk of investing in education, whose is not needed to promote equity or to promote democracy [Tooley
benefits are not certain. Risk associated with human capital 2000]. It is also contended that with heavy subsidisation by the
investments could be difficult to diversify and could be very high state, educational institutions become vulnerable to government
to the society. For the individual, the risk of not completing a control; it is inefficient to give subsidies (in the form of grants
given level of education, or facing the risk of falling market value to institutions) since it offers no incentives to allocate the re-
of his education are indeed high. Even more importantly, the sources efficiently; it may not be desirable to subside higher
lenders would be understandably reluctant to accept risk backed education, while basic needs such as basic education and health
only by uncertain future incomes of the reluctant debtors care are not adequately funded; in other words, public resources
[Arrow 1993]. Hence the need for public subsidies. get misallocated; etc [World Bank 1995].
Fifthly, education is a sector, which is subject to economies It is also felt that reduction in public subsidies would not
of scale, or increasing returns to scale. Average costs of providing adversely affect the growth of education, as cost recovery measures
education declines as enrolments increase. If a production process can be adopted. Since education, particularly higher education
is characterised with decreasing average cost condition, it may may not be price elastic, it is believed that cost recovery measures
be more efficient for government to operate this process. Further, would not lead to any significant fall in enrolments; on the other
higher levels of education can be particularly subject to this hand, cost recovery measures would improve access, and also
phenomenon. University systems, scientific equipment, libraries, would lead to improvement in quality of education by reducing
etc, cannot be used on a small scale. Hence it may be more the baby-sitting role of education on the one hand, and making
efficient for government to produce it and provide it free (or at students more diligent about studies on the other. Given the high
a price equal to the marginal cost) [Colclough 1996]. So govern- private rates of return, people will be willing to pay for education.
ment monopoly of education, including higher education,
is viewed desirable, compared to allowing many producers in An Assessment of Arguments
the field.
There are several other arguments: pubic subsidies are nec- The debate between the two sides, familiarly known as liberal
essary to protect democratic rights; to promote cooperation instead versus neo-liberal groups, is intensifying in the recent years [see
of competition; to promote national values, and so on. Also also Hinchliffe 1993]. How far are the arguments and counter
increasing evidence shows that public expenditures on education arguments valid? While it may be possible to marshal enough
do matter a lot in improving the education indicators in many evidence to argue on either side, there are some aspects that stand
developing countries [e g, Gupta et al 1999; Mehrotra 1998]. out very clearly in favour of public subsidies in education, which
are rarely questioned. For example, even those who oppose pubic
Arguments against Public Subsidies subsidisation of education recognise that education produces a
huge magnitude of externalities.8 Even Friedman (1962:86)
Of late several questions are being raised on the rationale of implicitly agreed that because of externalities, associated with
public subsidies in general and subsidisation of education in education, it should be publicly financed. Though all the social
particular, and within education, more particularly higher edu- benefits cannot be identified and measured accurately, there is
cation. The several arguments against public subsidisation of still a consensus that they are substantial. The other aspects widely
education are essentially of three kinds: efficiency arguments, shared are: public good (and quasi-public good in case of higher
equity arguments, and pragmatic considerations. education) nature of education, merit good nature, social invest-
First, much opposition to public subsidisation of education, ment nature of education, market imperfections, and economies
particularly higher education, has emerged from estimates of rates of scale. Further, many arguments made against public
of return to education. The social rates of return are found to subsidisation do not have unqualified support either from theory
be consistently lower than private rates of return to education, or empirical evidence. Based on sound economic reasoning,
and hence it was recommended that public subsidies could be Vaizey (1962:34) concluded, “publicly financed education is a
reduced, and individuals could be asked to pay for their education legitimate end of public activity, even to extreme exponents of
[Psacharopoulos 1994; World Bank 1994]. ‘classical’ economic doctrine” (p 34).
Secondly, it is argued that public subsidisation of education The case against public subsides in education in the recent years
produces perverse effects on distribution. It is argued that, public is based on the premise that governments in developing countries
subsidisation of education, especially higher education, would do not have adequate resources at their disposal, and that the
be regressive, increasing income inequalities by transferring the scope for restructuring the public budgets, and thereby increasing
resources from the poor to the rich, as the education (particularly, the subsidies substantially to education is rather limited. This
but not exclusively higher education) subsidies accrue more to is not an argument per se against public subsidisation. Except
the rich than to the poor [Psacharopoulos 1977; Blaug 1982, quoting the figures relating to budget deficits, or those relating
1992; Mingat and Tan 1986a, b; Jimenez 1987, 1994; World to external indebtedness, and the corresponding debt service
Bank 2000:80]. Reduction in education subsidies in general is charges of the developing countries, this premise has rarely been
also advocated arguing that education subsidies, including some critically examined. Arguments are made for restructuring public
specific subsides in basic education, could be targeted to the poor budgets by withdrawing resources from unproductive sectors and
only [World Bank 1994 also 1997]. their reallocation towards education [e g, UNDP 1991, 1992].
Thirdly, governments in developing countries are increasingly Some research also exists that shows that education expenditures
facing resource crunch. Economic reform policies adopted in are affected by military expenditures, indicating a clear trade-
many developing countries, broadly known as structural adjust- off between public expenditures on defence and education. Patterns
ment policies also necessitate cuts in public expenditures across of public expenditures in developing countries also show that
the board. Education is viewed as one sector, where public the governments are not as much starved of resources as of lack

Economic and Political Weekly January 24, 2004 345

of priorities and political will, especially in case of sectors like to a school may mean denial to somebody else, as the number
education. of places in schools could be restricted [see Eicher and Chevaillier
There is a general argument that higher education subsidies 1993:478]. What is important is to check the applicability of the
are regressive. It is also stated, that subsidies to higher education criteria of non-exclusion and free rider not to consumption of
accrue to the better-off sections of the society, while those to the service (admission in school), but to receipt of the benefits
primary education accrue to the masses [Bowles 1971; Selowsky of education. After all, people who have not gone to schools
1979; Meerman 1979; Jallade 1974; Dasgupta and Tilak 1983; cannot be excluded from getting benefits of having educated
also see Tilak 1989]. It is argued that public subsidisation of population in the neighbourhood.
education produces perverse effects on distribution Lastly, it has to be noted that many of those who argue for
[Psacharopoulos 1977] a finding that was proved wrong by Ram increased cost recovery in higher education do not oppose public
(1982). Ram has concluded in a cross-country analysis, “there subsidisation per se; on the other hand, since there is ‘limited
is little evidence in favour of the postulate of a significant scope for increased public spending’, it is argued that additional
disequalising effect of public subsidy to higher education. If there resources can be mobilised through a variety of measures [e g,
is such an effect at all, it appears to be stronger in the DCs than Mingat and Tan 1986]. They also recognise that public subsidies
in the LDCs” (pp 45-46). Torstel (1996) further showed that can increase efficiency [e g, Arrow 1993].9
public subsidisation of education would even correct distortions As Blaug (1983:126) summed up long ago, market failures –
in taxation and hence it is efficient to subsidise education. In consumer ignorance, technical economies of scale, externalities
a careful review of several studies, and after standardising their in production and in consumption, public good, and inherent
results, Leslie and Brinkman (1988:118) found that “higher imperfections in capital and insurance markets – inhibit the
education in most cases does contribute to progressivity and attainment of Pareto optimality in education investments.10 Hence
moreover that when the analytical methods employed are most the government has to subsidise education. Governments subsidise
advanced, progressivity is found without exception”. It is also education, not just for efficiency, but also for reasons of equity,
widely shared that any withdrawal of public subsidies would and various other social and political objectives. Hence, as Eicher
certainly make the system worse, more regressive. On the other and Chevaillier (1993:480) observed, even if theoretical justi-
hand, it is also noted that markets are cumulatively and inherently fication is weak, “it would probably be a mistake to curtail sharply
inegalitarian in relation to the distribution of resources in society. public subsidies to education.”
Further, as Johnson (1984) demonstrates, it may be justified to To conclude, there is not much disagreement on the economic
tax the poor to finance higher education of even the rich, because rationale of public subsidies to education. As Vaizey (1962:36)
of the externalities, associated with higher education (of the rich), observed, “the opposition to a publicly-financed system is a
which can be relatively rich in a permanent income sense. The political opposition to paying taxes rather than an attitude in-
poor (or less able) also realise a portion of the gains from the eluctably derived from the mainstream of economic reasoning”.
rich (or more able) receiving higher education. However, the important question is how much should be the
It is also recognised that education subsidies need not neces- subsidy. While some arguments such as pure public good and
sarily be regressive per se. It depends upon the nature, type and social merit good nature of basic education may suggest full
kind of subsidies. For instance, if subsidies that are expected to subsidisation of basic education, many other arguments, e g,
be targeted are universally available to all, it may produce adverse quasi-public good nature of higher education, may only suggest
effects and vice versa. The type of subsidies, e g, grants to partial subsidisation. Theory does not give any clues on the level
institutions versus grants to students, may also matter in this of optimum subsidy.11 As a result, countries follow different
context. It is also felt that the solution to regressive effects of mechanisms and levels of public subsidies to education, partly
subsidies lies in progressive taxation system, rather than in based on economic logic, and partly based on historical and
eliminating or reducing subsidies. cultural factors and social and political objectives. So as Blaug
The use of the estimates on rates of return to education in and Woodhall (1979:351) concluded, “it is vain to pretend,
support of arguments against public subsidies is also found to therefore, that we can appeal to any general principles that would
be not proper. First, the high levels of private rates of return may specify an optimum level of subsidy to [higher] education, much
not even sustain themselves long, as already experienced by some less to general principles.”
countries, reducing the students’ willingness to pay. Secondly,
private rates of return will decline if public subsidies are dras- III
tically reduced or altogether withdrawn, making investment in Public Expenditure on Education in India
education unattractive from individual point of view. Thirdly and
more importantly, it is now well noted that the social rates of Public Expenditures on education have increased remarkably
return to education are not true social returns: except for tax in India during the post-independence period. However, the
benefits, no other social benefits are considered in the estimation growth has not been impressive if one examines the expenditures
of social rates of return to education. Hence, it is contended that in real prices12 and per student. The growth also has not been
rates of return cannot be used to argue against public subsidies smooth across the last five decades [Tilak 1995a]. The growth in
[e g, see Task Force on Higher Education and Society 2000:39] the government expenditures has been very slow during the 1990s
or even for any sound public policy in education [Majumdar after the economic reform policies were introduced (Table 1).
1983]. Further, properly estimated social returns could be much Public expenditure on education as a proportion of GNP has
higher than not only the earlier estimates on social rates of return, been far below the national target of spending 6 per cent and
but also higher than the private rates of return [e g, McMahon in recent years declined from above 4 per cent in 1990-91 to about
1999; also Weale 1992, 1993]. 3.9 per cent in 1998-99. The share of education in the total
There are also a few who feel that education may not qualify government expenditure has also declined, though marginally.
to become a public good, as the criteria of ‘non-exclusion’ and Intra-sectorally, elementary education accounts for a major
the ‘free-rider’ do not apply. It is mentioned that one’s admission proportion of total education expenditure, presently around 50

346 Economic and Political Weekly January 24, 2004

per cent. It has marginally increased over the years particularly discuss a few important aspects relating to public expenditures
after the formulation of the National Policy on Education 1986. on higher education in India.
The share of secondary education has been stable around 30 per
cent and the share of higher education has also remained stable Public Expenditure on Higher Education
around 13 per cent.13
Government finances education to a large extent.14 Elementary Higher education has experienced disturbing trends in public
– primary and middle (upper primary) – education is nearly totally expenditures during the 1990s, i e, during the phase of economic
financed by the government – central, state and local bodies. reforms [Tilak 1996a]. During the first few years of the 1990s,
Government meets 99 per cent of the total recurring expenditure plan expenditure on higher education declined not only in real
at primary level and 96 per cent at upper primary level. Fees, prices, but also even in nominal terms. There was a decline in
endowments and others account for the rest.15 De jure, it is non-plan expenditures in real prices also. The total (plan plus
expected to be provided free, charging no fees of any kind. In non-plan) expenditure on higher education has registered in real
case of secondary education, student fees accounted for 3 per terms decline between 1990-91 and 1995-96. It is only in the
cent in 1992-93, and in case of higher/senior secondary education
Table 2: Sources of (Recurring) Funds for Education in India,
it accounts for 10 per cent. In only a few states senior secondary 1992-93
education is provided in intermediate colleges. The expenditure (Per cent)
of the intermediate college education is met mainly by student
Government Local Fees Endowments, Total
fees, and endowments (and others), and government meets less Bodies etc
than one-fifth of the total recurring expenditure (Table 2).
However, in case of higher education in the country as a whole, Primary 91.1 7.5 0.0 1.4 100
Middle 88.6 8.0 0.0 3.3 100
government subsidises about three-fourths of the total recurring Secondary 93.2 3.0 2.9 1.0 100
expenditure. Student fees and endowments and others meet the Higher secondary 84.4 3.6 10.2 1.8 100
rest more or less in equal proportions. Student fees accounted Intermediate 18.2 0.8 58.8 22.2 100
for 13 per cent of the total in 1986-87, the latest year for which Total school sector 89.5 5.0 2.9 2.6 100
such details are available. Since public subsidisation of higher Higher (1986-87) 75.9 0.0 12.6 11.5 100

education has become a controversial issue, it may be useful to Source: Education in India (various years) (New Delhi: MHRD)

Table 1: Budget Expenditure on Education

(Expenditure Incurred by the Departments of Education Only)
(Rs in crore)

Year Elementary Secondary Technical Higher Total Total*

In current prices
1990-91 7955.5 5531.1 753.0 2311.9 17193.7 20491.2
1991-92 8684.3 6198.8 809.5 2443.4 18757.6 22593.8
1992-93 9477.3 7178.1 907.1 2700.0 20953.6 25030.3
1993-94 10821.8 7768.6 1017.7 3103.6 23413.1 28279.7
1994-95 12638.9 9049.5 1189.3 3525.3 27232.1 32606.2
1995-96 15217.8 10344.1 1290.3 3871.3 31516.6 38178.1
1996-97 17850.5 11735.8 1450.0 4287.9 36371.6 43896.5
1997-98 20391.5 13262.4 1622.6 4859.1 41109.3 48954.1
1998-99 25114.7 16721.5 2073.1 6116.8 51225.3 62019.5
1999-00RE 31087.0 19995.7 2544.5 8189.5 65130.7 77545.8
2000-01BE 31522.0 19514.0 2543.2 9451.6 65284.6 78236.5
In 1993-94 prices
1990-91 10804.3 7511.7 1022.6 3139.7 23350.4 27828.7
1991-92 10366.2 7399.3 966.2 2916.6 22390.3 26969.4
1992-93 10405.6 7881.2 996.0 2964.5 23005.9 27481.9
1993-94 10821.8 7768.6 1017.7 3103.6 23413.1 28279.7
1994-95 11532.2 8257.1 1085.1 3216.6 24847.5 29751.0
1995-96 12736.1 8657.2 1079.8 3240.0 26377.0 31952.2
1996-97 13917.6 9150.1 1130.5 3343.2 28358.0 34224.9
1997-98 14894.4 9687.2 1185.2 3549.2 30027.2 35757.2
1998-99 16982.5 11307.1 1401.8 4136.2 34638.5 41937.5
1999-00RE 20309.5 13063.4 1662.4 5350.3 42550.7 50661.6
2000-01BE 19826.5 12273.8 1599.6 5944.8 41062.3 49208.7
Intra-Sectoral Allocation (per cent)
1990-91 46.3 32.2 4.4 13.4 100
1991-92 46.3 33.0 4.3 13.0 100
1992-93 45.2 34.3 4.3 12.9 100
1993-94 46.2 33.2 4.3 13.3 100
1994-95 46.4 33.2 4.4 12.9 100
1995-96 48.3 32.8 4.1 12.3 100
1996-97 49.1 32.3 4.0 11.8 100
1997-98 49.6 32.3 3.9 11.8 100
1998-99 49.0 32.6 4.1 11.9 100
1999-00RE 48.1 30.9 3.9 12.7 100
2000-01BE 48.9 30.1 3.9 14.6 100

Notes: RE: Revised Estimates; BE: Budget Estimate;

Totals include other levels not included here. * includes expenditure incurred by Departments of Education and other Departments on Education.
Source: Analysis of Budget Expenditure on Education (various years) (New Delhi: MHRD).

Economic and Political Weekly January 24, 2004 347

 Figure 1: Declining Public Expenditure in Higher Education Trends on two specific aspects on higher education subsidies
per Student (Real Prices)
(with a linear trend line)
may be of interest here. First, direct subsidies to students –
Index scholarships given to student in higher education.
120 While no further details are available, it may not be wrong
to assume that a sizeable proportion of the scholarships is meant
for weaker sections. Hence this is an important subsidy that has
100
a great potential to promote equity in the system. But the amounts
allocated to this item are rather insignificant (Table 7). As a
80 proportion of total expenditure on higher education, scholarships
amounted a petty small figure: 0.5 per cent in 1989-90, which
came down to below 0.4 per cent by the end of the decade.
60 Second, subsidies to private institutions. There is a large private

2000RE
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99
sector in education, which receives state support. Subsidies to

1999-
such private institutions include both explicit subsidies and
implicit subsidies. Implicit subsidies take the form of provision
Source: Table 4.
Table 4: Expenditure per Student in Higher Education
later years some attempts were made to check this declining (Rs in 1993-94 Prices)
trend16 (Table 3). As the student numbers were increasing, it Rs Annual Rate of Growth Index
adversely affected the per student expenditures. On the whole,
the public expenditure per student in higher education has declined 1990-91 7676 100.00
1991-92 6727 -12.4 87.64
in real prices, the index falling from 100 in 1990-91 to 84 in 1992-93 6710 -0.3 87.42
1998-99 (Table 4). Such a steep decline in real expenditure per 1993-94 6738 0.4 87.78
student is feared to be having very serious effects on the quality 1994-95 6687 -0.8 87.12
1995-96 5812 -13.1 75.72
and equity aspects of higher education. 1996-97 5619 -3.3 73.20
It can also be noted that the relative priority accorded to higher 1997-98 5692 1.3 74.15
education has drastically come down. As a proportion of GNP, 1998-99 6448 13.3 84.00
1999-2000RE 6921 7.3 90.16
public expenditure on higher education has declined from 0.55 Mean 6373 -0.8
per cent in 1989-90 (it was nearly 1 per cent in 1980-81) to 0.39
per cent in 1998-99 (Table 5). Note: RE: Revised estimate; BE: Budget Estimate.
Source: Analysis of Budget Expenditure on Education (various years), MHRD,
Similarly, of the total expenditure on education in the five- New Delhi.
year plans, the share of higher education was reduced from 18
per cent in Sixth Five-Year Plan to 7 per cent in the Eighth Five- Table 5: Expenditure on Higher Education as Per Cent of GNP
Year Plan. There is an effort to marginally correct this in the Year Per Cent
Ninth Five-Year Plan. The outlay for education in the Ninth Plan 1989-90 0.55
forms 10 per cent of the total (Table 6). 1990-91 0.49
The steep decline in public subsidies to education, higher 1991-92 0.45
education in particular, in India in the recent past could be 1992-93 0.44
1993-94 0.40
attributed more to the resource scarcity experienced by the 1994-95 0.39
government than to a belief that higher education is not important 1995-96 0.37
for development or that higher education is regressive in effect, 1996-97 0.35
1997-98 0.35
or that markets can take care of the education sector. Many people 1998-99 0.39
now realise that higher education is no more as anti-poor as it 1999-00 RE 0.47
was in the past, it is not regressive in effect, and in fact, is a 2000-01 BE 0.46
critically important factor of economic growth, besides social Source: Based on Analysis of Budget Expenditure on Education (various
mobility. years), MHRD, New Delhi.

Table 3: Budget Expenditure on Higher Education

(Rs crore)

In Current Prices In 1993-94 Prices As Percentage of Total Expenditure

on Education
Plan Non-Plan Total Plan Non-Plan Total Plan Non-Plan Total

1989-90 291.1 1918.8 2209.9 436.4 2876.8 3313.2 7.9 13.4 12.3
1990-91 245.0 2066.9 2311.9 332.7 2807.0 3139.7 7.5 12.0 11.3
1991-92 264.5 2178.9 2443.4 315.7 2600.9 2916.6 7.1 11.6 10.8
1992-93 267.4 2432.6 2700.0 293.6 2670.9 2964.5 6.7 11.6 10.8
1993-94 312.9 2790.7 3103.6 312.9 2790.7 3103.6 6.0 12.1 11.0
1994-95 524.9 3000.4 3525.3 478.9 2737.7 3216.6 8.0 11.5 10.8
1995-96 512.7 3358.7 3871.3 429.1 2811.0 3240.0 6.1 11.3 10.1
1996-97 517.8 3770.1 4287.9 403.7 2939.4 3343.2 5.0 11.2 9.8
1997-98 646.0 4213.1 4859.1 471.9 3077.3 3549.2 9.2 12.4 11.8
1998-99 701.6 5415.1 6116.7 474.4 3661.7 4136.1 7.9 12.8 11.9
1999-00RE 798.7 7390.9 8189.6 521.8 4828.6 5350.4 7.6 13.7 12.7
2000-01BE 932.1 8519.5 9451.6 586.3 5358.5 5944.8 7.9 16.1 14.6

Note: RE: revised estimate; ;BE: budget estimate.

Source: Analysis of Budget Expenditure on Education (various years), MHRD, New Delhi.

348 Economic and Political Weekly January 24, 2004

 Figure 2: Budget Expenditure on Scholarships as Per Cent free by the state. Some estimates on subsidies and rates of cost
of Total Expenditure in Higher Education recovery in education [e g, Mundle and Rao 1991; Rao and
0.55 Mundle 1992; Rao 1992; Srivastava and Sen 1997] also strength-
0.50 ened such beliefs. Based on government budgetary documents,
0.45 and considering total government expenditure and revenue re-
0.40 ceipts, Mundle and Rao (1991)18 and later Srivastava and Sen
0.35 (1997) estimated the magnitude of subsidies and rates of cost
0.30 recovery in several social and economic sectors, including
0.25
education, at all India level and by states. These studies have
reported very high rates of subsidisation and insignificant rates
0.20
of cost recovery in education. For example, according to Rao
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

2000RE
2000-
01BE
1999-
and Mundle, the recovery rate in education (all levels of edu-
cation) in 1977-78 was 2.89 per cent, and the cost recovery rate
Source: Based on MHRD.
in higher education was as low as 1.7 per cent. Srivastava and
Sen (1997) made similar estimates for 1996-97. According to
them, the rates of cost recovery were 0.3 per cent in elementary
Figure 3: Government Grants to Private Institutions
(As Per cent of Total Government Expenditure on Given Level of Education)
60 Table 6: Higher Education in Five-Year Plans
(Rs crore)
50 In Current Per Cent to Total
Prices Education
40 Expenditure

30 Sixth Five -Year Plan 530 18

Seventh Five-Year Plan (1985-90) 1201 14
20 Annual Plans (1990-92) 595 11
Eighth Five-Year Plan (1992-97) 1516 7
10
Ninth Five-Year Plan (1997-2002) 4350 8

Source: Tilak (1995) and Planning Commission (1999, 2001).

0
2000-01BE
1999-00RE
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

Table 7: Government Expenditure on Scholarships

in Higher Education
(Rs crore)
Elementary Secondary Technical Higher
Year In Current Prices In 1993-94 Prices Percentage to
Source: Based on Table 8. Expenditure
on Higher
Education
of land at concessional prices, tax exemptions on income and
tax exemptions on material used for the construction of schools, 1989-90 11.5 17.2 0.52
1990-91 11.3 15.3 0.49
etc. Explicit subsidies are direct transfer payments to schools and 1991-92 13.0 15.5 0.53
colleges. Such explicit subsidies form a significant proportion 1992-93 12.6 13.8 0.47
of the total education budget. More than one-fifth of the gov- 1993-94 13.4 13.4 0.43
1994-95 14.0 12.8 0.40
ernment expenditure on elementary education goes in the form 1995-96 14.7 12.3 0.38
of subsidies to private schools at elementary level. The corre- 1996-97 17.1 13.3 0.40
sponding proportion is nearly 50 per cent at secondary (including 1997-98 13.5 9.8 0.34
1998-99 20.4 13.7 0.45
senior secondary) level and at higher level also they are substan- 1999-00RE 23.4 15.3 0.39
tial, accounting for more than 40 per cent of the total public expen- 2000-01BE 25.2 16.0 0.35
diture on higher education (Table 8). Massive subsidies of this kind
Note: RE: Revised estimate; BE: Budget Estimate
to private schools are felt to be actually leaving very little for Source: Analysis of Budget Expenditure on Education (various years), MHRD,
government education institutions. Private schools prosper at the New Delhi.
cost of government schools and this phenomenon is described
as ‘private enrichment and public pauperisation’ [Tilak 1994].17 Table 8: Budget Assistance to Private Education Institutions,
by Levels
To conclude, the absolute amount of subsidies in higher education (Percentage to the Total Expenditure on Given Level of Education)
– total and per student in real prices, as well as in relative
proportions – share in GNP and in total expenditure on education Year Elementary Secondary Technical Higher
– has declined rather drastically during the 1990s. Subsidies in 1990-91 25.9 51.7 18.3 45.0
the form of scholarships are small in size, and they also have 1991-92 26.4 51.8 18.4 45.2
declined; and subsidies to private schools and colleges are relatively 1992-93 17.4 52.0 19.4 44.1
1993-94 16.3 51.1 20.9 44.7
high in proportion and they tend to remain so over the years. 1994-95 19.1 51.3 19.7 46.2
1995-96 23.0 50.6 19.7 47.5
1996-97 22.6 48.8 17.8 46.2
Subsidies and Cost Recovery in Higher Education 1997-98 20.9 47.6 20.0 43.7
1998-99 23.0 47.0 16.7 46.1
There has been a misconception that higher education in India 1999-00RE 18.8 50.7 17.9 44.1
is heavily subsidised by the state, unlike in the other developed/ 2000-01BE 20.0 44.8 19.4 48.1
developing countries and that students do not pay any significant Source: Analysis of Budget Expenditure on Education (various years), MHRD,
amount of fees, and/or that higher education is provided relatively New Delhi.

Economic and Political Weekly January 24, 2004 349

 Figure 4: Growth in Government Subsidies to Higher to 12.6 per cent.21 The share of endowments and other contri-
Education in India (Per Cent)
butions has not changed much; it accounted for 12 per cent in
80 72.8 75.9 1986-87.
61
It is important to note that the rates of public subsidy and the
60 53.5 cost recovery (through student fees) in India are not significantly
49.4
different from corresponding rates in other developing and
40 developed countries. Even in many advanced countries higher
education was supported by the state to the extent of 55-93 per
20 cent of the total expenditures in the late 1980s [Tilak 1997b].
Even recent evidence does not show any significantly different
0 levels. E g, in UK, Germany, Italy, Denmark, Austria, Netherlands
1950-51 1960-61 1970-71 1980-81 1986-87 and Sweden state met more than 90 per cent of the expenditure
Source: Based on Education in India. on higher education in 1995. In Canada, France and Hungary
the corresponding proportion was above 80 per cent (below 90
education, 1.46 per cent in secondary education and 1.25 per per cent); and in many other countries like Australia, Ireland,
cent in higher education – on the whole, 0.9 per cent in general Spain, Mexico, and Israel it was more than 70 per cent [OECD
education. These estimates are suspected to be very low. The 1998:102].
main problem with these sets of estimates is: they are based on Specifically on rates of cost recovery (through student fees)
budget documents of the government of India and of the states in higher education Tilak (1997a:73) compiled evidence on a
(departments/ministry of finance) both for data on expenditure large cross section of developing and developed countries, which
and revenue receipts. Generally only the tuition fees are credited shows that except in South Korea and Chile, cost recovery rates
into the treasury, while the students pay a variety of fees. Tuition in public higher education systems range between zero and 20
fee is only a small part of the total fees paid by them. The per cent; in many countries they were between 10 and 15 per cent.
expenditure also includes only the budgetary expenditure. So if In short, the available evidence shows that higher education
we consider the total fee contributions made by students and total is heavily subsidised by the state in most parts of the world, and
expenditures (or income) of the education institutions, we arrive that the level of subsidy in India is not at all high in comparison
at a different but a more realistic picture. For example, compared with others. Similarly the rate of cost recovery in higher education
to Rao’s estimate of 2.89 per cent, the rate of cost recovery in India is also fairly comparable with many other developed and
through student fees was estimated to be 9.9 per cent in case developing countries.
of education as a whole in 1977-78, and in case of higher
education it was above 20 per cent, compared to 1.7 per cent Financing of Universities
estimated by Rao and Mundle.19
As estimates on subsidies and cost recovery rates have serious While the discussion on India in the earlier section relates to
policy implications, one has to be very careful in choosing higher education as a whole, we have some recent evidence on
appropriate database and a sound methodology. Tilak (1993a) a cross section of universities in India.22 The evidence based
has argued that the appropriate database for calculation of subsidies on 39 universities in India over the decade of the 1990s presents,
or cost recovery rates in education is the data provided by the despite some shortcomings,23 a few valuable insights into the
department of education, ministry of human resource develop- problem of subsidies and cost recovery in the universities
ment (government of India), viz, Education in India and not the (Tables 10 through 12).
budget documents of the ministry of finance. Education in India There are very wide variations between the several universities
refers to the actual expenditure by levels of education, and total both in terms of level of public subsidies and rates of cost
fee income from students, in addition to other sources. It is recovery. In fact, they are so wide that any generalisation has
important that the total fee, and not just the tuition fee, should to be made very cautiously. Yet it is clear that there are several
be considered while estimating cost recovery rates and subsidy universities in India, which depend upon government subsidy
rates. Otherwise, the estimates strengthen unfounded beliefs and (in the form of grants) for more than 80 per cent of their
on the whole, give an impression that there is much, if not expenditures. But there are also many universities at the same
unlimited scope for steep increases in fees and correspondingly time, where the degree of dependence on government subsidy
for drastic reduction in public subsidies. Based on such beliefs is much lower: less than 70 per cent in case of 17 universities,
and such estimates, UGC (1993) and AICTE (1993) also re- of which 7 universities depend for only less than 40 per cent
commended that cost recovery rates in higher education through of their requirements. There are also good number of universities
student fees and other sources may be raised to about 20 per where the rate of cost recovery through student fees is high, even
cent. But available evidence shows that the cost recovery rates above 50 per cent of the total recurring expenditure.
already approach this proportion in many universities.
Unfortunately, we do not have more recent detailed data on Table 9: Sources of Funds for Higher Education in India
higher education to estimate rates of cost recovery and subsidy. (Per cent)
The latest available evidence shows that public subsidy, i e, Government Fees Others Total
government expenditure as a proportion of total (recurring) in-
1950-51 49.4 36.8 13.8 100
come, in higher education20 was 75 per cent in 1986-87 (Table 9). 1960-61 53.5 34.8 11.7 100
The corresponding proportion has increased from about 50 per 1970-71 61.0 25.5 13.5 100
cent at the time of the inception of planning in the country, i e, 1980-81 72.8 17.4 10.8 101
in 1950-51 (Figure 4). Correspondingly, the rate of cost recovery, 1986-87 75.9 12.6 11.5 100
defined as income from students’ fees (of all types) as a proportion Source: Based on Education in India (various years), Ministry of Human
of total recurring income declined from 37 per cent in 1950-51 Resource Development, New Delhi.

350 Economic and Political Weekly January 24, 2004

 Temporal comparisons during the decade also suggest that colleges under their jurisdiction, though they may not be equal
there is a marginal decline in the government subsidy in the form in number.
of grants to universities during the 1990s. The universities are The point to be noted is: students in affiliated colleges pay
compelled to decrease their reliance on government grants; and some specific types of fees (e g, examination fees) that go to
the decline is clear when the trends are compared over time and the university, and this is a part of the income of the universities.25
also between the periods, early 1990s and mid- and late-1990s, In many cases, universities generate surpluses on examination
and when the central and state universities are considered to- accounts. Hence on the whole, universities with affiliated col-
gether. The government subsidies to the central universities are leges would be able to generate more fee income than others.
obviously high. There is no sign of declining subsidies in terms There has been increase in the rates of cost recovery in many
of proportions to the central universities, though there might have universities during the 1990s. In several state universities the hike
been a decline in absolute levels of subsidies. But, in case of in fee income is more pronounced than in central universities.
a majority of the state universities, the share of government grants Fee income forms more than 20 per cent share in recurring income
in total recurring income of the universities has declined signifi- in later period in many state universities.
cantly over the years during the decade. There are also wide UGC (1993) recommended recovery of a reasonable or mean-
variations in rates of cost recovery (through student fees)24 ingful proportion of academic cost (teaching and research) from
between several universities (Figure 5). students. If this reasonable proportion is around 20-25 per cent
In general, the rates of recovery are lower in central universities of the recurring cost, (it can be seen from the actual cost of
(universities totally funded by the central government) than in universities, which on an average is around 50 per cent of
state universities (universities mostly funded by state govern- recurring expenditure), then a meaningful rate of overall rate of
ments). Even among the central universities, the rates vary. cost recovery from students would form about 10 to 15 per cent
Particularly universities that have affiliated colleges are able to of recurring expenditure. With regard to academic support cost,
generate higher levels of fees than those having no affiliated UGC recommends a substantial proportion of recovery from
colleges. This holds true in case of state universities also in students, say this substantial proportion is 60-70 per cent of the
principle; but actually many state universities have affiliated academic support cost. From the empirical estimates, it is found
Table 10: Average Income of the Universities from Various Sources (as a Per Cent to Recurring Income)
Sl No University Govt Subsidy Cost Recovery Internal Sources Other Sources
(Fee Income)
1990-91 to 1994-95 to 1990-91 to 1994-95 to 1990-91 to 1994-95 to 1990-91 to 1994-95 to
1993-94 1999-2000 1993-94 1999-2000 1993-94 1999-2000 1993-94 1999-2000

Central Universities
1 Delhi University 92.25 6.27 0.24 1.24
2 Indira Gandhi National Open University 70.06 28.28 1.66 0.00
3 Jamia Millia Islamia 85.70 79.31 0.00 0.00 7.15 10.34 0.00 0.00
4 University of Hyderabad 92.11 87.28 1.95 3.69 5.87 8.98 0.07 0.06
5 Vishva Bharathi 92.79 97.15 0.57 0.43 2.42 2.27 4.22 0.15
State Universities
6 Andhra University 80.04 84.35 17.54 15.12 2.42 0.53 0.00 0.00
7 Anna University 87.86 65.11 4.33 11.54 4.01 11.48 3.80 11.88
8 Bangalore University 73.35 57.35 22.58 40.67 0.00 0.00 4.06 1.98
9 Bhavnagar University 87.47 86.97 9.59 12.80 0.00 0.00 2.94 0.24
10 Dibrugarh University 15.29 68.94 29.36 19.87 24.41 11.19 30.95 0.00
11 Dr Harsingh University 63.42 70.28 20.08 15.59 0.84 1.05 15.66 13.08
12 Gauhati University 79.70 63.64 0.00 0.00 20.30 36.36 0.00 0.00
13 Goa University 83.27 74.57 14.70 18.27 1.72 6.71 0.31 0.52
14 Guru Jambeshwar University 66.04 20.44 13.43 0.10
15 Jai Narian Vyas University 95.54 93.57 2.54 5.11 1.93 1.33 0.00 0.00
16 Kalyani University 97.59 97.16 2.41 2.85 0.00 0.00 0.00 0.00
17 Kannur University 78.09 21.91 0.00 0.00
18 Karnatak University 83.05 65.87 13.09 28.95 3.51 4.28 0.35 0.91
19 Kumaun University 72.92 64.51 6.64 17.05 6.64 5.09 13.81 13.36
20 Maharishi University 43.32 57.80 1.56 1.44 53.97 39.58 1.21 1.20
21 Mangalore University 67.60 75.51 20.66 20.04 11.65 4.44 0.13 0.01
22 M D Saraswathi University 51.82 43.43 44.44 49.29 3.74 6.99 0.00 0.28
23 Mysore University 76.84 76.11 19.17 20.60 4.00 3.29 0.00 0.00
24 Osmania University 72.85 9.05 11.38 6.72
25 Pune University 27.70 19.96 67.15 72.35 2.13 4.56 3.02 3.13
26 Punjab University 85.49 71.04 10.81 29.26 0.00 0.00 3.70 1.08
27 Rabindra Bharathi 80.85 79.98 4.40 4.12 14.75 14.90 0.00 1.01
28 Saurashtra University 34.86 54.79 31.78 21.17 31.97 20.68 1.40 3.36
29 SNDT Women’s University 55.61 37.90 6.40 0.08
30 SV University 82.91 85.02 6.03 8.92 3.32 3.15 7.74 2.92
31 University of Calicut 52.07 58.14 39.57 26.23 8.18 15.59 0.18 0.05
32 University of Mumbai 38.90 29.85 43.68 53.88 5.91 8.23 11.51 8.06
33 University of Calcutta 85.23 87.20 11.46 11.39 3.01 1.22 0.30 0.19
34 University of Rajasthan 82.94 10.62 6.43 0.00
35 Tamil University 87.25 93.45 3.87 2.44 1.51 0.20 7.37 3.93
36 Yashwantrao CMOU 41.70 43.99 50.85 43.31 3.47 4.34 4.00 8.39
Average 71.30 70.23 16.90 19.56 7.63 7.60 3.93 2.36
Coefficient of variation 0.26 0.19 0.80 0.65 0.94 0.81 1.05 1.20

Note: blank means data not available.

Source: Tilak and Rani (2000).

Economic and Political Weekly January 24, 2004 351

 Figure 5: Cost Recovery in Selected Universities in India
(Fee as per cent of Rec Expenditure/Income) (mid/late 1990s)

Karnatka State Open

IGNOU
Pune
Mumbai
YCMO
MD D Saaraswati
Saraswati
Bangalore
Kumaun
Guru Jambeswhar
Guwahati*
Punjab
Mangalore
SNDT
Calicut
Saurashtra
Karnataka
Dibrugarh
Dr Harsingh
Goa
Andhra
Kannur
Sri Venkateswara
Mysore
Bhavnagar
Calcutta
Anna
Rajasthan
Osmania
Kuvempu
J N Vyas
Delhi
Jamia*
Hyderabad
Mangalore
Kalyani
Ravindra Bharathi
MD
Tamil
Visva Bharathi
0 10 20 30 40 50 60
Note: * includes fee and other internalsources.
Source: Tilak and Rani (2000)

that actual academic support cost ranges from 15-17 per cent The universities thus tend to finance their budgets mainly with
of recurring expenditure. A substantial proportion of this cost the help of government subsidies or through cost recovery
would be 9-10 per cent of recurring expenditure, which will have mechanisms, particularly the student fees. No third source or
to be recovered from students. With regard to costs on student fourth source seems to exist in any noticeable form. The fiscal
welfare, a full cost recovery from students is recommended. The incentives in the form of 100-125 per cent income tax rebates
expenditure on this item ranges from 2-5 per cent of recurring offered in the union budgets in the 1990s are yet to attract any
expenditure. So, the expected rate of total cost recovery from sizeable contributions from the corporate sector and other
students from all these costs would range between 20 and 25 sources.26
per cent of the recurring cost. We note that on an average fee
income already forms a share of 25 per cent of recurring cost, Fee Increases in IIT, Delhi
indicating that fee levels as a proportion of recurring income have
already reached the near maximum levels. But the Planning Following some of the recommendations of the UGC (1993),
Commission (2001b:37) still argues, “a substantial hike in the AICTE (1993) and government policies, and following cuts
university fees is essential”. in public subsidies, many universities and higher education
The contribution of other internal sources, and other sources institutions have initiated in the 1990s several efforts to generate
is not significant either in the central or in the state universities. additional resources. Increase in the cost recovery rate through
Table 11: Distribution of the Universities by Share of Government Subsidy (Grants) in Income of Universities*
>80 Per Cent 70-80 Per Cent 60-70 Per Cent 50-60 Per Cent 40-50 Per Cent 20-40 Per Cent <20 Per Cent

Andhra Anna Dibrugarh Bangalore Mumabi Kuvempu

Bhavnagar Dr Harsingh Guahati Calicut Guru Jambeswar K’ka State Open
Calcutta Goa Karnataka Saurashtra MD Saraswati
Delhi Kannur Kumaon YCM Open
Hyderabad Mangalore Maharshi Pune
IGNOU Mysore Dayanand
Jamia Osmania Punjab
J N Vyas Sri Venkateswara SNDT
Kalyani
Ravindra Bharati
Rajasthan
Tamil
Viswa Bharati

* latest year available.

Source: Tilak and Rani (2000)

352 Economic and Political Weekly January 24, 2004

student fee has been one such effort. Student fee of various kinds in government and government assisted primary and upper primary
has been raised by several times. As an illustration, we can note schools, in addition to incurring huge expenditures on their own
that in the Indian Institute of Technology (Delhi) tuition fee was on several other school-related items [Tilak 1996, 2000a, b,
raised by 3-12 times between 1993-94 and 1998-99; additional 2002].
fees are charged on some items (Table 13).27 Fee subsidies include not only provision of tuition fee free
As a result of introduction and increase in fees, the total fee education, but also provision of fee exemption in full, or in part.
income of the institute has increased by more than 50 times during According to the NSSO (1998), 92 per cent of the students in
the period, and quick calculations, based on the budget documents
of the institute, reveal that the rate of cost recovery increased from Table 14: Cost Recovery in the Indian Institute of Technology,
Delhi through Student Fees
2.5 per cent in 1993-94 to 7.6 per cent in 1998-9928 (Table 14). (Rs lakh)
In many universities and institutions, fee increases have been
erratic and unsystematic, with substantial increases in the fees 1993-94 1998-99
for every item, including application/registration fee, marks sheets Tuition fee 2.87 356.1
and convocation fees, transfer certificate, etc. Many new types Examination fee 2.26 6.47
of fees are introduced for services that were earlier not directly Registration fee * 10.94
Gymkhana fee * 2.53
charged or delivered free. In addition, several universities and Medical fee 0.17 1.26
institutions have introduced self-financing courses, mainly, though Hostel (rent, electricity, water, etc) 1.43 34.15
not solely, to generate more resources from students. Admission and other fees 0.07 12.07
Such fee reforms in many universities and institutions of higher Fines 0.15
Convocation fees 0.15
education may produce serious effects on the demand for edu-
Total 6.8 418.92
cation. Detailed studies are not yet available on the impact of Total per cent of total non-plan expenditure 2.5 7.6
the fee reforms on demand for education. Many fee reforms
* included in Admission and Other Fees
involving steep increases in fees were introduced only in the
Source: IIT (1994, and 1999).
1990s. But it is feared that this might affect (a) the overall demand
for higher education, (b) even if (a) is not true due to the Table 13: Fee Reforms in the Indian Institute
phenomenon of excess demand, it would affect the demand from of Technology, Delhi
(Rs per annum)
middle and low income group students, and (c) adversely impact
the demand for certain disciplines of study adversely affecting 1993-94 1998-99
the balanced growth of various disciplines of higher education. Tuition fee
All may have negative consequences on the development of B Tech (I and II year) 1000 12000
higher education.29 B Tech (III and IV year) 200 6000
M Sc (I and II year) 1500 6000
M Tech 1500 11800
IV PhD
MBA
1000
..
11800
60000
Distribution of Some Specific Subsidies Foreign nationals .. $4,100
Examination fee
There is a general impression that most education subsides in Postgraduate students/PhD 400 600
Under graduate students 400 700
India are indiscriminately distributed among students, irrespec- Registration fee
tive of their social and economic background. How far is it true? *
Under graduates 400
NSSO (1998) provides, based on a national sample survey of Postgraduates/PhD 600
MBA 3950
households conducted in 1995-96, certain interesting details on Gymkhana fee 200
this aspect. *
Medical fee 60 100
Hostel (rent, electricity, water, etc)
Under graduates (I and II Yr)//(I Yr) 450 1600
Fee Subsidies Under graduates (III and IV)//(II - IV Yr) 300 600
Postgraduates/PhD I year 1700
First, distribution of fee subsidies. Contrary to the general Postgraduates/PhD II year + 600
Admission and other fees**
impression, and official claims, even elementary education, which B Tech and MSc 70 1000
is expected to be provided free as per the Constitutional Directive, Postgraduate and PhD 70 1200
is not provided free. ‘Free’ education is defined as free of tuition * included in Admission and Other Fees
fee. Any other type of fees could be charged even in case of ** one time payment at the time of admission
‘free’ education. A good proportion of children do pay fees even Source: IIT (1994, and 1999).

Table 12: Distribution of Universities by the Rate of Cost Recovery (through Student Fees)*
< 5 Per Cent 5-10 Per Cent 10-20 Per Cent 20-30 Per Cent 30-40 Per Cent 40-50 Per Cent > 50 Per Cent

Hyderabad Anna Andhra Calicut Guru Jambeswar Bangalore Mumbai

Kalyani Delhi Bhavnagar Goa Punjab Karnataka State Open
Maharshi Dayanand J N Vyas Osmania Calcutta Kannur SNDT Women’s
Dibrugarh Karnataka Kuvempu
Ravindra Bharati Dr Harsingh Kumaon M D Saraswati
Tamil Rajasthan Mangalore Pune
Viswa Bharati Sri Venkateswara Mysore YCM Open
Saurashtra
IGNOU

* latest year available.

Source: Tilak and Rani (2000)

Economic and Political Weekly January 24, 2004 353

 Figure 6: How Many Do Get ‘Free’ Education? (1995-96) to the bottom quintile and about 80 per cent of the second quintile
100 from bottom do not get any fee subsidy in higher education!

80 Other Subsidies

60 Now about other specific subsidies. Other specific subsidies

Per cent

to students are monetary scholarships, books and stationery free

40
or at concessional prices, noon meals and transport at concessional
prices.31
20
Though exact details are not available on these subsidies by
levels of education and household expenditure groups, it can be
0
safely assumed that some of these subsidies, generally known
Poorest Quintile 2nd Quintile 3rd Quintile 4th Quintile Richest Quintile as incentives, particularly, books, stationery and noon meals are
Poorest Quintile 2nd Quntile 3rd Quntile 4th Quintile Richest Quintile
provided only in primary and upper primary schools. Scholarships
Primary Middle Secondary Higher and subsidised transport may refer to other levels of education
as well, including higher education. 32 Available evidence shows
Source: NSSO (1998). that textbooks, stationery and noon meals are provided only to
a small fraction of students, though they are expected to be
government primary schools, 88 per cent in upper primary schools provided on a universal basis to all children enrolled in schools.
and 72 per cent in secondary schools received free education in Distribution within this fraction seems to be progressive: lower
1995-96 (Table 15). Only one-fourth of the students in higher expenditure groups benefiting more than the higher expenditure
education belongs to this category. In higher education another groups (Table 17).
4 per cent of students are fully exempt from payment of fees There does not seem to be a clear pattern with respect to
and yet another 4 per cent get partial exemption. So in all, only scholarships. Seven per cent of the students in each of the first
one-third of the students in higher education receive education, four expenditure quintiles seem to receive subsidies in the form
which is either free or they are exempted from payment of fees of scholarships and among the students of top expenditure quintile,
in full or in part; the rest – i e, about 66 per cent of the students this proportion is marginally less, 5.7 per cent. Distribution of
pay the prescribed fees in full. subsidies on transport seem to favour the rich, though the re-
Distribution of students receiving free education by household spective proportions of students benefiting in all expenditure
expenditure quintiles30 (Table 16) shows that the fee subsidies groups are very small.33
are progressively distributed, more students among the low- In all, many of the subsidies are not made available to all
income groups and fewer students from high income groups students. Fee subsidies in elementary education are substantial
receiving such subsidies.
At each level of education, the proportion of students receiving Table 15: Distribution of Fee Subsidies, by Type of Schools,
free education falls again systematically by increasing expendi- 1995-96
ture quintiles. For example, 85 per cent of the children belonging (Per Cent of Students Receiving Subsidies)
to the lowest household expenditure quintile receive free primary Type of Fee Level of Govern- Local Private Private All
education. The corresponding proportion declines marginally to Subsidy Education ment Body Aided Unaided
81 per cent in the second quintile (from bottom), to 77 per cent Schools Schools Schools Schools
in the middle 20 per cent, 73 per cent in the fourth quintile and ‘Free’ Education Primary 92.8 88.2 46.1 8.1 77.2
finally to 60 per cent in the richest expenditure quintile. A similar Middle 87.9 79.8 54.3 8.3 73.3
pattern could be noted in case of secondary education. Secondary 71.8 66.6 51.3 13.4 60.6
In case of higher education, the largest proportion of students Higher 24.6 21.2 9.7 6.0 18.8
Fee Exemption –
receiving free education belongs to the second quintile from Full Primary 0.4 0.1 1.3 0.5 0.5
bottom: 21 per cent. This proportion declines gradually to 12 Middle 1.4 5.1 8.1 0.9 3.0
per cent in the richest expenditure quintile. Only 15 per cent of Secondary 2.7 8.9 10.4 2.1 5.4
the bottom quintile receive fee subsidy in the form of free Higher 4.1 10.2 8.7 2.7 5.9
Partial Exemption
education. Except for this sole deviation, which is also minor
in Fees Primary 0.3 0.2 0.7 1.6 0.5
(and it is within the bottom 40 per cent group), all this strongly Middle 0.7 0.4 0.7 0.9 0.7
suggests that the fee subsidies are progressively distributed in Secondary 1.4 1.6 0.8 0.7 1.2
all levels of education in India. Higher 4.0 4.1 4.9 1.5 4.2
Percentage of students receiving free education declines sys- Source: NSSO (1998, p 23).
tematically by increasing levels of education. For example, while
60 per cent of the students belonging to the top expenditure quintile Table 16: Distribution of Fee Subsidies (Free Tuition) by
receive free education at primary level, this proportion declines Household Expenditure Group, 1995-96
(Per Cent of Total in Each Quintile)
to 62 per cent in middle (upper primary) education, to 49 per cent
in secondary (including senior secondary level) and to a meagre Household Expenditure Quintile Primary Middle Secondary Higher
12 per cent in higher education. This declining pattern holds for Poorest quintile (00-20) 84.5 79.2 71.5 14.5
every expenditure quintile. So one can say with confidence that Second Quintile (20-40) 81.1 77.0 66.4 21.4
in terms of proportion of students benefiting from fee subsidies, Middle Quintile (40-60) 77.4 74.0 63.1 16.2
the degree of subsidisation is the highest at primary and lowest Fourth Quintile (60-80) 72.5 71.4 57.2 15.9
Richest Quintile (80-100) 60.4 62.1 48.5 12.3
at higher education, which is what many are advocating. But this
also shows that as many as 85 per cent of the students belonging Source: NSSO (1998, p A17).

354 Economic and Political Weekly January 24, 2004

 Figure 7: Distribution of Specific Subsidies (1995-96) case of higher education (it is a ‘merit 2’ good); and (c) higher
education caters to the needs of the affluent and government
40
Poorest Quintile
Poorest Quintile 2nd
2ndQuntile
Quintile should not subsidise the education of the affluent. All the three
3rd Quntile
Quintile 4th
4thQuintile
Quintile premises are open to empirical verification. While few could
Richest Quintile
Richest Quintile
exactly quantify the extent of externalities produced by any
30 level of education, it is also being realised that higher education
produces important externalities, including dynamic exter-
nalities, which are important for development of the societies,
Per cent

20 including specifically for rapid economic growth. Certainly

there is no evidence to show that externalities are larger in
case of a given level of education than in case of other levels.
10
Similar arguments are also made in case of merit good nature
of education. The initial attempt of the government of India
(1997) was found to be defective, and was widely criticised on
theoretical as well as empirical grounds. Thirdly, it is quite
0 possible that higher education is received more by relatively
Noon
Noon Meals
Meals Books
Books Stationery
Stationery Scholarships
Scholarships Transport
Transport better off sections of the society; but any attempt to reduce
Source: NSSO (1998). subsidies would aggravate this problem further. Moreover, it is
strongly felt by many that essentially due to public subsidisation
in terms of number of students benefiting, though all students
of higher education, today higher education in India is no
do not receive them. Among those who benefit, the distribution more elitist; it is somewhat democratised with a large pro-
seems to be progressive. Other subsidies such as textbooks,
portion of socio-economic weaker sections participating in higher
uniforms, and transport are also provided only to a small fraction education. Many also find that such a fragmented approach to
of students. Among them subsidies on textbooks, stationery and
education – bifurcating and tri-furcating education into primary,
noon meals are fairly well distributed, the distribution favouring secondary, and higher education – for purposes of policy, es-
the low-income groups more than then rich. But the distribution
pecially for policies on public subsidies, would be counter-
of subsidies on transport received by a miniscule of the student productive [UGC 1993]. After all, all levels of education are
population seems to be pro-rich.
important and they are interdependent. It may not be logical to
withdraw subsidies from one level of education and allocate in
V favour of the other, as all levels of education in India are severely
Issues and Conclusions under-financed.
It was shown here that the trends in public expenditures on
Education is subsidised by the state in almost all countries of education in the 1990s have been particularly disturbing: the
the world. This is not confined to basic education. Even higher growth in public expenditure on education in the 1990s has been
education, including higher technical and professional education, very small. As a proportion of GNP it has declined from above
is heavily subsidised by the state not only in the economies whose 4 per cent in the late 1980s to 3.6 per cent in the late 1990s.
development policies tilt explicitly in favour of welfare and Higher education suffered more severely in terms of public
equity, but also in the developed market economies. This has subsidies. Public expenditure per student declined by nearly 25
been justified by the recognition of education as capable of per cent in less than a decade in real prices. Specific public
producing externalities, as a public good (and as a quasi-public subsidies such as scholarships registered a downward trend in
good in case of higher education), as a merit good, as a social absolute amounts and also in relative allocations. Subsidies to
investment for human development, and as a major instrument private education institutions have been substantial, though the
of equity, besides as a measure of quality of life in itself. It is contribution of the private sector is not established.
also well noted that markets cannot ensure optimum supply of On the whole, while elementary education is nearly totally
education, and that left to the individuals or the market mecha- financed by the state, government subsidies in higher education
nism, social investment would be below optimum or socially amounted to only 75 per cent in the late 1980s. More recent
desirable levels. But in the current wave of market reforms, evidence shows that many universities are experimenting with
questions are being raised on the rationale of public subsidies, cost recovery measures, generating resources from student fees,
and it is also being indicated that it is both desirable and feasible and other non-governmental sources. The effects of these cost
to reduce, if not eliminate altogether, the public subsidies in the recovery measures on the quantity, quality and equity in higher
education sector. This paper has presented a quick review of some
of these arguments being made in favour of and against public Table 17: Distribution of Other Specific Subsidies in Education
subsidisation of education and restated how important it is to (All Levels of Education)
(Per Cent of Total in Each Quintile)
subsidise education by the state. It is argued that significant
reduction in public subsidies to education is neither feasible, nor Household Scholar- Free or SubsidisedGovern- Conces-
desirable, even if feasible. Expenditure Quintile ships ment sion in
Books Stationery Midday Transport
While opposition to public subsidies to school education is Meals
not strong, many strongly advocate against subsidisation of
Poorest Quintile (00-20) 7.0 35.2 6.7 23.5 0.8
higher education. The argument is based, inter alia, on three Second Quintile (20-40) 7.4 32.1 4.0 20.7 1.5
important premises: (a) externalities associated with basic edu- Middle Quintile (40-60) 7.1 28.6 4.1 18.1 2.0
cation are high; but they may not be so high in case of higher Fourth Quintile (60-80) 7.1 23.7 3.8 15.8 3.4
Richest Quintile (80-100) 5.7 13.7 2.2 10.9 8.3
education; (b) similarly basic education could be a merit good,
while the merit good nature in higher education may be less in Source: NSSO (1998, p A103).

Economic and Political Weekly January 24, 2004 355

education in India are yet to be examined. Distribution of a few student loans. Student loan programmes are particularly becom-
specific subsides such as ‘free’ education, fee exemptions/con- ing popular in many countries, though loans as a mechanism of
cessions, textbooks, stationery and noon meals in elementary public subsidisation of education are also associated with certain
education was found to be highly progressive, the poor benefiting inherent weaknesses, apart from poor rates of recovery/repay-
more than the rich, though in all their availability is restricted ment [Tilak 1999b]. In India too, in the recent years, many
only to a fraction of students. commercial banks have launched student loan programmes, and
Before we conclude, a few important issues on public subsidies the efficiency with which they work and efficacy of these
to education are worth noting. First, how much should be the programmes are yet to be examined. While there is some pref-
public subsidy? As already noted, the pure public and merit good erence to link grants to the performance, it may be useful to
nature of school education justifies 100 per cent government thoroughly examine various types of grants to the institutions
financing of school education. As theory does not provide any – block grants, maintenance grants, etc, versus performance/
clue beyond this, one has to draw lessons from international efficiency related grants.
experience, particularly relating to public subsidies in higher Nowadays it is increasingly suggested that public subsidies
education. International evidence both from developed and need to be targeted to the poor. While the scope for targeting
developing countries indicates, though wide variations exist, various kinds of pubic subsidies in education sector may have
extensive degree of public subsidisation of higher education. The to be carefully examined, it has to be noted that even in elementary
evidence also indicates rather low levels of cost recovery through education, many subsidies like textbooks, learning material,
student fees – about 20 per cent, except in case of private higher uniforms, and attendance scholarships are de facto targeted to
education systems. These evidences suggest that perhaps it is the poor only. Subsidies such as midday meals and tuition fee
neither desirable nor feasible to sharply reduce public subsidies free education are expected to be provided on a universal basis
to low levels, and to increase cost recovery rates significantly due to either administrative cumbersomeness involved in target-
in developing countries like India. ing them, or due to enormous gains in equity. But they are also
However, the international experience also shows varied types received only by a small section of students; and within this small
of experimentation with alternative methods of pubic subsidisation section however, the distribution is pro-poor. Thus they also seem
of education. The paper has not discussed alternative ways of to get targeted. In higher education subsidies such as scholarships,
public subsidies like grants to the institutions versus grants to and loans until recently (when the government was operating the
the students, or various methods of grants to institutions.34 loan programmes) [Tilak 1992], were targeted to the economi-
Proposals being discussed in this context include outright grants, cally needy only.35 Similarly fee exemptions – partial or full,
tuition subsidies, cost of living subsidies, voucher schemes, and are also targeted. At the same time, the need for a properly

356 Economic and Political Weekly January 24, 2004

designed discriminatory fee system was felt time and again [Tilak 2 It was based on a background study by Srivastava and Sen (1997).
and Varghese 1985; Tilak 1995b]. However, it was also shown 3 See several papers in AIU (1998) for a critique of Government of India
(1997). The several papers concentrate on education.
that a well-designed discriminatory fee system would yield at 4 Taking into consideration the strong criticism, higher education was
best about 30 per cent of the recurring expenditure in higher reclassified as ‘Merit 2’ good, while school education was termed as
education in India. This would also be subject to efficient ‘Merit 1’ good. It was recognised that Merit 2 goods also need to be
administration of the same. At the same time, the experience of subsidised but the extent of subsidy could be much less than that in
case of Merit 1 goods. See Srivastava and Amarnath (2001) and Srivastava
developing countries like India shows that the costs of committing and Rao (2002).
errors in targeting – both omission and commission – in public 5 Some of these issues were discussed in detail by the author elsewhere.
services are quite high, the costs on account of errors of omission See Tilak (1991, 1999a) on privatisation, and Tilak (1995a) on financing
being more severe than the other, apart from high costs of their of school education and Tilak (1996a) on higher education.
6 On dynamic externalities, see Schultz (1988), Romer (1986 and 1990)
administration; and hence universalism is preferred to targeting. and Lucas (1988). See also Azariadis and Drazen (1990) and Behrman
To conclude, it is very clear from a review of experience in (1990) for a discussion on ‘technological’ externalities.
India that essentially due to public subsidisation of education, 7 Lommerud (1989) provides further justification for public subsidies to
including higher education, today even higher education in India education in terms of lifetime utility that includes value for social status.
is no more elitist; it is somewhat ‘democratised’ with a large pro- 8 There are very few who do not recognise externalities of education. For
example, according to West (1965) the externalities are ‘completely
portion of socio-economic weaker sections participating in higher unimportant’. Schultz (1972) opined that many benefits go to the concerned
education. This also helped in the creation of a large reservoir student only; and Newman (1985:24) feels that a large proportion of
of scientific and technical personnel. Secondly, education is benefits of higher education goes to a relatively small group of students.
rightly and increasingly viewed in India as the only effective 9 Arrow (1993), however, adds that the gains in efficiency are at the cost
of inequities which may take the form of elitism, which needs to be
instrument of socio-economic mobility of the weaker sections checked though appropriate policies.
of the society. Thirdly, it is also widely recognised that education 10 In case of higher education, Blaug agrees that of the above, externalities
is an important factor of economic growth, and it is education and imperfections in capital and insurance markets are relevant.
that makes the basic difference between the developed and the 11 Cost-benefit analysis is regarded to be a useful tool in this regard to
estimate optimum level of subsidies, but only in case of those sectors
developing countries. Fourth, the intrinsic value of education in where accurate informatiton is available on social and private demand
improving the quality of life is also increasingly recognised. All functions, cost functions, and the weights the society might attach to
this viewed in the broad context of relatively low levels of living distributional objectives. See, e g, the Appendix 2 in Srivastava and Rao
of the people, and given other sociopolitical considerations, (2002).
12 Conversion into real prices is based on national income deflators (GNP
makes the need for pubic subsidisation of education obvious. at 1993-94 prices). Source: Government of India (2002).
Thus it becomes imperative that the state continues to take a 13 This intra-sectoral allocation is based on expenditure incurred by the
major responsibility of subsidising education. All other sources Departments of Education only. Expenditures incurred by other
of finances, including fees, should be viewed only as peripheral departments on education is not included here, as required data are not
ones, supplementing public expenditures. Increasing reliance on available.
14 The various sources of finances for education are classified in the official
student fees may produce regressive effects in the system, as documents (e g, Education in India) into four categories: government
already the levels of fee income (as a proportion of total recurring (central and state), Local Bodies, Fees and Endowments and others.
income/expenditure) are high in several universities and insti- 15 No break up is available between fees and endowments and others at
tutions of higher education. Similarly generation of internal primary and upper primary levels.
16 The data for the last two years, viz, 1999-2000 and 2000-01 are not
revenues through consultancy and interactions with industry actuals; they are respectively ‘revised’ and ‘budget’ estimates. Often we
in institutions of higher education may produce imbalances find considerable difference between the budget estimates, the revised
in the universities across various disciplines of study. Hence, estimates and the actuals.
all efforts of mobilisation of resources have to be made extremely 17 Even advocates of privatisation of education might agree that private
education of this kind, with price controls and cost under-writing through
cautiously, so that aspects relating to equity, efficiency and heavy subsidies, is one of the ‘worst forms of privatisation’ [Ravishankar
excellence in university education in India are not adversely 1989; quoted in Sen 1993:182].
affected. While experimentation with alternative methods of 18 See also Rao and Mundle (1991) and Rao (1992).
generation of additional resources, and also with alternative types 19 See Tilak (1993a, 1993b) for an elaborate comment on these estimates.
20 Higher education includes not only universities (and deemed universities)
of public subsidisation may have to be made, the best method and colleges, but also institutions of national importance, other research
of financing education, including higher education, may still institutions.
seem to be financing by the state out of its tax and non-tax 21 The increase in public subsidies and the corresponding reduction in cost
revenues [Tilak 1997a]. EPW recovery rates through student fees, were due to a deliberate policy
adopted by the government after independence for producing skilled
manpower required by the economy on the one hand, and for
Address for correspondence: ‘democratisation’ of education on the other and both purposes seem to
jtilak@vsnl.com have been served somewhat significantly [Tilak, 1999a:115].
22 See Tilak and Rani (2000) for details.
Notes 23 These universities are not selected on any scientific basis. Data are
collected from universities participating in a training programme being
organised by NIEPA during the decade of the 1990s. Data are also not
[This is a revised and updated version of the paper presented in the Conference available for all the 10 years for all the universities considered here. The
on ‘India: Fiscal Policies to Accelerate Economic Growth’, organised by time period was broken for analysis into two parts: early years of
National Institute of Public Finance and Policy, New Delhi, Department for economic reforms (1990-91 to 1993-94), and later years (1994-95 to
International Development, London and the World Bank, in consultation 1999-2000), as shown in Table 10.
with the Ministry of Finance, Government of India, New Delhi (May 21-22, 24 Cost recovery, through other methods like generation of other internal
2001). The comments by V N Kothari, Tapas Majumdar, G Thimmiah, source of income, is not considered here.
D K Srivastava and other participants of the conference are gratefully 25 On the expenditure side also universities do expend on conduct of
acknowledged. Usual disclaimers apply. An abridged version of the earlier examinations of the students enrolled in affiliated colleges, along with
version of the paper is to appear in a conference based volume. the students enrolled in their respective universities.
1 See van de Walle and Nead (1995) for a large set of papers, which mainly focus 26 Institutions are also offered incentives to generate such resources, that
on reforming public subsides in several sectors in developing countries. grants would not be offset by such income; in fact, a matching grant

Economic and Political Weekly January 24, 2004 357

 to match the level of income so generated, was also offered. Eckaus, R S (1964): ‘Economic Criteria for Education and Training’, Review
27 Data on 1993-94 were briefly analysed earlier by Tilak (1996b). of Economics and Statistics, May: 181-83.
28 It was 8.6 per cent in 1997-98 (revised estimate). Eicher, Jean-Claude and T Chevaillier (1993): ‘Rethinking the Finance of
29 For example, it was reported that with steep increases in fees in the Indian Post-Compulsory Education’, International Journal Educational
Institute of Technology, Delhi, a decline of more than 37 per cent in Research, 19 (5): 445-519.
enrolments in postgraduate courses in a year was noted. As an immediate Fischer, Frederick J (1990): ‘State Financing of Higher Education: A New
response, a 50 per cent waiver in fees for all PhD scholars and another Look at an Old Problem’, Change, 22 (1), January-February: 42-56.
25 per cent waiver on a case-to-case basis to students were to be Friedman, Milton (1955): ‘The Role of Government in Education’ in Robert
considered by the Institute. These were in addition to other relaxations Solow (ed), Economics and the Public Interest, Rutgers University Press,
in case of admissions into postgraduate and research courses. Times of New Brunswick, NJ, pp 123-53.
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30 NSSO provides data on expenditure quintiles, rather than on income Government of India (1997): Government Subsidies in India, Ministry of
quintiles. Data on household expenditure is generally believed to be more Finance, New Delhi, May.
reliable than on household income. – (2002): Economic Survey 2001-02, Ministry of Finance, New Delhi.
31 School uniforms are also provided to the students in primary schools; Gupta, Sanjeev, M Verhoeven and E Tiongson (1999): ‘Does Higher Government
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32 Tilak (2002) found that incentives such as free textbooks, meals and Paper WP 99/21, International Monetary Fund, Washington, DC.
uniforms have a strong, significant and negative effect on household Hinchliffe, Keith (1993): ‘Neo-Liberal Prescriptions for Education Finance:
expenditures on education in schools in rural areas, and consequently Unfortunately Necessary or Inherently Desirable?’, International Journal
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33 Subsidised transport may be important more in case of higher education Hu, The-Wei, J J Kaufan, Maw Lin Lee and Ernst W Stromsdorfer (1969):
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(1995) for a discussion on alternative methods of financing higher IIT (Indian Institute of Technology) (1994): ‘Revised Estimates 1992-93
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