The Economic Times

Raising Investment in Higher Education

While the university system in England is far from broken, in the last several decades, the more dynamic and competitive U.S. universities have relegated it to the second position worldwide. Abandoning the traditional destinations in England, 100,000 Indian students today study in American universities.

Aware of the decline, the British authorities have been reforming the system in the last 15 years. The latest step in this direction is the report of the independent panel headed by Lord Browne. The panel was asked to make recommendations to increase investment in education, ensure that the quality of teaching is world class and make higher education accessible to anyone with the talent for it. While the ailments of our higher education system are wider and deeper than those of the British system, there are useful lessons for us in the Browne report.

Consider first the access issue. In 2000, the gross enrolment ratio in higher education, which measures the number of individuals going to college as percentage of college-age population, was 8 percent in China and 10 percent in India. By 2008, the ratio had shot up to 23 percent in China but crept up to only 13 percent in India. College and university education remain off-limits to many talented Indian students.

On the quality front, consider the QS World University Rankings, which are designed to assess the all-round quality of universities across all disciplines and levels. Two Chinese universities found listing among the top 100 universities in the 2010 rankings, with the University of Peking ranking 47th and Tsinghua University 54th. Sadly, not a single Indian university made it to the list. No doubt, we have institutions of excellence in teaching in the IITs and IIMs. But they are not full-fledged universities. Universities of Hyderabad and Delhi that earn the top spots in the national ranking do not make to the QS list of the top 100 universities.

This comparison with China is especially telling since Mao Zedong had almost entirely wiped out China’s higher education system during the Cultural Revolution of 1966-68. In contrast, India has had an uninterrupted history of modern universities since 1857 when the Universities of Calcutta, Mumbai, and Madras were founded. Soon after the independence, our university system was strengthened but it has languished during the last three decades, precisely the period during which the Chinese have been rebuilding theirs.

To be sure, financing is a key problem facing our higher education system. With tight central and state government budgets and pressures to cut fiscal deficits at all levels, the government lacks the resources necessary to expand access to all who deserve. With salaries rising in the private sector, universities also find it difficult to retain and recruit top quality teachers essential to good teaching. It is here that we could put the experience of England and the advice offered by the Browne report to good use.

Until 1997, college and university students in England paid no tuition fees whatsoever. With public expenditure on higher education stagnating, expenditure per pupil fell by 36 percent between 1989 and 1997. On the recommendation of the Lord Dearing Committee, which reported in 1997, a fee of £1,000 was introduced, but it proved inadequate. The Higher Education Act, 2004, which came into effect in 2006, raised tuition fee further, but placing a cap on it at £3,000. The government had expected that only the best universities will hit the cap but all institutions have come to charge £3,000 today. As a result, there remains no further scope for increased investment to improve access or quality. The reform introduced by the Higher Education Act, 2004 has fallen well short of its objectives.

This is where the Lord Browne report picks up the matter. It proposes to eliminate the tuition cap altogether with two key provisions to ensure access. First, student will pay no fees upfront, with the government footing the entire bill up to £6,000 per student. Institutions charging more than £6,000 will be required to pay a progressively rising tax on the margin. The tax will be used to finance grants to students from low-income background to meet the living expenses. Second, after graduation, students will be required to begin paying back the costs paid by the government as soon as their incomes rise above a threshold, currently recommended at £21,000.

The Browne report rightly argues that this package will force greater competition among universities since it will allow them to charge higher fees for better education. With no fees to be paid upfront, it will also give students greater choice and access. They will be free to join the institution that offers the highest returns net of costs to them. Above all, the package will stimulate the much-needed increase in investment in higher education.

Browne report notes that as a consequence of compelling evidence in favor of substantial private gains from higher education, “it is not surprising that the argument for a private contribution to higher education has been made — and won — in countries with a wide range of political values such as Australia, New Zealand, the United States, Canada, Japan and Korea.” It also states, “Throughout the range of submissions that we have received, there is broad agreement among groups with an interest in higher education that those who benefit directly from higher education as graduates ought to make a contribution to the costs.” This is a sea change from the past rounds of reforms that saw many advocating free university education.

With the growth rate at 8 percent or more, the Indian economy today offers large private returns to higher education. But our universities are unable to hire top-class faculty for want of resources. Our leaders, especially when visiting abroad, tirelessly refer to the impending demographic dividend. Yet, sadly, little thought is being given to harnessing the younger population: unless we find creative ways to massively increase investment in higher education, the potential dividend may fail to translate into real dividend.