25
Chapter 111 GLOBAL AND INDIAN TRENDS IN FINANCING HIGHER EDUCATION In this Chapter, we propose to examine the recent trends in financing education across the countries and in India. We are also planning to examine the factors influencing these changes and their implications The discussion is based largely on secondary data and other studies 3.1 Crisis in Higher Education The higher education sector is in crisis throughout the world. Part of the reason for the crisis is financial. Higher education which traditionally is dependent heavily on government funding in all countries, both developed and developing, is reeling under the impact of compression of government expenditure The fiscal crisis of the governments are transmitted to higher educational institutions which are finding hard to preserve the quality of education in the absence of alternative sources of finance. The per student expenditure has been compressed and higher education institutions and Universities operate under adverse conditions. This

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C h a p t e r 111

GLOBAL AND INDIAN TRENDS IN FINANCING HIGHER EDUCATION

In this Chapter, we propose to examine the recent trends in

financing education across the countries and in India. We are also

planning to examine the factors influencing these changes and their

implications The discussion is based largely on secondary data and

other studies

3.1 Crisis in Higher Educat ion

The higher education sector is in crisis throughout the world.

Part of the reason for the crisis is financial. Higher education

which traditionally is dependent heavily on government funding in

all countries, both developed and developing, is reeling under the

impact of compression of government expenditure The fiscal crisis

of the governments are transmitted to higher educational

institutions which are finding hard to preserve the quality of

education in the absence of alternative sources of finance. The per

student expenditure has been compressed and higher education

institutions and Universities operate under adverse conditions. This

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has led t o a reduction in physical facilities, overcrowding, lack of

resources for books. instruments e tc .

This w a s not the situation before. A lot of resources were

pumped into higher education during the 1970s and 1980s.

Education expenditure was considered both as an investment and as

an ethical obligat ion o f the state. Consequently enrolment shot up .

The enrolment of the weak and marginalised also went up.

Education, particularly higher education became a good channel for

social mobility Both developed and developing countries invested

heavily in higher education with greater confidence and optimism.

Higher education received high priority in the budgets of the

governments around the world and this trend continued till mid

1980s From then onwards, adverse macro economic conditions and

increased competi t ion for scarce public funds have reduced many

governments' capacity t o support higher education. These trend

taken together with the rising enrolment led to sharp decline in real

per student expenditure.

The f inancial cr is is in higher education is more acute in

developing countries which had to implement economic reforms as

part of the Structural Adjustment Programmes (SAP) emphasising

liberalisation, privatisation and globalisation. There was a lso a

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global ideological shift towards greater reliance on the market and

reduction in the role of the state. There was a clear shift from

welfare state to free market economy. This paradigm shift and the

resultant policy changes envisaged to a larger role for the market

mechanism and for private sector in education. There were

demands for reduction of government subsidies which implied

increased cost recovery in education, particularly higher education.

In the developing countries, higher education was pitted

against school education, especially primary education. It was

argued that higher education falls under non-merit goods category

or are purely private goods. The only sector of education with a

merit good label is elementary education (Government Subsidies in

India 1997)'. According t o Altbach (1997)' the cost of higher

education is shifting from "public purse, public purpose t o private

purse and private purpose". The principle of "Let the buyer pay"

got increasing acceptance among governments and public. For

instance, Britain's Labour Government decided to introduce fees

and stop free tuition This has influenced, though to a lesser extent,

the governments in Europe and elsewhere.

The Table 3 1 shows the participation in tertiary education in

selected countries at different periods of time (1980-1996). A

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general growth in enrolment is clearly visible from the table. But

the increase is more pronounced in developed countries than in

developing countries

Table 3 .1 GROSS ENROLMENT RATIOS IN HIGHER EDUCATION

Tertiary enrolment as % of relevant age

Year Book 1998)

It is clear from the Table 3.1 that the level of participation in

higher education of the relevant age group has gone up from 34

percent in 1980 t o 58 percent in 1996 in high income countries.

The increase is just nominal in low income countries (4 to 5%)

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In most developed countries, higher education has been the

fastest growing segment of the education system. The enrolment

ratio has been increasing o n an average o f 6 .2 percent in low

income countries and 7 . 3 percent in upper and middle income

countries. About 51 percent of the relevant age group (17-23)

population at tend higher education institutions in OECD countries.

This increase has been possible by high level of subsidisation and

growing opportunit ies for employment to graduates.

I n m o s t countries, government is the most important financier

of higher education. Governments act as financiers because markets

cannot provide the required quality o f education and maintain it .

This pattern o f funding by government is also considered important

for equity, efficiency and social control . Therefore, even in market

economies, the governments meet substantially the cost o f public

institutions and sometimes even a portion of the cost of private

institutions Even private Universities look t o the state for help.

This did not last long and the Structural Adjustment Policy,

continued fiscal crisis, slow growth o f economies and rising

unemployment, led t o some sort of control or cut back o n

expenditure, higher education. The countries o f the world as a

whole stepped up the share of the public expenditure on education

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in GNP during the period 1980-1996. But there was a decline in the

share of higher education

Table 3 .2 PUBLIC EXPENDITURE ON EDUCATION

--.-pp (Selected countries and groups) I Public I Expenditure per student I

Expenditure on

rducatton % of GNP Secondary % of GNP % of GNP per capita

a s a % of total

publ ic expenditu

Low income

Source World Development Indicators 1999. (UNESCO's S ta t i s t~ca l Year Book 1998.) Human Development Report 2000

countries Middle income countries High income

Note. Public expenditure on education is the % of GNP accounted for by public spending on public education plus subsidies to private education at the primary, secondary and tertiary levels.

Another comparable data available for analysis is the

3 . 4 4 . 0

5 .6

expenditure on education as a percentage of total public expenditure

( C o l 5 of Table 3 . 2 ) . The ratios for the select developed economies

4 . 9

5 .3

9 . 2

l 20.5

..

--

..

23.2

5 9 . 8

40.6 37.6

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range between 9 .6 t o 14 .4 percent. India is on par with the United

Kingdom as far a s the share o f education in state 's expenditure is

concerned On this count India lags behind China.

Another parameter t o be employed is the share of higher

education in total expenditure on education and i t s relationship with

GNP The Table 3 3 g ives this share for different countries

Table 3 . 3 PRIORITY FOR HIGHER EDUCATION

Share of h ~ g h e r Educat~on Year Total expend~ture I In GNP

-- --

Source UNESCO 1994

It is clear from the table that most of the developed nations spend

more than one percent of their GNP o n higher education. In the

case of New Zealand, Canada, Netherlands, Sweden, Australia the

ratio was much higher. Norway, USA, UK and Japan were

moderate spenders. But Germany and France spend less than 1

percent (0 81 and 0.73 percent respectively) India figures at the

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bottom of t h e table with the share o f only 0 .56 percent o f GNP

earmarked for higher education. According t o the Table t h e only

country which spends more than 2 percent of the GNP on higher

education is New Zealand (2 .5%). The share of higher education in

the total educational budget of the state was very high for the

developed countr ies . The share for India was very low

A global s tudy o f t h e pat tern of funding shows that education

is financed mostly by governments (Tilak, 1997)) The

gobernments j u s t ~ f y t h e ~ r support for e d u c a t ~ o n because e d u c a t ~ o n

generates external i t ies necessary for economic development. Table

3 4 shows clearly public investment in higher education in OECD

countr ies

Table 3 . 4 SHARE O F STATES I N THE INCOME OF THE HIGHER

EDUCATION INSTITUTIONS IN OECD COUNTRIES

~ o u r r ~ x k , J B G. (1995d)

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The share o f s tate in the income o f higher education

institutions is general ly above 70 percent in all OECD countries

other than USA, UK, Germany and Japan. The same is above 80

percent in countries l ike Australia, Finland, France, Netherlands,

Spain e tc . It i s above 90 percent in countries like Norway.

The OECD countries consider this high investment by s ta te as

important for preparing themselves to meet the requirements o f the

21"' century. A substantial part of investment in higher education

in developed countries is public investment. Even private higher

education inst i tut ions are partly state supported. 'Self financing'

private inst i tut ions are almost non existent .

3.2 Non G o v e r n m e n t a l Sources of F inances

The Table 3 .5 shows the share o f fees in unit operat ing

expenditure in various countries. One method of reducing the

financial cr is is in higher education is to mobilise more resources by

way o f higher tui t ion fees A large number of countries are moving

in this direction o f higher cost sharing by students. The fee

enhancement prescript ion is based on the assumption that fees are

very low and that there is scope for increasing fees The experience

world over is that public institutions recover only a small

percentage of their unit cost by way o f user charges It is an irony

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that more charges a re levied by developing countries than most of

the developed countries. The USA charges only 15 percent of cost

as fees in public inst i tut ions. In private institutions it may g o u p t o

40 percent In most developed countries like France, Germany e tc .

higher education is almost free of cost and it is given t o all who

deserve it Analysing the global trends, one can emphatically say

that raising fees to cover 100 percent of the cost is not in keeping

with global thinking or practice

Table 3 . 5 E

Financing Universities in Developing Countries

These f indings are confirmed by the Table 3 . 6 which shows

the relative importance of income from fees and other non

government sources The share o f fees in the total income is

compara t~ve ly low except in private Universities and other higher

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education inst i tut ions of Japan and t o some extent of USA. In

public inst i tut ions share o f fees range from 15 percent in USA to 5

percent in France. In Germany, the share o f fees is negligible. It is

important to not that even when fees are charged by the

Universities, governments pay a large portion o f these fees by

grants or loans to students. I n UK, almost all the fees o f

undergraduate students a re paid ou t o f public funds. This

amounts to about half the fee income o f the Universities. In USA

loans and grants to students accounted for about 80 percent of fees

in 1969-70 and 95 percent in 1984-85. This indicates a decline in

fees actually paid by students in USA, as a result of liberal

s tudents aid programmes. Students loanlaid programmes are meant

to help poor students while t o supporting fee reforms by the

Universities

Another major resource i s the contribution from alumni

industry, philanthropists, foundations etc. As far a s 'other income'

sources are concerned, their share varies between private and

public inst i tut ions. Private Universities in USA generate more than

40 percent as 'other income'. The share o f these sources is higher

than that of fees even in these private Universities. Other countries

like Germany, Spain, UK etc. mobilise 'other sources ' to a

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reasonably good extent . The share of non governmental sources

exceeds the share o f f ees in almost all countries other than Japan.

Table 3 .6 NON-GOVERNMENTAL SOURCES OF INCOME OF HIGHER

S Current Pat tern OECD Quoted in the Repor t o f the Committee on UGC Funding o f Inst i tut ions o f Higher Education, New Delhi 1993

Another very important fact to be noted is that household

expenditure in higher education is much higher in developing

countr ies than in t h e developed countries. Household expenditure

(excluding opportunity cost) according t o Ziderman and Albrecht

( 1 9 9 5 ) ~ is very high in developing countr ies . Therefore, reduction

of subsidies and increase in user charges will have a brutal impact

on the weaker sect ions. Under such situation uniform fee

enhancement without corresponding provision for scholarships,

s tudents loans e tc would be fatal t o equity and social justice

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Pate1 endorses the above view (1993)'. He says that poor

cannot afford to forgo earnings, especially in poor countries. The

middle class, who flock to universities in developing countries are

not all that affluent and they do make great sacrifices t o keep their

children at Universities. These are issues which will have to be

borne in mind before steep fee increases are imposed in India.

Alternatively, there must be ample provisions for scholarships,

student ships and subsidised student loans.

3.3 Growth Trends in Indian

Before examining the trends in financing of education in

India, it is necessary to note the growth trends of this sector.

Education is one of the largest activity i n India incurring an annual

expenditure of about Rs.7000 crores with more than 20 crores

pupils on rolls and 30 lakhs teachers spread over 750 thousand

institutions The higher education system showed a twelve fold

increase in the number of universities and twenty two fold increase

in the number of colleges since independence. In 1999, the country

had 237 Universities, deemed Universities and institutions of

national importance established through state and central

legislation Besides, it had nearly 11,100 colleges. In addition there

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are unrecognised inst i tut ions in higher education. Table 3 .7 shows

the enrolment in recognised higher education institution in India.

Table 3 .7 ENROLMENT IN HIGHER EDUCATION INSTITUTIONS

Source Annual Report 1999-2000 Ministry of Human Resource Development, Government of l n d ~ a

The total number of students enrolled in the Universities in

1999-2000 was 74 . 18 lakhs, out of which 12.25 lakhs were in the

University departments and 61.93 lakhs in the affiliated colleges

The Table 3 . 7 shows subject wise and degree wise enrolment of'

students in higher education institutions. The strength o f the

faculty also went up t o 3 .42 lakh in 1999-2000, out of which 76587

were u n ~ v e r s i t y teachers. In the affiliated colleges, the senior

teachers and lecturers together constitute 260897 and the rest a re

tutors The total enrolled o f women was 25 .74 lakh in the year

1999-2000 This accounts for 3 4 percent of the total enrolment

Eighty percent of women enrolment were in non-professional

faculties of arts, science and commerce and only 13 percent was in

professional courses

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The Table 3 . 8 shows the state wise number of recognised

higher educational institutions in India.

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3.4 Trends in Financing

Large volume of material and non material resources must

go into education for education process t o take place and yield

some quality output. The investments made over the decades is

substantial, but they have t o be maintained. Many argue that higher

education in India is over invested and that resources must be

reallocated to lower levels of education. But all levels o f

education in lndia suffer from inadequacy of resources Almost all

universities in the country, whether central or state, affiliating or

non affiliating, old o r new, general or professional have been in

financial crisis. The situation of increased cost and diminished

income is the problem faced by All Universities and colleges in the

country.

The educational explosion that has taken place in India since

independence is reflected in educational expenditure. At the time ;

of independence, India was spending Rs. S S crores on higher

education which increased 100 times to reach the level of Rs.5500

crores in 1983-84. Growth rate in per capita and per pupil

expenditure is given in Table 3.9 was even higher ( l 4 percent). But

the growth rate in real terms was much lower.

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Table - 3 9

Cost and Financing o f Educat ion in India J B G Tilak, UNDP Project C D S, Trivandrum 1995

Note Up t o 1983-84. based on educat ion in India After 1983-84 Ministry o f Human Resource Development, Government of India

The >hare o f educat ion in Gross N a t ~ o n a l Product (GNP) i s

the most widely used indicator o f priority given t o educat ion in a

country I t may be noted that the Educat ion Commission headed by

D S K o t h a r ~ ( 1 966)"ad fixed 6 percent o f GNP as the target t o be

achieved by the year 1986

Table -3 .10 SHARE OF EDUCATION IN GNP DECADAL TRENDS

% of GNP Avera e 1950-1960 1960- 1970 1970-1980 ~- ~~ ---.-p

1980- 1990 3 .8 Source Studies on Human Development in India

Cost and Financing o f Educat ion in India J B G Tilak, UNDP Project C D S , Trivandrum 1995

Note 1984-85 onwards : government expenditure only .

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At the initial year of planning (1950-1951) the expenditure

on education was 1 .2 percent of the GNP. The decadal average

(1950-60) was 1 8 percent (Table 3.10). Every decade except 1990

showed increases. The recommendations of Kothari Commission

however was not implemented. Therefore, the New Education

P o l ~ c y (1986)' and the revised Programme of Action ( 1 9 9 2 ) ~

reiterated the need to invest 6 percent of GNP in education. But

the actual ratio has only declined since then despite the massive

increases i n enrolment at all stages. During the nineties, the ratio

came down from 3.7% in 1991 to 3 .2% in 1997

Public expenditure on higher education as a share of GNP

Table - 3.11 P- EXPENDITURE ON EDUCATION

increased from 0 19% in 1950-51 to 0.56 percent in 1990-91. It can

Year

-~ -. 1950-5 1 1960-61 . .-~ ~- 1970-7 l 1980-81 -- 1990-9 1 .- --

1997-98

be noted that expenditure on higher education as a share of GNP

Source Reforming Education Financing Varghese, N.V. Seminar 494, October 2000.

Note I Education in India (various years) 2 Annual report of Ministry of Human Resource

Development, Government of India

Percentage GNP Educat ion

1.2 2 .5

Percentage GNP Higher Educat ion

0.19 0.39

3.1 2 .9 3 .7 3 .2

0.77 0.98 0.56

-

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increased continuously till 1980s. It was very close t o one percent

of GNP in 1980-81, but the trend was reversed in 1980s and dipped

to 0 .56 percent 1990-91 (Table 3 . 1 1 ) . After the introduction of

National Policy o f Education (NPE, 1 9 8 6 ) ~ , the focus shifted

towards elementary education.

Table 3 12 SHARE OF EDUCATION EXPENDITURE IN TOTAL

GOVERNMENT BUDGETS OF CENTRE AND STATES

Note Expenditure on Education Includes Both Revenue and Capital Expenditure

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The priority given to education can also be judged by the

share education expenditure in the central and state budgets. If the

central and state budgets are taken together, the share of education

worked out to around 11 percent in 1995-1996 (Table 3.12). The

share o f the education sector in the central budget was only 2 .5

percent in 1995-1996. It increased steadily from 1.1 percent in

1980-81 to 2 3 percent in 1990-91 and to 2.5 percent in 1995-96.

The priority given to education in state government budgets

declined from 25 .5 percent in 1980-81 to 19.6 percent in 1995-96.

The states in India show variations in the proportion of GNP

spent on education. The coefficient of variations increased from 32

percent in 1980-81 to 35 5 percent in 1995-96 (Sherif and Ghosh,

2 0 0 0 ) ' ~ The variations in the educational expenditure of different

states do not fall into any systematic pattern. An economically

backward state like Assam invested 6 . 6 percent of its SDP on

education in 1995-96. But Punjab with the highest per capita

income invested only 2 . 6 percent.

3.5 Allocation in Five Year Plans

'Table 3 13 shows allocations to education in five year plans

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The table 3 14 gives the relative share of higher and technical

education i n the plan expenditure on education.

Table 3.13 ALLOCATIONS TO EDUCATION IN FIVE YEAR PLANS

Plan I Plan I1 Plan 111 Plan IV Plan V Plan V1 Plan V11 Plan V111 Plan

Total Education 7.8 5.8 6 . 9 5 . 8 3.3 2 .7 3.1 4 .5

Source: Reforming Education Financing, N . V . Varghese Seminar 494, October 2000.

Allocation t o education in five year plans denotes

government's commitment t o new initiatives. Based on the relative

allocation of resources t o education, the plan periods can be

categorised into three phases. During the first four plan periods,

the allocation to education had been more than 5 percent. The 51h,

61h and 71h plan periods constitute the second phase which was

characterised by a sharp decline in plan allocation to education.

During the third phase, the decline was chequered and attempts

were made to increase the allocation t o education. But we have not

yet got figures of actual expenditure during the eighth plan We are

not sure to what extent the plan outlay actually materialised.

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Table 3 .14 PLAN EXPENDITURE ON DIFFERENT SECTORS OF

EDUCATION

Source Government of India (1995) Budgetary resources o f education ( 1951-52) to 1993-94) New Ministry o f Human Resource Development

Note Figures in Parenthesis is millions o f rupees

'She share o f higher education reached the peak in the 4th plan

period Thereafter. it showed a steady decline to reach 8 percent

during the 8th plan. Technical education had a good start in the 1st

plan period and t h e al location grew fast t o reach 21 percent in the

third plan period and thereafter reached the peak o f 25 percent

during 1966-1969, the period o f Plan holiday. But a sharp decline

took place during the fourth plan period to 13% and further i t

declined t o 12 % and 11% respectively during the fifth and the sixth

plans It stood at 14 percent during the eighth plan period

Growth in enrolment and increase in prices pushed down the

rate of growth in per student expenditure at constant prices. (Tilak

1987) ' ' and Tilak and Varghese (1983)" . Expenditure per s tudent

in real terms increased from Rs.1584 in 1950-51 to an all t ime high

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level of Rs 2069 by 1965 and ever since it has been declining

consistently

About 99 .2 percent of the total government expenditure was

on revenue account during 1995-96. Even within the revenue

budget, salaries constitute more than 90% leaving very little for

other educational inputs. The already low share of capital

expenditure in the total educational expenditure came down from

1 3% rn 1990-91 to 0 8% in 1995-96 Another feature is that the

bulk of education expenditure is on the non plan account

The following are some of the major trends in financing

higher education in India during the post independence era (see

Table 3 15) (a) The share o f the government in the total

educational expenditure has increased significantly (b) The share

of local bodies is very low, but is increasing

All these are depicted in the Table 3.15

Seminar 494, October 2000.

Table - 3.15 SOURCES OF FUNDING FOR HIGHER EDUCATION

Year

1950-5 1 1960-61

Government Local bodies

1970-7 1 1980-81 1985-86

~ o u i c e c r ~ h e s e

49.1 5 3 . 1

0 . 5 p--

0 . 8 1.4

60 .4 72 .0 79 .7

Fees

0.3 0 .4

25.5 100.0

Others

17.4 14.4

Total

36.8 34.8

1 0 8 4.5

13.8 11.7

1 0 0 0 100.0

100.0 100.0

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(c) There is a s teep decline in the share of fees is quite s teep. (d)

The share of other non governmental sources has been coming down

steeply But today the government which is the main partner in

funding higher education f inds it difficult to maintain the level o f

funding as in the pas t .

In this chapter we have examined the recent t rends in

f inancing higher education across the countries and in India. The

higher education sector is in financial crisis throughout the world

A number of countries have responded to the funding crisis by

introducing innovative policies and programs. The policy makers

of education in India t o o have introduced some reforms like self

f inancing colleges, the impact of which on quality and equity

remains to be probed.

END NOTES

1 . Govt of India. Department o f Economic Affairs [DEA] Government Subsidies in India. New Delhi: Ministry of Finance, 1997

2 Altbach, Phil ip G . " 'Let the Buyer Pay ' : International Trends In Funding Higher Education." University News 15 Sept . 1997.

3 Tilak, JBG "The Dilemma for Reforms in Financing Higher Education" Policy, International association of Universities, Elsevier Science Ltd , No 10 1, 1997

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4 . Panchamukhi, P .R. "Compressing Higher Education Budgets: Some Reflections." University News, 1998.

5. Ziderman, A. and D. Albrecht., Financing Universities in Developing Countries. London: The Falmer, 1995.

6 World Bank "Higher Education in Economic Development " By Patel, I G EDI Seminar Series. Washington D C, 1993

7 . Tilak, JBG (1997), op. cit.

8. Kothari, D.S. , Education and National Development. New Delhi: Govt of India Press, 1966.

9 . Govt of India. The New Education Policy. NPE. 1986. Ministry of Human Resources Development, New Delhi.

10 Sherif, A and Ghosh, P .K . , "Indian Education in Scene and the Public gap, Economic and Political Weekly, April 15, 2000.

1 l .Tilak, JBG. Economics of Ineaualitv in Education. New Delhi: Sage, 1987.

12.Tilak, JBG and N.V. Varghese. Resources for Education in India. Occasional Paper 2 . New Delhi: NIEPA, 1983