Why Higher Education should be Subsidised

by Khalid Khan

The ongoing protest against the hike in hostel fee has again triggered a series of questions on the Jawaharlal Nehru University which is closely related to the debate on privatisation of higher education. The larger narrative around which the students are protesting, fall under the framework of the government’s role in higher education. This can be understood from the perspective of public-private debate in education. The continuous withdrawal of the government’s commitment from funding higher education has led to the increasing space for private players that is evident from the increase in the number of private universities from 178 to 313, colleges from 9735 to 23,647 and the share of private unaided colleges in total enrolment from 37 per cent to 46 per cent during the period between 2010-11 and 2016-17, according to the All India Survey on Higher Education (AISHE).

The question circulating in social media and a section of the print and electronic media shows the common misunderstanding regarding financing higher education; it is being asked why the government should finance higher education out of the taxes paid by the common people to allow higher education graduates to enter into the elite clubs of the society. This layman’s question, however, emanates from the academic arguments in favour of privatisation. Broadly two types of arguments are put forward in this regard— first, it is argued that the return to higher education is largely appropriated by the person investing in it, so students should bear its cost; and the second, relatively better-off sections of the society join higher education, so any uniform subsidy will lead to the subsidisation of the rich with the taxes of the masses comprising a relatively worse-off section, eventually leading to the reverse income redistribution. Academics have questioned these justifications time and again particularly from the vantage point of the weaker sections of the society; they also question the reliability of the methods of calculating the return to higher education. They argue that the benefit of higher education is not confined to the students only but it extends to the larger society, the term commonly known as ‘positive externalities’ in economics.

At the policy level, the shift towards privatisation is an outcome of the economic reform, 1991—focussing on liberalisation, privatisation and globalisation. The Punnayya Committee (1992) was a kind of official declaration that universities will have to function on similar lines. It suggested that universities should gear up quality and cost effectiveness and generate internal resources which should be sizeable in the course of time. The rise of fee and opening self-financed courses are the ways to achieve this end within the public sector. The Ambani-Birla Committee (2000) advocated establishing private universities; confining the government’s role to primary and secondary education and to only selected institutions of high learning. The government’s position on higher education is evident from the Ministry of Finance’s report on subsidies, 2004 which regarded higher education as something less deserving to be subsidised as against elementary education and health. The latest new education policy has suggested encouraging funding from philanthropic sources which is welcoming if it does not prove to be a window for commercialisation of higher education.

It is generally argued in policy-circles that it is difficult to subsidise all the students in the wake of expanding access to higher education; the share of enrolment in higher education has increased from 19.4 per cent (of the 18 to 23 population) in 2010-11 to 25.2 per cent in 2016-17 (AISHE). However, the excuse of high burden on the exchequer seems misplaced as the government has never met the commitment of six per cent of the Gross Domestic Product to be spent on education. In fact, the trend shows a stagnant share of spending on education during 1999-2016 between 3.3 per cent 4.1 per cent of the GDP.

However, the major contestation is not about restricting the entry of private players; rather the survival of the public education. It is true that higher education has the characteristics of both public and private good; hence it is called quasi-public good. This recognition of features of private good makes higher education eligible to be funded from private sources at least partially, if not fully. To what extent students should be charged in lieu of the higher education they are getting and how they should be charged is yet a debatable issue. In fact, this logic itself depends on the labour market condition. The sole argument of privatisation of higher education relies on the assumption of wage premium enjoyed by the educated graduates. Contrary to the general expectation, the chance of unemployment among university graduates in India is far higher than their less educated counterparts. The latest employment data which showed the unemployment rate at the highest level during the last 45 years at 6.1 per cent, reveals further higher unemployment rate among university graduates at 16 per cent which is a matter of great concern. Thus, the fundamentals on which the proponents of privatisation frame their argument does not stand in front of empirical reality. In fact, the day-to-day allegation on university graduates enjoying elite life is disassociated from the reality. The logic of higher education being a ticket to the elite club does not hold in India. Observations show that the story of an unemployed graduate from the average private engineering and management colleges is more of a vicious circle of indebtedness wherein a notable number among them struggle to pay back their loan received to finance their course fee. Private higher education without any job assurance will add to the pool of the reserved army of educated unemployed, youth having the potential to turn the dream of demographic dividend into a demographic disaster.

The question that arises at the policy-level is: how can the government charge for a product which is not providing the intended benefit to its consumer even if the logic of the market is applied to it. The only excuse in favour of privatisation may be the fact that it is a global political economic reality that no government can afford to ignore. The fact remains, however, that there is no one form of privatisation across the world, unlike the way it is being put forward in India. Based on the study of models of privatisation across different countries, economists classify broadly two kinds of privatisation—collateral-based loan or deferred payment known as contingent loan or graduate tax. Given the uncertainty of the labour market, collateral-based loan is an impractical option in the Indian context. The deferred payment is the only option which may be experimented given the eagerness of the policy-makers to privatise higher education. In this case, successful students are charged in the form of tax when their income crosses a threshold level; otherwise those are waived off.

This method will put the quality of the product on test in the labour market. It has to be accepted without any doubt that no seller has the moral ground to charge for her/his product when it is not providing the benefit to the consumer which it intends to. Thus, even if the logic of the market has to be applied, it should be applied on both the demand and supply sides; charging students without the realisation of the expected return will itself defeat the basic principle of perfect information in a market-based economy.

The author, who is a Ph.D. from the Jawaharlal Nehru University, New Delhi, is an Assistant Professor, Indian Institute of Dalit Studies, New Delhi.