CHAPTER 6 FINANCING HIGHER EDUCATION IN INDIA IN THE ERA OF GLOBALIZATION

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1 CHAPTER 6 FINANCING HIGHER EDUCATION IN INDIA IN THE ERA OF GLOBALIZATION Higher Education determines its (India s) economic and technological progress Government funding must continue to be an essential and mandatory requirement for support to higher education. The Government/State must continue to accept the major responsibility for funding. 6.1 Introduction Report of Justice Dr K Punnayya Committee on UGC Funding of Institutions of Higher Education (1993) Higher education plays very significant role in all round development of the nation, as it empowers the individuals with necessary competence for achieving important personal, social and higher level of professional goals. It is inscribed as a vital factor for survival; it provides people with an opportunity to reflect on the critical, social, economic, cultural, moral and spiritual issues facing humanity (National Policy on Education, 1986). The above study shows the relative importance of higher education. But policies and approach adopted by government after implementation of economic reforms are not favourable to the higher education. Progress of higher education in India has been predominantly based on state support; but the presence of the state in public welfare activities suffered severe erosion since 1991, when India adopted Structural Adjustment Programme in the wake of globalization (Tiwari & Kumar, 2011). The process of structural change in the education sector in the country started with the adoption of New Education Policy in the mid-eighties (GOI, 1986; GOI 1991) and gained momentum with New Economic Policy in 1991, which include Liberalization, Privatization and Globalization (LPG) process. The process of economic reforms widened and deepened over the period and almost all sectors experienced substantial changes with globalization and privatization. The economic reforms in their stabilization phase have worked through the controlling of fiscal deficits. The public authorities at various levels tried to maintain the overall level of public expenditure by adjusting the expenditure levels across the various sectors (Gill 188

2 & Brar, 2009). The education sector in general and higher education in particular has suffered setbacks and actually experienced the resource loss. These adjustment policies also bring imbalances among different levels of education. With the accomplishing goal of universal elementary education, the government directs the shift of resources from higher to primary education. While it is essential that the nation should achieve universal elementary education and total literacy, but at the same time it cannot afford to neglect higher education in the era of globalisation. Financial resources play an important role in the expansion and growth of the educational sector which is not only restricted to government spending but households, non-governmental agencies and corporate investment contributes significantly. But the role of the government still remains pervasive and important. On the recommendation of Education (Kothari) commission (1966), the Government of India quantitatively fixed the target of investing 6 per cent of Gross National Product (GNP) on education by the public exchequer by But the goal of allocating 6 per cent of (GNP) on education remained elusive. Currently, India spent 4.54 per cent of GDP on education. There are a number of studies covering financing of higher education in India. But all these studies are descriptive in nature and analysed this by examining trends and patterns of financing higher education from various aspects and ways. There was a lack of any comprehensive study which empirically examined the impact of globalisation on public expenditure on higher education in India. This study is an attempt to fill the gap. In the first section, the study analysed public expenditure on education both at the global and national level. Further, this study examines the pattern and trend of public expenditure, focussing on total, plan, and non-plan expenditure on higher education in India at current and constant prices (at prices) made by government. The study also analyse the pattern of intra-sectoral allocation of resources on education sector in Five Year Plans, which reflect the changing priorities in education sector. Further this study analysed the role of centre and state in financing higher education in India at current and real prices. The study also discusses per-student expenditure on higher education in India both at current and constant prices. Finally in this section, the study discusses the factors for deceleration in public 189

3 expenditure on higher education in India. In the second section, impact of globalization on public expenditure on higher education as percentage of GDP in India has been analysed. This section ends with empirical results and discussion. Finally, the chapter ends with a short summary and a few concluding observations. Section I 6.2 Trends in Public Financing of Education in Developed and Developing Countries Before analysing the behaviour of educational expenditure in India over the years, it may be interesting to make a comparative study of the expenditure on education in the so called developed and developing countries of the world. Table 6.1 shows expenditure on education as a percentage of Gross National Product (GNP) among developed and developing countries. From this table, it is evident that in terms of expenditure on education as a percentage of GNP, India is far behind developed countries and even some developing countries, which are spending more. The country in which expenditure on education as a percentage of GNP has gone up during the period 1985 to 2008 is Denmark, USA and UK. The countries where the percentage has gone down over the said period are Netherlands, Italy, Germany, Japan and Australia etc. Canada share s on educational expenditure as percentage of GNP was 6.6 per cent in 1985 which slightly rose to 7.0 per cent in 1996 but after this year a continuous declining trend has been observed. Among the developed countries of the world roughly 5 to 8 percentage of GNP was spent on education. Incidentally in India, educational expenditure as percentage of GNP has remained constant during the period 1985 to 1996, i.e., it stood at 3.4 per cent in both the years, but it increased at 4 per cent in 1999 and it declined in the year Though according to the Report of the Education Commission (1966), this expenditure should have been raised to 6 per cent of GNP. Although it is nearly five decades now, but the target set by the Education Commission has yet to be realized. It is evident from Table 6.1 that out of 13 developing countries, the share of 8 countries expenditure on education as a ratio of GNP has increased for the period but these countries have registered a fluctuating trend thereafter. The countries whose share has decreased after 1996 were China, South Africa and Zambia 190

4 but simultaneously Mexico and Thailand share has increased in this period but with a lot of fluctuation. India s share of GNP on education is not impressive but it is only better than the figures of Pakistan and Bangladesh. In South Asia, Bangladesh and Pakistan devotes only 2.6 per cent and 2.7 per cent of their respective GNP on education in The analysis does not find a steady progress in many countries with respect to this indicator. In fact, in a good number of countries, this proportion has declined between 1999 and Thus, it is clear from the table that, many countries in the developing world are spending relatively lesser amount on education as compared to India. But at the same time, it has been well proved that even at comparatively very high level of development and well-being countries such as France and USA have shown their strong consistency in public spending (close to 6 percentage of their GNP) and few developing countries are also devoting high proportion of their GNP on education. Table 6.1: Trends in Public Expenditure on Education as a Percentage of GNP (Developed and Developing countries vis-à-vis India) Country Developed Country Developing Canada Mexico USA Malaysia Japan Columbia Australia Thailand UK Russian Federation France Brazil Finland Jamaica Germany Zambia Denmark Bangladesh Rep of Korea Pakistan Netherlands South Africa Italy China India India Note:.Data not available. Source: i) UNDP: Human Development Report ii) Global Monitoring Report (GMR) 2008, 2009 & Though, public expenditure on education in India has increased after independence. But still this growth has not been sufficient or satisfactory 191

5 6.3 Components of Expenditure in India The educational budget in India is generally, divided into two heads: i.e. plan (also called developmental) and non-plan (also called committed) expenditure. Plan expenditure is that part of total budget expenditure, which is meant for financing the schemes and programmes especially framed under the current five-year plan or the unfinished tasks of the previous plans. So the plan expenditure indicates the direction of changes in the education sector. Plan expenditure is mainly for development purposes, such as the building of new schools or the introduction of new programme in a school (Varghese & Tilak, 1991). While non-plan expenditure is designed for the maintenance of the system. It is the expenditure on operating and maintaining existing education infrastructure. So at the end of a five year plan, the recurring parts of plan expenditure on different programmes or schemes become part of non plan expenditure, which, in turn, enhances the non-plan component of the education budget. Non-plan expenditure is expected to increase steadily over the years. 1 Plan expenditure on education is relatively small in size and a huge proportion of expenditure on education is of non-plan in nature. While both plan & non-plan expenditures are important for the growth of education sector. Another distinction is between expenditure on Revenue Account and Capital Account. The Revenue Account consists of the expenditure incurred on items such as administration, direction, and inspection; salaries of teaching and non-teaching staff; scholarships and students aid programmes, maintenance of buildings, apparatus, equipment and furniture; laboratory consumables; games and sports; and teaching and learning material, etc. This type of expenditure has to be incurred every year in order to run the system and hence is called the recurring expenditure also. The Capital Account includes the expenditure made on the construction of buildings, libraries and laboratories; purchase of equipment and furniture, etc. it is also known as nonrecurring expenditure. It actually represents the physical capital formation side of education system. It is to be noted that out of total public expenditure on higher education in the country by all states and union territories, the proportion of 1 In the education sector, salary of teachers and administrative staff (other than those recruited under plan schemes), expenditure on repair and maintenance of schools, expenditure on replacement of non-functional teaching equipment and similar items are non-plan expenditure. Expenditure on construction of new schools, additional classrooms, new toilets, salary of additional teachers and non-teaching staff etc come under Plan expenditure. 192

6 expenditure incurred under capital account was very minuscule for example, just (1.82 per cent) during (MHRD, ). Expenditure accrued under capital account has not been included in the study because the bulk of expenditure on education in India is on revenue account and very little amount is incurred on capital account. 6.4 Public Expenditure on Education in India According to Schultz (1961), Education Commission (GOI, 1966) and the National Policy on Education (1968), expenditure on education is as an investment in human beings, which results in high yielding individual and social returns viz., economic, social, cultural and political. Some returns are tangible and some are regarded as externalities, deserving high priority and an activity on which we need to spend more and more on education and it should not be treated as a burden on public exchequer. Education is widely perceived as a crucial vehicle for the upward mobility of individuals- socially, occupationally and economically and therefore is an important instrument of equity in society. In addition, education is regarded as an important component of human development and a fundamental right, having both intrinsic and instrumental values. Therefore, public policy towards education is universally one of the most critical areas of modern development strategies and public expenditure on education is one of the most significant aspects of such a policy. Public expenditure on education assumes even greater significance, especially in developing societies like India, in ensuring equity and quality in education and at the same time in promoting it as a public good and as a human right. In spite of its importance in the economy, education system in India suffers from severe inadequacy of resources and is in a deep financial crisis. The financial crisis includes: inadequacy in the allocation of resources towards education, relative low fiscal priority for education and improper allocation of resources within the education sector between different levels of education (Tilak, 2009) Education as a Share of Gross Domestic Product and Public Expenditure in India Share of education in gross domestic product (GDP) is the most standard indicator of national efforts on the development of education in a given society. This reflects the relative priority being accorded to education in the national economy. 193

7 Year Table 6.2: Public Expenditure on Education as Per cent of GDP in India Govt. Expenditure on Education by all Depts. (Rs. crore) GDP at Constant Prices (Rs. crore) ( Prices) % of Education Expenditure to GDP Period I Mean SD CV Minimum Maximum Period II * Mean SD CV Minimum Maximum Notes: (i) *RE: Revised Estimates. Source: 1. Handbook of Statistics, , Reserve Bank of India. 2. Analysis of Budgeted Expenditure on Education published by D/o Secondary and Higher Education. New Delhi, Various Issues. 194

8 A glance of the figures on expenditure on education as a proportion of GDP and total government expenditure on education in India is given in Table 6.2. During pre-globalization period, total government expenditure on education increased by five times from Rs crores in to Rs crores in Similarly, during the same period, three times increase in expenditure on education as a percentage of GDP was observed from 0.48 per cent to 1.45 per cent. It has been noted that, in mid-1980s, i.e., the era when human resource development was given top-most priority, an increasing trend in educational expenditure as a percentage of GDP has been observed. During post-globalization period, total government expenditure on education was Rs crores in from which it increased to crores in , indicating eleven times increase. On the other hand, in relative terms, expenditure on education as a proportion of GDP has also shown an increasing trend in the above said period. In , the percentage of educational expenditure to GDP was 1.63 per cent which increased to a level of 5.37 per cent in It should be noted that this proportion is less than the requirement of the education system to provide reasonable levels of quality education to all students and to provide universal elementary education of eight years for every child of the age group of This proportion is still less than the recommendation of Kothari Commission (1966) and reiterated by the National Education Policy, 1986 and Thus, India is not spending more than 5 per cent of its GDP on education. Further, even from this low level, only 1/10 th is being spent on higher education. Therefore, any talk of extending higher education to a large number of people on one hand and improving its quality on the other would be a cry in the wilderness. Therefore, the immediate tasks before the government should be to generate more resources for financing education in general and then transferring a great part of resources in favour of higher education in particular. The analysis of GDP at constant prices (at ) in the above table 6.2 shows an increasing trend for the entire period under study. In , GDP at constant prices (at prices) was Rs crores which increased to Rs crores in depicting 1.6 times increase in pre-globalization period. In , GDP at constant prices was Rs crores which increased by 3.2 times 195

9 to a level of Rs crores in , during globalization period. This shows that, during post-globalization period GDP at constant prices has grown at a fastest rate. This table also contains the descriptive statistics of the variables used in the study. The above table shows that, government expenditure on education has higher variability during the globalization period as compared to pre-globalization period with coefficient of variation (CV) of in post-globalization period as compared to the in pre-globalization period. The CV of GDP at constant prices also shows large variability in post-globalization period was as compared to preglobalization period was The CV of government expenditure on education as percent of GDP also shows variation. CV in pre globalization period was and in post-globalization period are The period wise analysis of compound annual growth rate (CAGR) exhibits that during pre-globalization period, government expenditure on education was 15.1 per cent which decelerated to 14.6 per cent in postglobalization period. Government expenditure on education for the entire period was 14.5 per cent. The compound annual growth rate of GDP (at constant prices) remains almost constant in all the periods (see Table 6.3). Table 6.3: Compound Annual Growth Rate (CAGR) of Government Expenditure on Education and GDP in India (Rs. Crore) to to to Govt. Expenditure on Education by all Depts GDP at Constant Prices ( Prices) Source: Computed on the basis of data given in Table Thus, from the above analysis it can be concluded that, expenditure on education in absolute sense and at current prices is increasing over the period of study. However, the increase in expenditure on education in pre-globalisation period is more uniform than the post-globalisation period. Due to this, the CAGR in preglobalisation period is found to be more than the globalised era. 196

10 6.5 Sources of Funds for Higher Education in India The higher education system in India witnessed enormous and unprecedented expansion since independence. It is unfortunate that this expansion is not accompanied by commensurate financial allocations by government, both at the central level as well as the state level. Nor have universities and colleges been able to raise adequate finances of their own. New universities have been started without providing additional resources and the universities on their part have not generated much resources of their own. There has been, as a result, an excessive dependence on the government for financing higher education. The government on its part is finding it difficult to shoulder the heavy responsibility of financing higher education on account of competing demands from other sectors of an expanding economy. Though the problem existed earlier, too, its dimensions were different. While earlier the needs of universities and colleges were limited to strengthening of departments and taking up new programmes of development, in the present day scenario the very existence of a large number of educational institutions is threatened on account of lack of funds. Thus, many universities are finding it difficult to meet essential expenditure on account of payment of salaries, maintenance of buildings, purchase of books, journals, equipments etc. (Ahmad, 2002). The sources of finance for higher education can be broadly classified into two parts, viz (a) governmental sources and (b) non-governmental sources. The governmental sources include contribution from the central or union government and the state governments. The non-governmental sources include student fees, funds, voluntary donations and endowments, etc. The study is confined to governmental sources i.e., public expenditure on education in general and higher education in particular. 6.6 Government Expenditure on Higher Education as a Share of GDP in India It has been contended that one of the important factors responsible for inadequacy of resources for education, including higher education, is the inability or unwillingness of the government to provide a larger percentage of GNP for educational development. In the context of intra-sectoral allocation of resources, it was observed that the constitutional commitment of providing universal elementary 197

11 education is non-negotiable. The secondary education as a preparatory as well as terminal education cannot be ignored. In the context of globalization and increased competition, the higher education cannot be overlooked either. Having regard to these realities, a consensus of a sort is gradually emerging to allocate at least 3 per cent of GNP to elementary education, 1.5 per cent to secondary education and the remaining 1.5 per cent to higher education and technical education (CABE, 2005, 2005a). With this perspective, now let us examine the priority accorded to higher education. In terms of relative priorities higher education suffered severely. Share of higher education in national income indicates the relative importance given by the government to higher education. Table 6.4 and Figure 6.1 depict the percentage share of government expenditure on higher education as percentage of GDP in India at constant prices. Table 6.4: Trends of Government Expenditure on Higher Education as Per cent of GDP Year Government Expenditure on Higher Education as % of GDP Source: 1. National Informatics Centre, Budgetary Resources for Education, Department of Education, MHRD, GOI, New Delhi, (1995), 2. Analysis of Budgeted Expenditure on Education, MHRD, Various Issues. 3. Handbook of Statistics, & , Reserve Bank of India. During pre-globalisation period, government expenditure on higher education as per cent of GDP was 0.31 per cent in which accelerated to 0.38 per cent in and further it increased to 0.43 per cent in During postglobalisation period, government expenditure on higher education as per cent of GDP has shown fluctuating trend. In government expenditure on higher education as per cent of GDP was 0.36 per cent which increased to 0.47 per cent in After that, it continuously declined and becomes 0.31 per cent in But further it slightly increased to 0.41 per cent in

12 Figure 6.1: Govt. Exp on Higher Education as per cent of GDP (at Constant Prices) Source: 1. Handbook of Statistics, , Reserve Bank of India. 2. Analysis of Budgeted Expenditure on Education published by D/o Secondary and Higher Education. New Delhi, Various Issues. Though, in recent years, there is meagre increase in the government expenditure on higher education as per cent of GDP but still it is far from satisfactory. Presently 0.41 per cent of GDP is being spent on higher education, while many developed countries invest between 1.0 to 2.5 per cent of their respective GDP. Even some of the developing countries in the Asian region, which are economically not better off than India, seem to be spending more than India on higher education. 6.7 Trends in Plan and Non-Plan Expenditure on Higher Education in India The total government expenditure on higher education consists of plan and non-plan expenditures. In the total government expenditure on higher education, plan expenditure forms small proportion (less than 30) per cent and non-plan expenditure dominates the total (Table 6.5). In fact, non-plan expenditures form the major chunk of expenditures on higher education. During the process of adjustment, when the government expenditure has to be reduced, it seems to be relatively easier to cut plan (development) expenditure than non-plan (maintenance) expenditure; because it cannot be reduced significantly, since most of the non-plan expenditure consists of salary expenditure of the existing staff. 199

13 Table 6.5: Plan and Non-Plan and Total Expenditure on Higher Education in India (Rs crore) Year At Current Prices As % of total exp on Higher Education At Constant Prices Plan Non- Plan Total Plan Non-Plan Plan Non- Plan Total Source: 1. National Informatics Centre, Budgetary Resources for Education, Department of Education, MHRD, GOI, New Delhi, (1995), 2. Analysis of Budgeted Expenditure on Education, MHRD, Various Issues. Table 6.5 reveal the analysis of plan, non-plan and total expenditure on higher education in India. It is apparent from the table that, during pre-globalization period, plan expenditure on higher education at current prices was Rs crores i.e., 16 per cent of the total and non-plan expenditure was of the order of Rs crores i.e., 84 per cent of the total. The relative share of the plan expenditure in the total went on declining and in it was only 11 per cent of the total and the remaining about 89 per cent was of non-plan expenditure. In plan expenditure was Rs 245 crore while non-plan expenditure was Rs crore. During post-globalization period, plan and non-plan expenditure increase to Rs crore and crore in During this period, plan expenditure touched its lowest level of 10 per cent while non-plan expenditure stood as high as 90 per cent of the total in In , plan expenditure was Rs crores and non-plan expenditure was of the order of crores. In this year, plan expenditure touched its highest level of 23 per cent and non-plan was its lowest level of 77 per cent. Further, data analysis reveals that, during 1981 to 2010 period, plan expenditure ranges from 9 to 23 per cent while non-plan expenditure ranges from 77 to 91 per cent. Thus, it shows that, in this period, there has been lot of fluctuation between the share of plan and non-plan expenditure on higher education. As far nonplan expenditure is concerned, it has risen during the period under study except in 200

14 some year (see Appendix 6.1). This shows that, there is substantial increase in nonplan expenditure, corresponding to plan expenditure in the whole period. However, declining plan expenditure, means declining effort for creation or addition of new educational facilities and swelling non-plan expenditure denotes increasing burden of maintenance expenditure on the shoulder of the state government. Thus, there is a need of appropriate policy to balance this type of variation in plan and non-plan expenditure on higher education. In absolute terms, the increase in expenditure on higher education at national level looks very impressive. But these figures are at current prices and the impressive picture remains no more so impressive, if they are converted into constant prices. After adjusting these figures for increase in prices with the help of WPI (Wholesale Price Index), it can be noted that the real rate of growth of plan, non-plan and total expenditure on higher education is small, as shown in table 6.5. For example in , plan, non-plan and total expenditure on higher education at current prices was Rs , Rs and Rs crores but after adjusting with ( prices) plan, non-plan and total expenditure was Rs , Rs , and Rs crores only (Appendix 6.1) during the same period. Table 6.6 depicts the compound annual growth rate (CAGR) of plan, non-plan and total expenditure on higher education in India. Table 6.6: Compound Annual Growth Rate (CAGR) of Plan, Non-Plan and Total Expenditure on Higher Education in India. Year At Current Prices At Constant Prices Plan Non-Plan Total Plan Non-Plan Total to to to Source: Computed from the data given in Appendix 6.1. During pre-globalization period, growth rate of plan and non-plan expenditure on higher education at current prices was 17.4 per cent and 14.6 per cent which decelerated to 14.4 per cent and 13.3 per cent during post-globalization period and again in the whole period, they further declined to 13.7 per cent and 13 per cent. Likewise, growth rate of total expenditure on higher education also show the same trend as explained above. At constant prices, compound annual growth rate (CAGR) 201

15 of plan, non-plan and total expenditure on higher education also follow the same trend as in current prices but the data shows wide differences between current and constant prices. For instance, compared to a rate of growth of 13.2 per cent at current prices, the total expenditure on higher education increased at a rate of growth of 5.8 per cent only at real prices ( ) during the whole period under study. Thus, the data analysis reveals that CAGR of plan, non-plan and total expenditure on higher education (both at current & constant prices) was fastest during 80 s i.e. in preglobalization period and slowest during the 90 s (mainly due to economic reforms) i.e. in post-globalization period. 6.8 Trend Analysis of Intra-Sectoral Allocation of Resources in Education Sector in Five Year Plans in India Five year plans are an important instrument of development strategy adopted by the independent India. It set new directions for development- quantitative expansion, improvement in quality as well as several other dimensions of educational development. Therefore, it is important to examine the priority given to different levels of education in the Five Year Plans. An analysis of intra-sectoral allocation of resources in India during the plan period shows an emphasis on some levels of education. A clear cut shift in the priorities is quite obvious from Figure 6.2 and Table 6.7. In the First Plan, 56 per cent of the total plan resources to education were allocated to elementary education, 13 per cent to secondary, 9 per cent to university and 13 per cent to technical education. The allocation to elementary education came down drastically in the subsequent plans, 35 per cent in Second Plan, 34 per cent in the Third Plan and 30 per cent in the Fourth Plan. Then it increased to 35 per cent in the Fifth plan and again it tended to decline to 30 per cent in the Sixth Five Year Plan. During the Seventh, the Eight, the Ninth Five Year Plan, significant efforts were made to increase the allocation substantially, though the allocations made in the Eighth and Ninth Five Year Plan were still less the corresponding one in the First Five Year Plan in percentage terms. But again in the Tenth Five Year Plan the elementary education was given a high priority, its share has increased to 65 per cent of the total plan expenditure on education. It has to be noted that, 1986 marks the beginning of the renewed emphasis on elementary education with the formulation of the National Policy on Education 202

16 (1986), and with the operation blackboard and similar other programmes launched by the union and state governments. Besides, the National Policy on Education (1986), international environment, particularly the Jomtien Conference in 1990, and the Dakar Conference in 2001 on Education for All (EFA), Sarva Shiksha Abhiyan ( ) and the beginning of the flow of external assistance for primary education, are also responsible for increase in priority for elementary education. Thus, theses show that elementary education was given a boost from the Seventh Five Year Plan onwards. However, this boost seems to have been possible with severe cuts in plan resources for other levels of education (Tilak, 2003). Table 6.7 Intra-Sectoral Allocation of Plan Expenditure on Education in Five Year Plans (Rs Crore) Five Year Plan Elementary Secondary Higher Technical Grand Total First 85 (56) 20 (13) 14 (9) 20 (13) Second 95 (35) 51 (19) 48 (18) 49 (18) Third 201 (34) 103 (18) 87 (15) 125 (21) Fourth 239 (30) 140 (18) 195(25) 106 (13) Fifth 317 (35) 156 (17) 205 (22) 107 (12) Sixth 883 (30) 736 (25) 530 (18) 324 (11) Seventh 2849 (34) 1829 (22) 1201 (14) 1083 (12) Eighth 9201 (46) 3498 (17) 1516 (7) 2787 (14) Ninth 27363(51) 9526 (18) 4350(8) 4778 (9) Tenth (65) 4325(10) 4799 (11) 4700 (10) Note: *Figure in parenthesis shows percentages Source: Annual Financial Statistics of Education Sector, MHRD, various years The resources allocated to secondary education showed that after an initial jump from 13 per cent to 19 per cent between the First and Second Five Year Plan, it got relatively stabilized and remained around that proportion until the sixth five year plan. In the Sixth Five Year Plan, for the first time, the allocation was increased to 25 per cent. But this level was subsequently reduced to 17 per cent in the Eight Plans and gradually it declined to 10 per cent in the Tenth Five Year Plan (which shows a very meagre amount of all the plan period). 203

17 From Table 6.7 & Fig. 6.2, it can be analysed that regarding higher education there have been considerable fluctuations. During the First Five Year Plan, higher education was not given high priority. But probably realising the importance of higher education soon, in the second five year plan 2 the allocations to higher education was doubled from 9 per cent to 18 per cent of total education outlay. During the post- Kothari Commission period, higher education received a better treatment with more than 20 per cent of the total outlay allocated to education being given to higher education (Tilak, 2003). In the Fourth Plan its share reached all-time peak of 25 per cent. Since, then it has been consistently declining. The share of higher education in the total education expenditure in the Eight and the Ninth Five Year Plans was found to be a meagre (7-8 per cent), the lowest proportions in the last half a century, compared to 18 per cent (in the Sixth Plan). Figure 6.2: Share of Different Levels of Education in Five Year Plans Source: Annual Financial Statistics of Education Sector, Various Issues. 2 An intra-sectotal examination of the plan expenditure on education reveals some interesting points. The Second Five Year Plan marked the beginning of a drastic decline of resources allocated to elementary education and a doubling of resources allocated for higher education. It may also be noted that the overall developmental priorities also changed with the beginning of the second five year plan. Relative emphasis shifted from agricultural sector in favour of industrial sector. Industrial development requires manpower, and higher education was looked upon for the supply of manpower. Accordingly, expenditure was increased considerably. 204

18 During the First four five year Plans, increasing priority was given to higher education in the five year plans and in the later period, higher education was paid less attention in terms of allocation of plan resources. More strikingly, allocations to higher education in the Eighth and Ninth Five Year Plans reached the all time bottom levels. This seems to be an undesirable trend, in view of remarkable expansion of enrolment and institutions on one hand and rising cost of higher education on the other. Thus, it can be said that, the figure clearly calls for higher and sustained outlay on higher education, considering the large increase in enrolments. Higher investment is also necessary to improve the quality and infrastructure facilities which are deteriorating rapidly due to paucity of funds. In the Tenth Five Year Plan, the share of higher education slightly increased to 11 per cent. As far as technical education is concerned, it also received relatively better treatment in the first three year plans, and ever since, the share allotted to it has came down with some fluctuations. Amazingly, the interdependence of various levels of education has been ignored and more emphasis has been given to literacy and primary education. Hence, the practice of putting one level of education against another in allocation of resources may not be proper and in fact, may sound absurd. The main constraint to the expansion of higher educational facilities has been the meagre public resources allocated to education. The changing financing strategy under economic reforms (globalization) seems to be developing one level of education at the cost of another, hence, exacerbating imbalance among different levels of education. It should be noted that higher education institutions play an important role in setting the academic standard for primary and secondary education. They are also responsible for not only providing the specialised human capital in order to corner the gains from globalization, but also for research and development, training inside the country, provide policy advice etc. It is to be realised that higher education is no longer a luxury; it is essential to national, social and economic development (UNESCO, 2000). Thus, the study concluded from table 6.7 reveal that, intra-sectoral allocation of resources in education sector has shown a mixed trend in the globalised era. The sector which has accorded more attention and priority are the elementary education. Due to priority given to this sector, other sector viz. secondary, higher and technical education suffered a lot. Therefore, government should increase total expenditure on 205

19 education as a per cent of its GDP so that each level of education can get equal share and there will be no need to cut the expenditure on any level of education to finance other level of education. In this scenario of fast depleting financial support from the government, various measures for mobilising resources for education in general and higher education in particular have been suggested. Government has appointed two committees for the central universities, known as Justice K. Punnaya committee (UGC, 1993) and the other for technical education known as D. Swaminathan committee (AICTE, 1994), to recommend alternative methods of mobilising resources for higher education. Both these committees suggested several measures to mobilize the non-governmental resources for higher education like (a) raising the level of fees and funds collected from the students; (b) introduction of self-financing courses, and (c) student loans. Many other committees were also constructed to deal with issues pertaining to financing of higher education. The prominent among those were: UGC (1997); on unit cost of higher education, to review the norms of maintenance grants for Delhi colleges (UGC, 1999), to formulate the revision of fee structure UGC (2000), and Ambani-Birla Report (GOI, 2000). Interestingly, all the committees made recommendations almost on similar lines with central place for the market in the form of imposition of user charges, introduction of self-financing courses, and more space for the entry of private players. Consequently many universities made upward revisions in the level of fees and funds to be charged from the students. Under the policy of economic liberalisation, a strong case has also been made of privatization of higher education. Without going into a detailed discussion on privatisation it can be argued that complete privatization of higher education in which there is only profit motive and not the development of education in right directions will be the over-riding considerations. Therefore, the government cannot and should not abdicate its responsibility of providing financial support to institutions of higher education (Azad, 2003). Privatisation in higher education should be encouraged in India but with close government regulation and at the same time it should not encourage commercialisation. Privatisation which ensures social justice in higher education to all class of people and fights against its challenges is most welcome. 206

20 6.9 Trends of Public Expenditure on Higher Education in India Higher education in India is in a deep financial crisis, with escalating costs, and increasing needs of the system on the one hand, and shrinking public budgetary resources and changing public policies on the other. `It should be noted that huge public investments have been made in higher education in independent India, but this impressive growth in investments in nominal prices, is however, more than offset by increase in prices and increase in population, more particularly numbers of student in higher education (Tilak, 1993). On the whole, the trend analysis of government expenditure on higher education shows a real growth rate of 7.5 per cent in the1950s, had it golden days during the 1960s, with the real expenditure increasing at a annual rate of growth of 11 per cent but suffered significantly during the 1970s and came down to 3.4 per cent and showed some tendency to recover during the 1980s at 7.3 per cent (CABE Report 2005). The 1990s heralded an era of austerity and higher education suffered the most (Tilak, 2005). The very important development of the early (1990s) is the introduction of economic reform policies that include stabilisation and structural adjustment programme. Due to these policies, budgetary resources allocated to higher education have indeed being severely affected. Pattern of public expenditure in higher education constitutes two important phases: A high growth phase of public expenditure on higher education from 1980 to 1991 and a low growth phase of public expenditure on higher education from 1992 to Table 6.8 gives trends in public expenditure on higher education in India both at current and constant prices. Table 6.8: Government Expenditure on Higher Education in India (Rs Crores) Year At Current Prices Per cent Shares At Constant Prices Centre State Total Centre State Centre State Total Source: 1. National Informatics Centre, Budgetary Resources for education, Department of Education, MHRD, GOI, New Delhi, (1995), 2. Annual Reports, Analysis of Budgeted Expenditure on Education, MHRD, various issues. 207

21 During pre-globalization period, public expenditure on higher education at current prices has gone up from Rs crores in to crores in At constant prices ( ), it went up over the same period from Rs crores to crores. At current prices, public expenditure on higher education increased by 5 times but in real prices, the growth is not all that impressive. At real ( ) prices, only 2 times increase in expenditure on higher education has been observed over the same period. During post-globalization period, public expenditure on higher education at current prices was Rs crores in which accelerated to Rs crores in At constant prices, it increases from Rs crores to crores over the said period. During this period total expenditure on higher education at current prices increased by 7 times and at constant prices it increased by only 3 times, only by just half. Thus, this shows that after adjusting expenditure with inflation not much growth was noticed. Inflation has, however, played havoc with educational financing. However, aggregate expenditure is of limited value in India. Disaggregated analysis is needed because the centre and the states have very different financial powers and different sets of priorities and constraints. 3 It can be seen from table 6.8 that, during pre-globalization period, central and state government expenditure on higher education at current prices in the year was Rs 98.8 crores and crores whereas in the year , it amounted to Rs crores and At constant prices, central and state government expenditure on higher education was Rs crores and crores in which further increased to and crores in respectively. During post-globalization period, central and state government expenditure on higher education at current prices, reached to a level of Rs crores and Rs crores in and further it increased to its highest level of Rs crores and crores in Likewise, central and state government expenditure on higher education at constant prices went up to Rs crores and crores in which further increased to Rs crores and crores in respectively. Thus, the key findings emerged from this data analysis is that at current prices, both central and state government 3 In addition, each state has its own history of education development and its own sets of priorities and limitations. 208

22 expenditure on higher education has increased but when these expenditure are adjusted with real prices ( ), then both have shown a declining trends. Figure 6.3 and (Appendix 6.2) clearly shows the details of share of centre and states in total expenditure incurred on higher education from to From the figure, it can be analysed that, state share the major burden of expenditure on higher education, ranges from the level of 65 to 80 per cent while centre share ranges between 20 to 35 per cent. During pre-globalization period, share of central government expenditure on higher education increased from 20 per cent in to 31 per cent in but it declined to 21 per cent in During postglobalization period, centre share has decreased to 17 per cent in but again it recovers in the year and become 27 per cent and further it increased to 35 per cent in Similarly, during pre-globalization period, share of state government expenditure on higher education was 80 per cent in which decelerated to 69 per cent in but it increased to 79 per cent in During postglobalization period, state share has increased to its maximum level of 83 per cent in but further it declined to 73 per cent in and reached to its lowest level of 65 per cent in Figure 6.3: Share of Centre and States to Total Public Expenditure on Higher Education Source: 1. National Informatics Centre, Budgetary Resources for education, Department of Education, MHRD, GOI, New Delhi, (1995), 2. Annual Reports, Analysis of Budgeted Expenditure on Education, MHRD, Various Issues. 209

23 The analysis of Compound annual growth rate (CAGR) of central and states government expenditure on higher education and total government expenditure on higher education in India is given in Table 6.9. Table 6.9: Compound Annual Growth Rate of Public Expenditure on Higher Education At Current Prices At Constant Prices Centre States Total Centre States Total to to to Source: Computed from the data given in Appendix 6.2. During pre-globalization period, compound annual growth rate (CAGR) of central government expenditure on higher education both at current and constant prices was 19.9 per cent and 13.8 per cent. Whereas, state government CAGR was 13.7 per cent and 7.9 per cent at current prices and constant prices respectively. During post-globalization period, CAGR of central government expenditure grew at 15.4 per cent at current prices and 8.2 per cent at constant prices. Similarly, CAGR of state government expenditure grew at 13.0 per cent at current prices and 5.9 at constant prices in the above said period. The CAGR of the central government expenditure at current prices for the entire period of the study was 14.4 per cent, but at constant prices it was only 7 per cent. This trend continued even for state government expenditure which recorded a compound growth of 12.2 per cent as against 5.5 per cent at constant prices for the same period. Thus it is evident from Table 6.9 that, compound annual growth rate (CAGR) of central, states and total government expenditure on higher education both at current and constant prices has declined in post-globalization period. However, both at current and constant prices CAGR of central government expenditure have declined at a greater proportion in comparison to state government expenditure Role of Centre and State in Financing Higher Education in India Another important aspect in the context of allocation of resources in India refers to centre-states relations in financing higher education in India. In the federal framework, the mechanism of sharing financial responsibilities between the centre and states is a very important issue. However, if the total plan and non-plan 210

24 expenditure on higher education is considered, on the whole, the role of the centre is minimum. As per constitution, education was a state subject. However, after the 42 nd amendment of the constitution (1976), education has become a concurrent subject, i.e., the central and the state governments take the responsibility for education. As even then, state governments meet a large part of the expenditure on education. As mentioned earlier the expenditure on education in India comes from both the centre and states. The bulk of the tax revenue is collected by the centre while states have the main responsibility of maintaining and developing the education sector (De and Endow, 2008). The period-wise analysis of compound annual growth rate (CAGR) of central and state government, plan and non-plan expenditure on higher education at current prices is given in Table 6.10 which is computed from (Appendix 6.3). During preglobalization period, CAGR of plan expenditure of central government was 20.7 per cent which declined to 16 per cent in post-globalization period and further it declined to 15 per cent in the whole period under study). Likewise, CAGR of state government plan expenditure on higher education has also shown a deceleration trend in postglobalization period as compared to pre-globalization period and also for the entire period. The analysis of CAGR of central government non-plan expenditure on higher education reflects that, during pre-globalization period, it was 18.9 per cent which decelerated to 14.8 per cent in post-globalization period and further it declined to 13.9 per cent for the entire period. Almost same trend holds true even for state government non-plan expenditure on higher education but the magnitude of decline was greater in respect of central government expenditure. As far as total, plan and non-plan expenditure on higher education of central and state government expenditure is concerned, both have shown an upsurge in CAGR in pre-globalisation period compared to post-globalization period. But in comparison with total non-plan expenditure on higher education, total plan expenditure on higher education has shown a highest rate of deceleration in post globalization period. Further, these data reveals that in globalization period, central government plan and non-plan expenditure shows a high degree of deceleration as compared to states plan and non-plan expenditure. Non-plan expenditures are almost exclusively the domain of the state governments. As this involves maintenance of existing 211

25 infrastructure any decrease in its level would adversely impact the quality of education. However, it can be noted that centre s declining share has been one of the important reasons for deceleration in the public funding of higher education. Constrained by fiscal shortages, the states found it difficult to invest in plan funding to improve the quality of higher education (Bhushan, 2009). Table 6.10: CAGR of Centre and States Plan and Non-Plan Expenditure on Higher Education to to to Centre Plan Exp State Plan Exp Total Plan Exp Centre Non-Plan Exp State Non-Plan Exp Total Non-Plan Exp Source: Computed from data given in Appendix 6.3. Fig 6.4 and (Appendix 6.4) reveals the share of centre and states in plan and non-plan expenditure on higher education in India. However, the centre accounts for a relatively small proportion of the total expenditure on higher education though its share has been increasing over the years. As far as central government is concerned, its share in plan expenditure increased from 43 per cent in to 52 per cent in On the other hand, states share of plan expenditure on higher education has decreased from 57 per cent to 48 per cent in the above said year in pre-globalization period. During post-globalization period, centre share in plan expenditure increased from 61 per cent in to 72 per cent in , while states share in plan expenditure decreased from 39 per cent to 28 per cent in the above said year. However, centre s share has been increasing over the years but with lots of fluctuations. Thus the above figures depicts that, centre share in plan expenditure has increased in both pre and post-globalization period but at the same time states share has decreased in both these periods. However, it is important here, to note that in compound annual growth rate terms, central government plan expenditure has deterioted in post-globalization period in spite of its increased share in total plan expenditure in both periods (i.e. pre and post-globalization period). 212

26 Figure 6.4: Share of Centre and States in Plan and Non-plan Expenditure on Higher Education in India (in Percentage) Source: Computed on the basis of data given in Appendix 6.4. As far as non-plan expenditure is concerned, during pre-globalization period central government share was 16 per cent in , which reached to its maximum level of 27 per cent in But in , its share has declined to 17 per cent. In contrast, share of state government was 84 per cent in and reached to its minimum level of 73 per cent in , but further it s increased to 83 per cent in During post-globalization period, centre share fluctuated between 15 to 23 per cent while state share fluctuated from 85 per cent to 77 per cent. However, these figures clearly show that central government mainly focus on plan expenditure and states on non-plan expenditure. Although states are responsible for the bulk of expenditure, but the centre has come to play a dominant role in shaping the country s education system. Much of the central government expenditure on higher education is routed through the UGC. It is interesting to note that the disbursement of funds by the UGC is uneven and the bulk of it goes to the central universities and their affiliated colleges and to a few deemed to be universities. A vast majority of universities and other degree awarding institutions are not even eligible to receive any kind of grants from the UGC (Prakash, 2007) 213

27 6.11 Public Expenditure on Higher Education among Selected States in India The state governments have borne the major share of expenditure on social services. Education sector is not an exception. The financing of higher education among the states in India differs widely. Hence after studying the trend of overall expenditure pattern on higher education, it would be instructive to have a glance over the trends in 15 major states over the period of to Table 6.11 presents the compound annual growth rate of public expenditure on higher education among fifteen major states which gives an idea as to how states have contributed to the financing of higher education. It is not surprise to observe from the table, that during post-globalization period, there has been almost a uniform pattern of deceleration in public expenditure of higher education across some states. This fact of uniform pattern of deceleration on public expenditure across states proves a systematic trend and slow withdrawal of state funding of higher education. It is too well known that in India, states are hesitant in mobilising additional resources from within the states and therefore the dependence is largely on central assistance or their share in divisible central taxes. Thus, because of the financial crunch at the state level, public money to finance higher education is not coming up in required amount (Ahmad, 2002). It may, however, quite interesting to note that most of the major states in India have shown deceleration in the compound growth of public expenditure on higher education. Out of these states- Assam, Bihar, Haryana and Punjab have shown the largest deceleration during post-globalization period. In spite of deceleration, some major states have shown acceleration in the compound growth rate of public expenditure on higher education in post-globalization which is Karnataka, Kerala, Maharashtra and Orissa. States like West Bengal have shown lesser degree of deceleration in public expenditure on higher education during post-globalization period. Tamil Nadu and Uttar Pradesh are the only states where the compound growth rate of expenditure remains almost same in both pre and post-globalization period. 214

28 Table 6.11: Compound Annual Growth Rate (CAGR) of Public Expenditure on Higher Education among Selected States States to to to AP Assam Bihar Gujarat Haryana Karnataka Kerala MP Maharashtra Orissa Punjab Rajasthan Tamil Nadu UP West Bengal Source: Computed on the basis of data given in Appendix Per Student Public Expenditure on Higher Education in India The magnitude of expenditure on education becomes more meaningful when it is represented as per student expenditure. The per student expenditure shows the relative resource availability to the educational system. Estimates on unit costs of education are extremely useful in investment decision making in education. But they have been rarely used in planning in education, including in forecasting of resources requirements, budgeting, allocation of resources to education in India (Tilak, 2003). The trends in per student expenditure on education, that is indicative of some aspects of quality and efficiency of education in terms of physical and human infrastructure facilities available to students on average, are indeed disturbing. In nominal term, per student public expenditure on higher education has shown a tremendous increase but in real terms public expenditure has gone down over the period. This has been given in Table 6.12 and Figure 6.5. At constant prices ( ), per student expenditure has declined which suggests that we are spending less and less resources per pupil at higher levels of education i.e. enrolments is growing faster than resource allocated for higher education. Decline in per student expenditure means decline in real resources available per student on an average, seriously affecting the quality of higher 215

29 education. There were steep cuts in budget allocations for libraries, laboratories, scholarships and faculty improvement programmes etc. Given the present level of development, it may be necessary to ensure that per student expenditure does not decline in real terms over the years (CABE Report, 2005). Table 6.12: Per Student Public Expenditure on Higher Education in India Year At Current Prices At Constant Prices Index (At Constant Prices) Source: 1). UGC Annual Reports various issue 2). Analysis of Budgeted Expenditure on Education, MHRD, Various Issues. During pre-globalization period, per student expenditure on higher education has gone up from Rs 1757 in to Rs 4964 in , thus indicating about 2.8 fold increase at current prices. At constant prices, it went up over the same period from Rs 8915 to Rs 11925, indicating only 1.3 fold increase. During postglobalization period, per student expenditure on higher education in India went up to Rs 5766 in and further to Rs in at current prices. The corresponding figures at constant prices stood at Rs 9591 and Rs respectively. At constant prices, per student cost has declined, this may be due to a better utilization of resources or declining quality of education. Though we are unable to provide empirical evidences on what accounts for declining costs, there are reasons to believe that the quality of education has been declining. Moreover, the governments, in many states have been encouraging the participation of private sector in a big way, thereby shifting the burden of spending to the private sector and students (Duraisamy, 2003). The index of growth of per student expenditure at constant prices, however, shows a fluctuating trend. 216

30 Figure 6.5: Per Student Public Expenditure on Higher Education in India (At Current and Constant Prices) Source: Computed on the basis of data given Appendix 6.6. The compound annual growth rate of per student expenditure has shown a large variation in real terms as compared to current prices which is given in table Table 6.13: CAGR of Per Student Public Expenditure on Higher Education in India to to to At Current Prices At Constant Prices Source: Computed on the basis of data given in Appendix 6.6. The compound annual growth of per student expenditure at constant prices ( prices) was 3.25 per cent during pre-globalisation period, which was almost less than half as compared to current prices of 8.7 per cent. During post-globalization period, compound annual growth of per student expenditure at current prices was 7.2 per cent while at constant prices it was meagre 0.5 per cent. It is evident from table that compound annual growth of per student expenditure at current prices has shown a very impressive figure of 6.8 per cent for the entire period but at constant prices, it has registered a negative growth of -0.9 percent. Thus, it shows that inflation has adversely affected higher education to a large extent. 217