Free Press Journal

Result-based funding of universities

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The Government has decided to grant autonomy to 62 universities including the Aligarh Muslim University and Benares Hindu University, and other institutions of higher learning. These universities will now be able to freely design new courses, open new centers, and give higher salaries to specialised faculty members without having to obtain the consent of the University Grants Commission (UGC). The move is welcome. However, autonomy can work the other way round as well. The UGC, Institute of Chartered Accountants of India, laboratories of Council of Scientific and Industrial Research and large numbers of other institutions are autonomous but their record is not very good. The UGC has used its autonomy to destroy the higher education system in the entire country. Similarly, a decade later, we will surely find that some of these 62 universities have used their autonomy to hide and protect their poor performance. Our higher education system requires surgery, not band aids.

The mess is rooted in a misconception that higher education must necessarily be supported by government funding since it is a “public” good. “Public” goods are those that cannot be obtained by a person in his or her individual capacity. For example, a person cannot print currency, defend himself against foreign attacks, or provide police protection to himself without active involvement of the government. The provision of these goods can only be made by an authority, whose writ runs throughout the entire country and which can punish those who do not follow the rules. For example, currency notes printed by a person will not have acceptability across the country, hence this is a “public” good. It is ingrained in government servants to misuse their powers. However, the society tolerates this misuse because the benefits from the provision of public goods are very large just as one tolerates the low voltage because the benefits from electricity are very large.

“Private” goods, on the other hand are those that can be acquired by a person individually, such as clothes, mobile phones, banking or health care. The basic concept is that it is best to leave the provision of private goods to the private sector. The Government has abstained from establishing flour mills and garment factories for this reason. Higher education is a private good because it can be acquired by an individual in his or her individual capacity. Hence, fundamentally the provision of higher education should be left to the private sector. A caveat here is that regulation of higher education such as conducting all-India examinations such as National Eligibility cum Entrance Test (NEET) are a public good because their acceptability depends on the test being administered throughout the country.


There are some private goods that have special merit such as medicines, fertilisers, books and toilets. The use of fertilisers by a farmer is a private good but it provides food security to the country, hence it is considered as a “merit” good. Higher education falls in this category. The obtaining of a Bachelor of Technology degree by a student is a private good but the student helps the country develop new defense technologies, hence it is considered as a “merit” good. The Government provides subsidies to merit goods as a payment of these services rendered to the larger society. Hence, the Government is correctly providing financial support to higher education.

We are facing two contrary factors in respect of higher education. On one hand, public universities are misusing the government funding. A professor of a Central University recently told me that it is difficult to get professors to take even a single class in a day. On the other hand, it is necessary to provide financial support to higher education since it is a merit good. The challenge is to prevent misuse of government funding by the universities while providing financial support to them.

The way out is to provide result-based funding. The Universities can be assessed on a number of parameters such as numbers of academic papers published in journals, numbers of conferences for which faculty was invited by foreign countries, numbers of students who passed the IIT, IIM, IAS or PCS exams, numbers of students who entered national sports competitions, income earned per faculty, ratio of international to domestic students, etc. The total funds that the Government wants to provide to the universities should be distributed in proportion to the rank obtained by the respective universities. The present system of providing fixed and assured salaries to the faculty of our universities must be done away with. No fixed amounts may be provided to any university. All the universities in the country, not just the 62 listed at present, should be provided complete autonomy. They should be provided adequate funding as long as they publish academic papers.

The private universities should also be funded at par with the universities established by the union government. It matters not whether the academic papers published in journals came from a private- or a public university. The benefit to the nation is the same. In fact, the public universities should be given less funds because the government has provided them with free land, building and infrastructure. Mr Pramath Raj Sinha of the Indian School of Business, the first Indian Business School to break into the Top 20 global ranking, points out that countries such as Singapore, Dubai and Qatar are providing top foreign universities free infrastructure and facilities to set up campuses. The basic concept is that the country needs higher education. Whether it is provided by private or public universities is immaterial.

Such result-based funding will encourage the universities to raise their fees and deprive the poorer students. The solution is to provide free “Higher Education Vouchers” to all student on the basis of marks obtained in a national exam similar to NEET. The students standing in the top 1 per cent of the students taking that exam may be provided a Voucher of, say, Rs 50,000 per month which they can pay the fees of a university of their choice. Those standing in the top 2-10 per cent may be provided a Voucher of, say, Rs 25,000 per month; and those standing in the top 11-25 per cent may be provided a Voucher of, say, Rs 10,000 per month.

The move to a result-based funding of universities along with free vouchers to the talented students will liberate the universities and unleash the energy of the students.

Bharat Jhunjhunwala is a former professor of Economics at IIM Bengaluru.