Higher Education: Privatisation is Not the Solution

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The Ministry of Human Resource Development (MHRD) is rapidly working towards reforms in higher education, primarily “diversifying sources of funding”, which is effectively a politically correct manner of referring to the impending withdrawal of state subsidies in the field.

The argument that this shift towards private and foreign sources would ease budgetary burden is indeed plausible, but only from the point of view of fiscal prudence. The underlying issues that plague the prevailing system of higher education will remain unaddressed by such a shift. Privatisation may in fact, worsen the twin problems of equity of access and quality.    

The Consultation Paper on Higher Education in India and GATS prepared by the Department of Commerce states that higher education can be made both excludable and rivalrous if we relax the assumption of government provision, and therefore it qualifies as a tradable service. This is clearly contradictory to the stated objectives in the 11th Five Year Plan of promoting “inclusivity, excellence, efficiency” in higher education.

Privatisation of higher education, as proposed in the form of encouraging universities to raise own resources by charging higher fees would clearly exclude a significant section of students belonging to the not-so-well-off sections of the society. Given the fact that private returns to higher education are high, such a move would essentially reinforce income inequalities. The stated ideal of “inclusivity” will remain a matter of rhetoric.

The argument for privatisation as a promoter of efficiency is based on the assumption that free markets are efficient. This assumption is infallible in the absence of market imperfections. But a closer look at the nature of markets in higher education reveals a different story.

The “merit good” nature of higher education was largely undisputed in the past, but with the growing importance of knowledge in the global economy, it is being increasingly looked upon as a tradable. While higher education may have characteristics of private goods if we drop the assumption of public provision, this completely ignores the dynamic technological externalities that are generated in the process of knowledge generation and dissemination. The Task Force on Higher Education and Society (2000) recognised that education creates the key national resource of a highly trained and productive labour force, and higher education in particular provides detailed research relating to various issues. These have a high long term value for the society. For an economy like India, which suffers from inadequate levels of qualitative research, reliance on the market mechanism for provision of higher education would essentially result in less than efficient level of provision as well as attainment. Under private provision, higher education is viewed as a means of raising income earning capacity of the labour force, given the prevailing demand (or with a very limited foresight) for skills in the labour market. For an economy, where labour markets are already deficient in their demand for highly specialised skills such as biotechnology, there is no mechanism that will ensure the development of the same through markets. With higher cost to students for receiving higher education, courses promising immediate jobs will be favoured. For areas where research needs to be carried out for future development of industries and correspondingly of labour markets, there will be little demand, and thereby little investment. Labour markets will lead the education/research sector, rather than the other way around.  Motivations in the field of education are not dependent on monetary incentives (not exclusively). Individuals devote time to research, not because it promises a high monetary return, but because of ideological goals, quest for knowledge or other more complex factors. The argument that efficiency can be promoted by incentivising salaries/promotions of academicians is misplaced, as it assumes that academicians respond solely to market based incentives. This implies that once a researcher has achieved the top level in the academic world in terms of salary/position, he/she will stop working[1]. This is obviously fallacious. Further, the carrots-and-sticks approach implemented in corporate management hardly holds any relevance in the field of education, where often the value of a single piece of monumental research may exceed the collective worth of hundreds of research papers. The value of research output cannot be quantified, at least in the short run, hence, incentivising on the basis of number of published articles, etc. is hardly efficient. Institutes suffer from the problem of lack of an enabling environment that encourages research. “Research” is an uncertain investment from the point of view of individual faculty members, as it may or may not reveal worthwhile findings. Incentivising research then should be extended even to research that is unproductive to overcome this uncertainty. This effectively is similar to subsidisation of research, while rewarding seminal works in retrospect. Given the problems in identifying and separating activities that constitute “research” from “non research” activities, a simple flat subsidy to the institutes is clearly advisable.

Another cause for inefficiency/lack of excellence in the Indian system of higher education is the problem of autonomy. Most universities have non transparent mechanisms for recruitment to faculty positions. Teachers in universities lack autonomy, as they have to bow down to the demands of academic bureaucrats[2]. This stifles the academic environment. As long as politicisation of top faculty and management positions persist, irrespective of the ownership pattern and funding sources, inefficiency in the form of subordinate quality would persist.  

 The system of NAAC ratings which is supposed to address the issue of informational asymmetry by providing ratings uses attributes such as physical infrastructure as parameters. This is inadequate, as the actual teaching learning process involves complex dynamic exchange between teachers and students, which is often unrelated to the state of physical infrastructure of the institute. Such ratings are therefore non reliable. Universities select the best students and best available faculty, while the students and faculty select best universities. In view of this dual selection process characterised by imperfect information regarding quality, the proposal for linking funding to ratings will lead to institutionalisation of pre-existing hierarchies in quality of institutions, as “best” chooses “best”, and the rest remain below par.

Further, with the possibility of foreign competition with the Foreign Educational Institutions Bill, the problems only get compounded. Most of the foreign universities willing to invest in India are not the top-ranked universities in the world, but 2nd and 3rd tier institutes. This means that while we have no assurance for quality, existing universities will face a further resource crunch as they are unlikely to be able to raise sufficient financial resources without resorting to exorbitant fees.

The “reforms” in education are therefore, largely budgetary reforms, which leave the prime issues in education unaddressed. Real solutions are required, rather than state abdication, for the market is unlikely to attain “inclusivity, excellence and efficiency” in this complex, yet crucial sector.

[1] Arun Kumar, “Accountability and Autonomy in Higher Education: Needed Internal Democracy”, EPW, October 31, 1987

[2] Ibid.


  1. J.B.G. Tilak, “The Proposed NCHER: A Solution Worse than the Disease”, Economics and Political Weekly, May 1, 2010
  2. J.B.G. Tilak, “Absence of Policy and Persective in Higher Education”, May 22, 2004
  3. J.B.G. Tilak, “Inclusive Growth and Education: On the Approach to the Eleventh Plan”, Economics and Political Weekly, September 22, 2007
  4. Saumen Chattopadhyay, “The Market in Higher Education: Concern for Equity and Quality”, Economics and Political Weekly, July 18, 2009
  5. Pawan Agarwal, “Higher Education Policy: Many Contradictions”, Economics and Political Weekly, November 11, 2006
  6. Saumen Chattopadhyay, “Exploring Alternative Sources of Financing Higher Education”, Economics and Political Weekly, October 20, 2007
  7. J.B.G Tilak, “Neither Vision nor Policy for Education”, Economics and Political Weekly, March 27, 2010
  8. Saumen Chattopadhyay, “An Elitist and Flawed Approach towards Higher Education”, Economics and Political Weekly, May 1, 2010
  9. J.B.G. Tilak, “The Foreign Educational Institutions Bill: A Critique”, Economics and Political Weekly, May 8, 2010
  10. Arun Kumar, “Accountability and Autonomy in Higher Education: Needed Internal Democracy”, Economics and Political Weekly, October 31, 1987
  11. Arun Kumar, “Strife in Higher Education: Needed a National Incomes Policy”, Economics and Political Weekly, August 22, 1987
  12. Errol D’Souza, “Contractual Arrangements in Academia”, Economics and Political Weekly, May 22, 2004


Disclaimer: The views expressed in this writing are solely of the author and do not necessarily reflect the views or policies of League of India, its Editorial Board or the business and socio-political interests that they might represent.

This article was first published on the author's blog here

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