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ASCI 
Journal of Management
Volume 23, 1994

Select Articles

Financing Higher Education:
Qualitative Dimensions
B R Virmani
IPCL Chair Prof in Strategic Management,
Dean of Studies, ASCI, Hyderabad,
Kala Rao
Research Associate, ASCI, Hyderabad

Flnancing higher education has taken a central stage thanks to the ongoing national and international economic reforms. This paper takes a look at the qualitative aspects of fniancing higher education in India.  It stresses the need for setting up research parks to enable a smooth flow of the fruits of research from universities and institutions to the industry, and also to provide opportunities for industrial exposure to the teachers so as to strengthen and qualitatively improve the educational inputs.


In the wake of recent changes in the national and global arena, State/public financing of higher education vs self-generation of resources has become a subject of renewed interest.  The reasons for this are several: the ideological--political preferences, especially after the change of government at the Centre in 199 1, the continuing precarious situation of the State budget vis-a-vis other public responsibilities, shift in the priority within the education system itself, specially higher priority to primary education, compared to higher education, etc.  Financing education was considered primarily a State responsibility both at the Central as well as the State governments level.  Though theoretically University Grants Commission (UGC) was created to help improve and maintain the quality of academic standards through financial grants, however, over the years, it became, by and large, a funding agency due to various internal and external constraints imposed on the universities as well as the UGC.

The structure of education in India, as is well-known, was based on the British model which was designed for different times and for different circumstances.  However, in the changing scenario, the system of higher education needs to be more responsive to industry and the wider community.  The failure of the present system can be traced to the following possible reasons: (1) Fragmentation of the system into various unconnected sectors which often do not recognise the achievements and contribution that each has to offer; (2) insufficient courses that are in demand; (3) general complexity of rules and regulations which frustrate institutions, industry, and other clients, and a wider community of students and teachers, (4) the vulnerability of the central decision-making which succumb to pressure, group politics, with a subsequent lack of focus on the purposes of education and training; (5) sectoral infighting and lack of overall priorities; (6) lack of accountability in many areas of operation, especially in research; (7) very few incentives to manage effectively; and (8) slowness of the system in responding to changing technological requirements.  These are only indicative and may not always apply to all the institutions.  But they point to a system in need of change.

Funding of Higher Education
To maintain social equity, the government will have to continue funding education system as benefits from education accrue to the society as a whole.  Keeping in mind, the other equally pressing priorities of the government, it would require recourse to greater funding from non government sources, Which will help make a further dent in higher education. This includes enhancing the ability of the institutions to generate income from saleable services, encouraging employers to make a greater contribution to the education and training from which they derive benefit, and asking students to make a greater contribution towards the cost of their courses.  The ability of the institutions to generate income could be achieved by altering the status, including legal status, of the institutions, and giving them more control on their operational decisions.

Moreover, greater employer contribution to the funding of higher education and training could be further explored by constituting a bipartite working group consisting of the government officials and representatives from the Employers' Federation and even trade unions, if necessary.  This group can look into the desirability and feasibility of employer levies as a way of both encouraging training and ensuring that the cost of the system are fairly distributed among the beneficiaries.  Employers clearly benefit from higher education and training, and hence the challenge is to ensure an increase in their contribution.

Another way to enhance the private contribution to funding is through an increase in students' contribution.  This may be determined by the need for equity.  Part payment of cost by students should not be allowed as it will create a financial obstacle to participation.  Moreover, the students' contribution could be deployed in increasing the post-school education and training centres.  It would ensure more number of seats for those who are currently excluded because of shortage of space.  In addition, part government funding, liberal fellowships and scholarships, and even long-term loans from banks may be considered.

Quality of Education
Generation of funds for the universities should not be at the cost of quality.  In fact, the UGC was created primarly to ensure quality of education, but due to internal structural difficulties, qualities, quality could not be effectively maintained. Giving grants has become more like a government budget, and procedure oriented with these typical features: 

  1. All government grants to universities or colleges must be spent within the given year.  Otherwise, it will lead to cuts the ensuing budget
  2. Transfer of resources from one budget item to another was not possible in most cases;
  3. Revenues generated through own efforts of the universities will be deducted from the ensuing UGC/govemment budgets.


Role of UGC
Initially, the concept of the University Grants Commission (UGC) started in England with a centralised structure.  England being a small country, managing centrally was possible.  But, even then, it faced a number of difficulties, and recently UGC as a statutory body has been abolished, and has been substituted with funding councils at the ministry level with greater autonomy to the universities, and also injecting certain competitive elements.  Similarly, in Canada, Australia, and New Zealand, the UGCs have been abolished and alternative models and bodies have been set up which emphasise decentralisation, development of qualitative yardsticks to measure educational efficiency, and encourage the universities by giving them extra premium, and even funding for innovations introduced.  India being a large country, centrally taking care of higher education from Delhi is not possible.  Therefore, decentralisation of higher education is a must to ensure its quality and competitiveness.  The State Education Councils also need to be strengthened.

The UGC should be primarily a policy making body and not merely an operational department, and should be able to provide comprehensive policy advice on higher education.  Though the UGC has been doing a good job of disbursing funds for various projects, there is a need to develop and further streamline its structure, making UGC itself accountable.  The criteria need not necessarily be based on disbursement of funds for various projects but also on .soft" and 'hard" indicators, such as examination reforms, number of qualitative original research and publications which have made an impact, nationally and internationally, and ultimately, the quality of students produced.

Performance Indicators
Similarly, the traditional accounting and auditing function of the universities and colleges, have also, in addition, to evaluate how successful an institution has been in relation to its objectives.  Also, it is important that the resource allocation has to be made competition oriented and, for this, it will be necessary for the UGC to develop reliable and measurable performance indicators for the universities and colleges.  Some of these indicators could be: personnel data (professors, readers, other academic and support staff, etc.), ratio of professors to students and failure rates; examination system; distribution of grades in examinations; number of publications by university staff, outstanding activities as teachers, experts, membership in scientific bodies, prizes and distinction won by faculty; specialised research fields and other institutionalised research centres; research money generated from other sources by universities, such as industry, consultancy works done and their implementation, etc.

It may be desirable to create an academic review office under the aegis of UGC to operationalise these indicators so that ultimately, the UGC can develop certain criteria for financing higher education.  Of course, universities and colleges will have to be involved at every stage while developing these criteria.  A system has to be evolved to pass strictures against poor performance, as well as give incentives for good performance for the universities and colleges.  While financial penalties may be appropriate as the ultimate sanctions against poor performance, there could be a provision for effecting mid-terin corrections through further negotiations even when the grant is approved, to achieve the goals.  This may include tagging of funds for certain specific remedial actions, compulsory re-negotiation for further release of funds or even withholding of funding.

Bulk Grant Funding Mechanism
The broad thrust of reforms in higher education should ensure more responsibility for decision-making of the institutions; that they should be able to use their resources judiciously to achieve their agreed objectives; that broad directions should be through corporate plans of the universities and colleges; and that new procedures be established to ensure accountability.  To achieve these objectives, there is a need to develop a formula for funding universities, specially the Central Universities to start with, which are under the direct control of the UGC.  This could be based on nominal value of full-time equivalent students, and could be adjusted further by weightages for different course costs so that similar courses in different institutions will be funded similarly.  The weightages could be determined, initially, by a thorough review of course costs, and in subsequent years by monitoring these costs.  There could be additional factors and weightages for new and not yet fully established universities in terms of development costs.

Funding mechanisms should also take into account part-time courses, sports, etc.  Unlike at present, any savings that occur in the running of courses be retained by the institutions; and any extra cost incurred be absorbed by them.  A proportion of their bulk grant be earmarked by the UGC to be used for specific purposes, such as some special courses which the UGC or the government wishes the institutions to start.

The UGC may also provide additional targeted funding in order to achieve equity objectives for instance, to encourage enrolments from those who have not traditionally participated much in the university education (SCs, STs, adult education, etc.).  The UGC may also give special grants for capital costs where it is satisfied of the need.  In due course, the UGC should work out a formula of grants for different types of universities and colleges, ( apart from Central universities) so that there is more uniformity and equity in the disbursement of funds.

The bulk grant system would give the universities/institutions more freedom to make decisions and allow them to actually preserve the academic freedom and institutional autonomy.  The UGC and the government objectives will be advanced largely through corporate plan negotiations but with the possibility of some special tagged funding when necessary.  The main advantages of such a funding system is that the institutions/universities will be seen to be responsible and accountable for the use of their resources.  It will be more receptive to community needs.  The universities will exercise their choices about expenditure, instead of being locked into a pre-determined allocation.  New patterns of expenditure may also emerge when decisions are made by those very close to the action, and enable to take new initiatives within the resources available.  It will also help develop their own areas of specialisation.

By being responsible for their own capital development, the institution/universities will be encouraged to make judicious use of their existing resources and help plan development within an agreed framework of time and money.  The institutions will weigh capital expenditure against all other possible uses of money, and will no longer keep capital and operational expenditure artificially separate.  A system of block funding based on a specific formula and common unit of equivalent full-time students, grouped within categories of subjects would easily enable universities/ institutions to compare their own management performance with that of others.  It has to be ensured that the universities/ institutions are free to manage their own resources without unnecessary interventions, while at the same time clearly accountable for their decisions and actions.  They should be encouraged to set their own priorities, and develop their strengths; to accredit their own courses; to develop a broader base of funding support; and to introduce more flexible staff arrangements.  Unnecessary restrictions should be lifted in areas, such as course approval, salary determination of all kinds of academic, and other staff, and other such restrictions on day-to-day matters, including the timings of lecture sessions, their duration, etc.  The developmental grants could be only for priority areas determined by the government policy, every five years.

Interface Through Research and Consultancy
The industry is one of the major users of the higher education system and has to play a role in financing part of its requirements.  This calls for a much closer interaction between the industry and the teaching institutions.  One of the tools of interaction has been greater collaboration in research projects having industrial applicability.  So far as the application-oriented projects are concerned, there is hardly any real assessment of the problem between the industry and teaching institutions.  Many institutions have a substantial separate research budget for this purpose.  However, one of the most favoured approaches followed is to select research projects to spend money as per the budget rather than its immediate applicability to industry, with the result that many of the projects get dropped midway or just result in the publication of a paper.  In one of the studies conducted by the author, it was revealed that most of the technical institutions were reluctant to give data on the number of projects dropped, but one of the leading institutions stated that more than 80 per cent of its projects are never immediately applied by the industry.  Some of the reasons mentioned for their non-applicability to industry were:  

  1. No proper system of evaluating the research projects is undertaken by the teachers.  Many of the projects get dropped midway or result in the mere publication of a short paper.  The emphasis on outputs at times is in terms of the number of papers produced than on their applicability to industry.
  2. The industry feels that academicians have no conception of application problems of the industry, and as such do not trust them.  There is also some reluctance on the part of the academicians to take up applied projects.  They feel more at home with projects on basic research.
  3. Though around 75 per cent of the projects are expected to be in priority, and applied areas, the fall-outs of research have not reached the industry as they are not generally of immediate relevance to the industry.
  4. The industry would rather import ready-made technically advanced processes which have no gestation periods than asking the Indian academicians to take up projects which are invariably time-consuming, and with no certainty of meeting the requirements.
  5. The academicians consider that the industry does not come forward to entrust projects useful for solving its technical problems, except involving them in the preparation of structural designs which is a mere desk work.
  6. There is also a paucity of funds for research.  Most of the research is based on the government grants; what is more, many projects are undertaken for encouraging research than their immediate industrial applicability.  Thus, research is deemed more as a social obligation.
  7.  Many industries do have research departments, but they are not geared properly even to solve their own technical problems.  These are either used for quality inspection or treated as show pieces or to get tax rebates.


It is evident from the foregoing observations that there is a wide divergence between the thinking of the industry, and the academic institutions.  Merely asking the industry to entrust projects to the academicians is not going to solve the difficulties of the former.  Unless the industry is certain of the definite benefits that would accrue from such projects, it would find it cheaper and less time-consuming to get them imported. 

This problem could be sorted out only through more meaningful, continuous, and long-term contacts between the two.  At present, it is a vicious circle in which the industry considers the academicians are out of touch with the industry, and as such there is little use in giving them industrial projects; and the academicians feel that they are out of touch because the industry does not provide them the opportunity to understand and study its problems.

A long-term attachment of the academicians to the industry would be worthwhile.  Working on short-term or brief visits to the industry without any specific responsibility do not bring any meaningful benefit.  It may be useful for teaching institutions to arrange sabbaticals for teachers every 5 to 7 years, for around 2 to 3 years to spend in an industry.  It should not be merely a consulting arrangement, but the academicians should be asked to work as full-fledged engineers/managers with specific responsibility of running a section or department.  Such an attachment will enable the teachers to grasp the day-to-day operational problems of the plant, and help understand the technical, managerial, and other problems in running a plant, and make them more practice oriented.  Later, on their return, it will help them replicate the real life problems as case studies in their teachings.

However, this exchange will require detailed planning and reciprocal understanding on the part of teaching institutions and the industry.  Teaching institutions should work out their staff requirements in such a manner that a certain percentage of teachers will always be away for industrial attachment.  For example, in West Germany, some of the technical institutions provide for 7 to 10 per cent of the excess staff for industrial assignment.  Once the percentage is fixed, the institutions can work out a long-term faculty development plan for industrial exposure.

On its part, the industry will have to realign its organisational structure so as to earmark some positions for a period of 2-3 years for engineers/managers from academic institutions.  As far as possible, they will have to be non-redundant positions and should form part of the Organisation structure, with some specific responsibility.  At the initial stages, it may be necessary to assign some competent deputy to help the new incumbent from teaching institution to give guidance.  This is the only purposive way through which long-term contacts between academic institutions and the industry could be established, and the gap between the two narrowed.

Besides such long-term arrangements, the academicians shall have to continue to work on short-term assignments of the industry as is being done now.  However, the utility of such exposures to the industry seems marginal.  There are instances in which the teachers are detailed to the industry for two to six months without any specific project or responsibility.  They just spend the first few days in having brief discussions with various executives and engineers, and after that they have little to do, except occasional observations on the shop-floor.  The industry also does not favour such visits as it is a waste of time.  Therefore, it is important that such visits are based on specific projects with appropriate responsibility being given to the teachers.

Though the Working Group on Technical Education had recommended that there should be exchange of university professors and engineers, there are some practical problems which need to be tackled 

  1. The experience of most of the academic institutions is that the practising managers or engineers may be very good on their jobs but may not necessarily be good teachers or researchers.  Since the requirements for a good teacher and researcher are different, only a select number of managers or engineers from the industry may be suitable.
  2.  Normally, the industry may not be able to spare "good" officers for long-term or even short-term teaching assignments, it releases only those who could be "spared".
  3.  Likewise, a good teacher does not necessarily make a good officer, more so,when many administrative dimensions are involved in the technical jobs in the industry.
  4. The industry fmds it difficult to make suitable short-term assignments for the teachers.


Keeping these problems in view, a via media has to be found whereby some long-term interactions could be arranged between the industry and the teaching institutions.  In the long-term interest of the educational standards, it may be desirable to formulate a policy according to which the university teachers have greater chance of interacting with the industry as part of their development and thus contribute to the industry with a deeper and analytical study of some of its critical problems.  In this process, the academicians also get an exposure to the practical aspects of industrial working.  Some of the suggestions have been made keeping this specific objective in view.

R&D for Industry-Academy Collaboration
In many countries, it is found that in spite of heavy investment in technical education, equipment, infrastructure, and modern computers, the return in terms of development of applied research seems to be inadequate.  In many cases, it is also found that the faculty of higher technical institutions are inclined to do basic research which help them in publishing papers and enhancing their academic stature.  However, this has not been usefully adopted by business and industry in the areas of applied research as they do not use sophisticated methodology and, to that extent, are not generally favoured by the faculty with the result though there may be highly sophisticated technical education institutions, their spin-off benefits to the surrounding environment is limited.  They thus remain isolated package of excellence.  Though these institutions are well equipped with all infrastructure facilities, no space is earmarked for research environment where academics can share information with representatives from industrial houses and business enterprises.  On the other hand, the business enterprises lack the necessary infrastructure and facilities needed for research.  Therefore, some of the institutions may consider establishing "research parks" with the following guidelines: 

  1. Space in the institutions of excellence should be made available to industrial houses and business enterprises on lease basis with facilities for research.
  2. Such facilities should form the nucleus of research parks with the most modem amenities and facilities for research.
  3. These research parks should have a standing relationship with academicians for sharing of applied research results.
  4. Research parks may be controlled by specially constituted committees appointed by the government, councils of the various institutions, and should have representatives from various industries.


The expenses for establishing these research parks should be met out of the lease money on a time bound basis, and from
other sources, like facilities provided to the industrial houses.

These research parks should be exclusively meant for applied research projects and should have no commercial objectives.  These projects should have some relationship with the capabilities and potential of the concerned institutions.  The projects should utilise directly or otherwise the faculties, libraries, equipment, and other infrastructure in the institution.  Some equipment and instruments for research should be made in the research parks.  Industries and enterprises could have full rights to the end-products of such projects.  However, the methodology involved for research may be used by academicians for teaching and publication.  Methodology and data collection could be shared with other institutions.  Such research parks have been established in the US in as many as 80 institutions.  In India, some initial steps could be taken at the joint initiative of the industry, academic institutions, and the government.