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The Market in Higher Education: Concern for Equity and Quality

This paper brings to the fore problems associated with application of market logic to higher education, which is poised to play an important role in India's pursuit of inclusive growth. In a context where marketisation of higher education continues unabated and the government is keen to encourage private sector involvement, it is necessary to analyse their impact on the three stated objectives of expansion, inclusion and excellence. It is therefore crucial to understand how the market for higher education works and to critically examine the actual impact of the market on education in India. This paper argues that the market logic seriously compromises value and quality of higher education and this weakens our ability to build an inclusive society.


The Market in Higher Education: Concern for Equity and Quality

Saumen Chattopadhyay

This paper brings to the fore problems associated with application of market logic to higher education, which is poised to play an important role in India’s pursuit of inclusive growth. In a context where marketisation of higher education continues unabated and the government is keen to encourage private sector involvement, it is necessary to analyse their impact on the three stated objectives of expansion, inclusion and excellence. It is therefore crucial to understand how the market for higher education works and to critically examine the actual impact of the market on education in India. This paper argues that the market logic seriously compromises value and quality of higher education and this weakens our ability to build an inclusive society.

This is a more detailed version of the paper presented at the Second World Universities Forum held at IIT-Bombay, Mumbai on 17 January 2009.

Saumen Chattopadhyay ( teaches at the Zakir Husain Centre for Educational Studies, Jawaharlal Nehru University, New Delhi.

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1 Introduction

chieving inclusive growth in India as per the mandate of the ongoing Eleventh Five-Year Plan (EFYP) is a daunting challenge for policymakers. It is argued in the policy c ircle and by a strong group among the academia that there is indeed a stronger case for economic reforms with greater infusion of market principles and a larger role of the private sector to maintain the tempo of India’s high growth. However, our achievement in the realm of human development since independence has been dismal as several indicators would show that disparities and deprivation have only worsened over the years.1 The social fabric of the nation is under stress as discontentment among various sections of the population is brewing. But, growth with worsening disparities of various kinds is argued to be an inevitable outcome of market-oriented reforms (Alternative Economic Survey 2008; Bhaduri 2005). Education being an important instrument for achieving inclusive growth, the issue is whether we should continue to support marketisation of higher education to realise our mandate of inclusive growth. There has been an unmistakable tendency towards marketisation of education as the growing size and dominance of the private providers in all levels of education would testify and the lubrication of the entire process as evident from the recent policy announcements by the Ministry of Human Resource Development (MHRD) on 25 June 2009.

Over the years, higher education has gained importance in I ndia’s changing policy landscape as the centre realised, albeit of late, that India’s strength lies in education, particularly in higher education in the emerging global knowledge economy. It is also sad to note that one of India’s main hurdles to achieving development also lies in education, as quality of education remains poor for the majority of the population. But in an era of globalisation, with dominance of neoliberal ideology in almost every sphere of policymaking, it is important for us to understand how the m arket for higher education is evolving and what does the m arket imply for education and the society in the broader sense of the term. The changing dynamics of the market have implications for access to higher education and therefore, to the bigger question of equity and excellence. How, and at what price, is higher education provided to society is central to our understanding of the emerging market. It is with this objective that this paper attempts to analyse and understand the market for higher education and its changing dynamics in India. The focus is not so much on the characterisation of the Indian higher education m arket but to identify the implications of such a market for e quity and excellence.

In Section 2, we discuss briefly the policy directions emanating out of the major recommendations of the National Knowledge Commission (NKC) and the EFYP. In Section 3, we seek to understand whether higher education is like any other commodity which can be subject to the forces of market. In Section 4, we discuss that the provider of higher education, a university as a not-for-profit organisation associated issues. In Section 5, we try to understand market and market failure in the context of higher education. In Section 6, we briefly describe the features of a market to set the stage for our analysis of the market characteristics. We seek to spell out the broad characteristics of a market particularly in terms of freedom and choice that the market participants, the consumers and the providers supposedly enjoy. In Sections 7 and 8 we examine whether the hallmark of a free market, the freedom enjoyed by the consumers and the providers are the d esirable features for higher education and to what extent the participants enjoy the freedoms in the Indian context. In Section 9, we conclude.

2 The Policy Backdrop

The policy framework for higher education is informed by the r eport of the NKC, the approach of the EFYP along with the recently submitted report on renovation and rejuvenation of higher education (YCR), prepared under the chairmanship of Yashpal, and submitted recently to the government. The similarities and differences in the approach of the three reports will help e xplain the tension and the challenges the policymakers are c onfronted with. The agenda of the MHRD under the new leadership of the present government is being set in this context.

The National Knowledge Commission

Among the major recommendations of the NKC, setting up of an Independent Regulatory Authority for Higher Education (IRAHE) to provide an overarching framework within which the University Grants Commission (UGC), the All India Council for Technical Education (AICTE) and other bodies would function is a contentious one. The MHRD in its 100 days plan has evinced interest in giving a shape to this recommendation which also had the support of the YCR. Further, the NKC has suggested setting up of nearly 1,500 universities mostly in the form of specialised r esearch institutes primarily to meet the growing demand for professional skill-based education as knowledge assumes a p ivotal role in the growth process. The covert inclination towards greater private sector participation and the consequential neglect of the existing public higher education system, through the u nstated assumption that the present structure was beyond r epair, has found few takers within academic circles.

The Eleventh Five-Year Plan

The Indian higher education system seems to be poised for a sea change if we go by the agenda as articulated in the EFYP document. An unprecedented ninefold increase for higher and technical education against the allocation during the 10th Five-Year Plan shows firm commitment by the government to reverse the declining budgetary allocation (in real and per capita terms) since the beginning of fiscal reforms to make expansion of higher

54education inclusive with commensurate attainment in quality (Bhushan 2008; Thorat 2008).2 The budget for education has always remained tilted in favour of primary education and it should have been so. But with the overwhelming importance of attaining gross enrolment rate (GER) in higher education to 15% by the end of 2012, from around 11% at present and given the concern for a ccess and quality, the higher education sector needs to be overhauled, the EFYP argued. The centre has already taken policy i nitiatives to set up of 30 central universities, polytechnics and colleges in hitherto unserved regions and districts with special focus on integrating the marginalised groups.3 Imparting quality education has remained a problem area and the UGC has sought to address it in the EFYP.

However, there are hurdles in realising the plan for higher e ducation that the EFYP delineates. One major problem is of i mplementation. In view of the shortage of quality teachers, creation of world class universities would remain an arduous task, if not impossible, at least during the plan period. The state of governance in the existing set-up, to put it briefly and politely, is poor. Further, the absorptive capacity of such a huge allocation is doubtful, specially when the Planning Commission is still grappling with finalisation of a blueprint for implementation. It may possibly lead to suboptimal utilisation of resources.

One may appreciate the EFYP for giving a new and a long pending thrust to the higher education sector, but it is crucial to under stand and assess the reality as it exists today. In view of the government’s stated commitment to realise the three objectives with respect to higher education – expansion, inclusion and excellence – the uncontrolled growth of the private sector within higher education has made the scenario complex and confusing. An important issue is whether there exists a trade-off among the objectives as the NKC would like to argue or there e xists a complementary relationship among the stated objectives as the makers of EFYP would like us to believe. In the following sections an a ttempt is made to analyse the market of higher e ducation against the backdrop of the government’s policy to realise the three basic goals of expansion, inclusion and excellence. The possible entry of the foreign universities and a big push for promoting public-private partnerships (PPP) as already evident in the approach of the MHRD will further complicate the emerging scenario.

3 Understanding the Nature of Higher Education

In order to understand the nature of the market, it is an imperative to address what kind of good/service higher education is. Primary education is considered to be a merit good where individual choice in the sphere of market is subjugated in playing its part, and society, or, the state on behalf of society, decides the quantum of its provision (Musgrave and Musgrave 1984). Technically speaking, higher education should be considered a mixed good or a quasi-public good (Chattopadhyay 2007),4 i e, essentially a private good with positive externalities which accrue to the society as a whole.5 However, such categorisation is difficult in case of higher education, as the line drawn between the two, public and private good, is thin and moving depending on the policy stance. It is also argued that one has to go beyond

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The Economist’s obsession of defining higher education as a public good or not. Higher education is a public good as long as citizens long for it (Bridges and Jonathan 2003). Though the task of categorisation of higher education as a public good or a quasi-public good is delicate and emotional, it has important policy implications.6

Higher education is argued to be an “experience good” ( Teixeira et al 2004: 6) which means that true assessment of its quality by the students is feasible as they consume, i e, they experience and undergo the rigorous process of attending class and interact with the faculty and their peers and ultimately as they face the market and society. This is partly responsible for the problem of information asymmetry which is inherent to education (Dill and Soo 2004; Massy 2004: 29-30). Students often lack information to make the right choice of the programme/product and the institution/provider when they seek admission as gathering accurate information regarding relevance and quality of the course, faculty reputation, campus placement, reputation of the institution in the job market, etc, from the seniors, or the brochure and from the ranking of the institutions, in case it is available, is a difficult task. Though it is mainly considered as an “ investment good”, depending on the objective and interest of the student, it can partly be a consumption good.

4 University as a Not-for-Profit Organisation

One fundamental way the market for higher education is supposed to differ from the market of a commodity, say chocolate, is that providers/universities are generally considered to be not-forprofit organisations. In India, as per our Constitution, education is not meant for business. In the context of the market it is important to know what motivates educational institutions to strive for the best, or, what is their “objective function”. Under the conception enshrined in our Constitution, universities compete for awards and reputation, academic prestige or distinction or they may vie to attract the best minds, the students and the faculty which is often referred to as “prestige maximisation” (Bok 2003: 158-62). However, there are exceptions. The faculty of a very few universities and institutions of higher learning, at the top of the pyramidical structure that exists in India, may actually display such an objective function. Most others do not. Further, the owners of private institutions often are simply interested in finding ways to siphon out surplus/profits without officially recording it.7

5 Market and Market Failure in Higher Education

Market as generally understood in common parlance is an institutional arrangement to facilitate transactions between two sets of economic agents with conflicting objectives, the consumers and the producers. Patnaik (2007) raises a fundamental point whether the activity, the teaching-learning process in higher education can at all be treated as a market. He pleads for an alternative conception of higher education where “...higher education as an activity in which students and teachers are jointly engaged on behalf of the people of a society” (italics in original, ibid 3-4). According to this view, the skill imparting takes place with concern for and an awareness of the social context with a complete relegation of market obsession as opposed to the narrow view in

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which higher education is viewed merely as an instrument for earning livelihood.

Under restrictive assumptions.8 perfect competition guarantees fulfilment of Pareto efficiency conditions implying efficient allocation of resources, given the initial distribution of resources. The concern for equity in terms of effecting an equitable distribution of resources remains largely unaddressed in a typical market. In general, since market fosters a competitive ambience among the participants, it paves the way for improvement in quality of the product to be delivered at a competitive price. I mperfect competition is considered to be a case for market failure as the Pareto efficiency conditions are not satisfied. In case of higher education, the advocates of market argue for differentiated products to ensure that the consumers (students/parents) can choose from a wide variety of products (Bridges and Jonathan 2003: 135), hence the concept of perfect competition loses its r elevance in our context. There are other sources of market f ailure as well.

To reconcile the objective function of the universities and the nature of competition we may refer to Marginson (2004: 178-87) who argues that the market for higher education is essentially a competition for social status (social advantage, social position) or as he says, a market organised as a “status competition”, where the institutions play a key role in the production and allocation of social status.

Market for Higher Education Is Hierarchical

When we extol the virtues of a competitive market, the pertinent question is whether competition in a market for higher education would usher in quality improvement and some movement t owards homogenisation through the price mechanism. In higher education, the quality depends on quality of students and the teachers and their commitment to excel. Since pricing in the public higher education system is hardly based on cost (as reflected in the supply curve) and demand, the role of price is drastically curbed and whatever role price plays in the private sector, its n ature is somewhat different compared to the conventional market because of the complications associated with tuition fees, capitation fees and regulation. However, price is determined based on financial aid or donations and the extent of cost recovery as decided by the management of the institutions and quality of education imparted as it depends on quality of infrastructure and human capital. Reputed institutions attract more funds in a scenario of competitive funding, more endowments from the r eputed alumni as they come forward to donate and form a network, which enable those institutions to offer more scholarships and lower fees to attract good students. Similarly they attract the best minds to teach and to do research (Winston 1999). As a consequence, the top institutions remain at the top and the mediocre ones are at the middle and not-so-good ones are at the bottom. In a similar vein, Bok argues (2003: 104) “In higher education, the cards are stacked against any institution that lacks an established reputation and money”. In the context of the US, he argues that “In all these ways the strongest universities tend to perpetuate themselves almost automatically. Success begets more success, which helps to explain why the list of top-rated universities in 2000 looks remarkably like a similar list in 1950 or even 1900”. This makes the higher education market intrinsically hierarchical to a large extent. So the extent by which competition can be conducive for quality improvement remains limited with no m ajor shuffling of the university rankings years after years.

Extending the argument a little further, Bridges and Jonathan (2003: 135) argue:

The trouble is, however, that market conditions contain several

d ynamics which create first differences of quality (and not just of char

acter) and then unequal access to the best. First, it is evident that in

market conditions success breeds success and failure just as surely

breeds failure. Early achievement encourages custom, which brings

additional resources and commitment, which enables further success,

and so on: early failure opens the way to a precipitous drop down a

less virtuous circle.

Thus the very rational for infusing market in higher education remains subject to close scrutiny.

Market Is Inherently Unequal

Though market as an institutional arrangement is neutral and provides equal opportunities to all in the normative sense, in practice, it accentuates inequality as all the participants are not equally placed in terms of command over resources and what Hogan (1999) argued “market capacities” to participate in the market. “Market capacities” include “informational resources”, various elements of social and cultural capital in terms of education and networks among many other factors. Those who are left out of the market, become the worst sufferers. This is a far more serious problem for the education sector as it is akin more to an investment good than a consumption good and therefore denial of good education incapacitates an individual for life, hinders s ocial mobility and makes it difficult to live with dignity. It is for these latter features that higher education has gained importance in people’s agendas without any diminution of the importance associated with school education. Investment in these two levels of education are not competitive but sequential in nature.

Educational markets, as Hogan (1999: 330) argues,

...are not just mechanisms that record and aggregate ontologically prior preferences. Rather, markets are structures of power organised around a system of social (specifically, class) relations that ‘structure’ social action in determinate ways in which the possession of certain attributes or ‘market capacities’ advantages some individuals and groups relative to others.

As Marginson (2004: 186) argues that the way some students gain from high-ranked position in society as they are from the top institutions, similarly other students incur loss as they are from low-ranked institutions. So the “positional competition” makes the market a zero-sum game. What is more interesting is that both types of status goods, individualised status of students and institutional status of the universities are co-produced by the student and the university as they, the students and the universities, stand to gain from each other.

Market and Social Values

Market, it is argued, fails to respect social ethos and community feeling. The problem becomes serious in case of a social good like education. Individual choices with respect to social goods are not fully rational as the choices may interfere with larger social goals (Bridges and Jonathan 2003:135-36). In the sphere of market, i ndividuals take decisions to secure maximum “individual positional advantage”, but education bestows positional advantage only at the expense of others in the society (as Marginson (2004) referred it to as a zero-sum game), whereas non-positional benefits can contribute to a community’s well-being in a myriad of ways without inflicting any loss to anybody. It is heartening to note that it suits the parents to have unequally distributed educational provision as long as they are better placed in the society to extract a good deal for their children. In the process, the nonpositional advantages are assigned less priority.

Values associated with community like compassion and benevolence are degraded as market tends to occupy a larger space in the most crucial sphere of our making of life, education, where we learn, appreciate and inculcate values so essential for maintenance of the fabric of the society. But markets are essentially guided by narrow interests as the market participants become impersonal and cooperation vacates space for competition (Olssen 1996: 341-42).

Quasi-Market for Higher Education

Policy initiatives in countries like the United Kingdom and New Zealand have sought to simulate a market like situation in education essentially to uphold consumer sovereignty by giving more discretionary powers to the students/parents to choose their p roviders. This type of market is called a quasi-market as though some of the essential elements of a typical market are injected into the system like elements of competition, user charges, individual responsibilities and freedom of choice (Teixeira et al 2004: 3-4), at the same time education continues to be subsidised and its provision regulated. Competition is generally infused with the purpose of improving the quality of schooling through a mechanism which entails financial empowerment of the students/ parents to exercise their choice effectively. In addition, this r equires competitive funding or, “user-pays” or “per capita” funding9 to put pressure on the institutions/universities to design courses and programmes to respond to the students’ demands, as funding is encouraged to follow the students (Glennerster 1991) rather than giving directly to the institutions. This generates competition among the institutions and also among the different disciplines within the institutions to set their fee levels in relation to cost and service. An attempt to promote use of vouchers in school education is made in the same spirit of giving freedom to the students and the parents to choose the right school and the right course that they want to pursue.

6 Features of the Market

The features of a market could be characterised in terms of the freedom that the two broad sets of economic agents, consumers and the providers enjoy, i e, consumer and producer sovereignty. We follow Jongbloed (2003) to specify eight such features of a higher education market which revolve around the hallmark of a freely competitive market, the freedom which is the most valued aspect in a competitive market economy. Consumers-students and the providers-institutions each have four types of freedoms

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which are discussed to shed light on their desirability in a market for higher education and the extent of marketisation.

7 Four Freedoms for Consumers

This section discusses four “freedoms” for the consumers.

Freedom to Choose the Provider

In the case of higher education market, should the student have the freedom to choose the institution as a consumer can choose the seller/producer in a market for consumption goods? The issue is therefore one of desirability of such a feature for a market in higher education.

In neoliberal theory, the notion of choice is derived from consumer demand which should not be confused with social need (Olssen et al 2004: 179). Since freedom to choose depends pri marily on command over resources and “market capacities”, a student with adequate resources will gain access to any institution of her choice, while the most deserving one may not get similar access due to inadequate resouces. Markets do not conform to a model of equality of opportunity, and neoliberal theorists i gnore inherent power inequalities due to unequal distribution of purchasing power and “market capacities”. Moreover, as Majumdar (1983) has highlighted, there is a potential conflict between the micro and the macro sphere, and between the short and long term. Students form their preferences (the micro) based on their expected profile of future incomes which may not materialise as the macro, which will eventually evolve as the outcome of aggregate choice of m illions of individuals, may turn out to be radically different.10

But does the market function? Bok argues (2003: 162) that three conditions need to be fulfilled for the producers’ responsiveness to the demands of the customers under profit motive in a competitive situation to be desirable. One, students should know what they really need; two, they should be able to evaluate alternatives and finally, their preferences should correspond to the needs of society, as one important objective of education is to prepare students for contributing effectively to common welfare. Information asymmetry and education being an “experience good” make fulfilment of the first of the two conditions difficult. Generally the institutions are ranked and getting admission to the i nstitutions higher in the pecking order becomes increasingly difficult. Since merit should be assigned more importance than money power, freedom to choose provider in case of higher e ducation should be backed up by merit to encourage pursuit for excellence. Effectively, since education is a “positional good” and both students and the universities compete for social status, the institutions and the students choose each other (Marginson 2004) as social status is jointly produced. However, the quota r egime tends to negate this and for a good reason.

If freedom is empowered by money, higher education would lose much of its “positional value” and, essentially, the degree becomes available for sale. The process the students get engaged into is to try and get enrolled in the top institutions as the top i nstitutions are like “brands” and command prestige in the job market. This generates competition as the students bring the best out of themselves. Getting admission into the top institutions is highly competitive as only 2 to 4% of the candidates who apply

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and appear in the tests qualify for getting into institutions like the Indian Institute of Technology and Indian Institute of Management. In essence, hierarchy has its merit by keeping competition alive. However, the freedom for the students to choose the provider may lead to delivery of quality education through competition among the providers as they compete to select the best students. Financial empowerment through education loans is not of much help as the very process of sanctioning loans is infused with several forms of discriminations.11

As Olssen et al (2004) summarises in the consequent of widespread consumer sovereignty in the education market,

they protect privilege; they deny all students equal access to education; they deny all students exposure to alternative perspectives; they limit community’s progress as a democratic community, and they undermine the basis of its integration, socially and politically (ibid: 208).

Freedom to Choose Product

Freedom to choose the provider and product are often linked as it depends on the decision of the student as to whether the institution or the stream/discipline should get priority. If the student is entirely driven by market logic, she would consider whether it is the reputation of the institution as a “brand” matter or the skills of a course which sells more in the job market. It is also possible that the student may keep aside the question of market demand and would like to opt for a course or institution of her choice. E ither the student chooses her product first and then she looks for the relevant institution or she may choose the institution first and would then opt for the course offered. In both these cases, her merit would restrict her choice set. The option to exercise the freedom to choose provider arises in case of top institutions f ollowed by the choice of course or discipline. It depends. For professional courses, the freedom to choose course/discipline comes first and not the institutions other than the top ranking ones. However, general courses even by the top institutions are assigned very little value in a market where a particular skill is v alued. The dominance of freedom to choose product over f reedom to choose the provider explains partly the mushrooming of p rivate institutions of little repute offering market-oriented p rofessional courses in view of the high demand for these courses.

Often a course or a specialisation requires a certain aptitude or some specific skill. A student seeking admission in a medical c ollege should have the merit as well as the aptitude, while the income of her parents should not count. If money power counts, then society stands to suffer as trust and credibility of a skilled person, like a doctor in this case, is at stake. In India, though charging of capitation12 fee is banned, it is a widely open secret now. Applying the same logic as above, one could argue that if freedom is backed by the power of money, education is degraded into a commodity. This has serious consequences as merit is d evalued and the poor get crowded out from the market. The controversy about capitation fees in Tamil Nadu is only the most recent case in point.13

Adequate Information on Prices and Quality

One important assumption of a meaningful and efficient market exchange is availability of adequate information to enable the consumer (student) to participate in the market (Dill and Soo 2004; Massy 2004; Olssen 1996). Competition often does not yield optimal results in higher education because information asymmetry distorts students’ choice and they are unable to evaluate the programmes offered by the institutions. The ranking or perceived reputation of the institution matters in making i nformed choices but not always. In India where a majority of the institutions are not even assessed and accredited, the lesser known private institutions often take gullible students for a ride, particularly in the absence of monitoring by an alert r egulatory authority.14

In view of wide prevalence of information asymmetry in the private education market, there is therefore a sound case for regulation on entry and monitoring of quality by an independent regulatory authority. In India, the private providers in the unregulated market hide information and deliberately mislead s tudents while offering admission (Pathak 2008).

Direct and Cost-Covering Prices

In government aided institutions, the price is generally subsidised other than for self-financing courses. Hence, price is determined mainly by the institution rather than by cost. In the private sector, there is some regulation over price, but frequent cases where non-resident Indian (NRI) and “management quota” seats are illegally sold at a market determined price (capitation fee) to desperate students merely shows what the actual conditions are. Capitation fee reflects super-normal profit as it is much higher than the cost of education offered. But further, education being akin to investment and desired by all, the price of education should not be determined by its cost as those who cannot afford to pay would be left out of the market, bypassing merit in the process.

The fee structure has remained virtually stagnant in the centrally funded institutions. Some, mostly state, universities have sought to garner more resources by offering self-financing courses which are generally market-oriented professional courses. Tilak (2008) argues, based on his finding of rising fee structure and other alternative sources to mobilise more revenues, that the i ncreasing tendency to introduce self-financing courses and i ncreased popularity of loans indicates substantial cost recovery being made by the universities. This is tantamount to financial privatisation of public institutions of higher education. If education ceases to be supported by the government, education b ecomes incapable of serving the larger interests of the people as Patnaik (2007:7) averred.

As per the Planning Commission and the recommendation of the NKC, the universities should gradually move towards 20% cost recovery. However determining the extent of subsidisation in education is a delicate and sensitive matter. Particularly in higher education, cost and quality are positively related as good quality education requires better infrastructure and efficiency gains in terms of cost minimisation cannot be reaped in absence of a well-specified production function (Majumdar 1983). Any a ttempt to provide good quality education would imply passing on the burden to the students to an extent of 20% which makes a mockery of the system as cheap education becomes synonymous with poor quality and vice versa. This means the worth of d egrees and certificates would depend on how much did the student pay towards her cost of education. Strict adherence of cost recovery to the extent of 20% would face stiff resistance but it would also raise a relevant question: how much does good quality education cost?15

Given the salient role of education in ensuring social mobility and social cohesiveness, letting market determine the price of education would, therefore, pave the way for a social disaster.

8 Four Freedoms for Providers

On similar lines, we may also consider freedoms enjoyed by the providers to deepen our understanding of the Indian higher education market.

Freedom of Entry

Freedom of entry (and exit) for the producers is essential to guarantee efficient allocation of resources and to limit the possibility of monopoly profit. Can we apply the same logic to the higher e ducation market and is it desirable? The specific characteristics of higher education as discussed earlier would provide us the clue to the answer. If there is no restriction on entry, there is a high possibility of compromising with the quality of education as p roviders, no matter whether they have expertise or not, would crowd in taking full advantage of an absence of a clear specification about quality and adequate monitoring by the regulatory a uthority. The producers would in fact be distributing degrees/ diplomas and “create an illusion of learning” (Pathak 2009: 153).16

Unfortunately, this is true for the majority of private operators today (Altbach 2009; Jayaram 2006; Vaiydanathan 2009). This is what appears to be believed by the MHRD too as is evident from the decision to set up an overarching regulatory body subsuming the UGC, AICTE and other bodies obliquely referring to the failure of the UGC and the AICTE to maintain academic standard while giving licenses to operate. However, even if there is a regulatory authority, compliance with the requirements does not guarantee good quality education. It is often easy by the private providers to circumvent the compliance requirements in an unfair manner. So the regulatory authority being contemplated by the MHRD has to be careful on this issue. Though there are not yet too many p rivate universities, private sector participation has witnessed a very high growth in the market for professional courses (Tilak 2008). Universities can be established under the state legislation but they are required to get permission from the UGC which has become almost automatic.17 Therefore, this freedom will pave the way for an unregulated market where quality would be the biggest casualty in the process. Carefully regulated entry is what is desirable for both domestic and foreign players in the higher e ducation market.

Freedom to Specify Product

In the government-aided segment of the market, there is autonomy to offer courses subject of course to state governments’ or UGC’s approval. This is particularly so as additional funding is often required to start a new course unless it is a self-financing one. As it is to be expected, there is freedom in the private sector to decide courses and its content subject to the approval by the relevant regulatory authority, UGC or AICTE or as the case may be. To facilitate supply of specialised courses, the UGC has been

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proactive in granting deemed-to-be university status to research institutions with established reputation and credibility so that they can offer taught degree courses. However, there are some restrictions on them related to diversifying into other areas lest it dilutes their specialisation which, in the first place, earned them their status. Inevitably, there is a tendency among the private providers to offer courses which are high in demand in the job market.

As argued by Pathak (2009: 155-56) marketisation could blight the quest for fundamental knowledge as market-oriented courses assume prominence at the expense of the fundamental disciplines like physics, history and sociology. It can even lead to a sort of market-driven hierarchy of knowledge as courses and d isciplines which do not sell in the market are seen as irrelevant by students who, like good investors, are looking for the highest return to their financial investments (fees).

In India, the market for professional courses is increasingly b eing dominated by the private institutes and there is ample evidence that the competition is also getting stiffer. Private institutions are also tying up with foreign universities to develop brand loyalty and offer courses which have relevance and acceptability in the global job market. These foreign universities which partner with Indian private sector education providers, though they themselves are mostly the mediocre ones in their countries of

o rigin, however continue to evoke respect and hope among the aspiring Indian students.18

Freedom to Use Available Resources

For the private sector we need to distinguish among those institutions which receive grants-in-aid and those who do not. In case of support from the UGC, the freedom to use resources as per the discretion of the institutions is rather limited as release of grants is made with a purpose and it is subject to submission of utilisation certificates. Within a particular “head”, there is autonomy with regard to use of resources subject to audit. Maintenance cost inclusive of salary cost as a percentage of total cost has been large resulting in a reduction of the discretionary part of the expenditure. This has hampered development related expenditure. However, the departments can compete for funds under several assistance schemes of the UGC or apply for project/plan based assistance. Possibly there is a need for freedom to use resources by the institutions as financial autonomy is a precursor to the a utonomy in the broader sense. Though the privately owned i nstitutions are not supposed to make profit, they are allowed to make “reasonable surplus” which can be reinvested to further the growth of the institutions.19 In reality, privately owned institutions often maintain two sets of accounts or produce fabricated accounts as they enjoy a de facto freedom to use available resources without reasonable oversight. At the same time, essential expenditure to deliver education is curtailed which leads to the dilution of quality of education. Arbitrary reduction in expenditure and choice of any input combination is feasible as there does not exist any well defined production function for an educational institution.20 For the government institutions it is often debated that the lack of freedom is stifling the functioning and innovation. The argument is tenable if we could ensure that there was

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no corruption. Since the system suffers from poor governance and malpractices, financial autonomy requires the institution to behave responsibly and respect autonomy. Striking a balance is often difficult as the administration prefers to comply with the letter of the rule book and not the spirit of the university.

Freedom to Determine Prices

The government-aided institutions are largely autonomous and therefore, there is freedom to determine the fee structure. As discussed, fee structure could be so designed so as to recover 20% of its cost. As argued earlier, it is difficult to set prices as a fixed percentage of cost in case of education. For the self-financing courses, there is virtual freedom to determine the fee structure. But for the private sector, there is a greater degree of autonomy. Fees are periodically revised upwards and the overall fee structure is loaded with hidden and unjustified demands. The brazen practice of charging capitation fee suggests that the private institutions have the zeal to break away from whatever regulations are there and in the process, their true character and intention get revealed. This has rendered education a commercially exploitable commodity. The prevalence of capitation fee has detrimental effect on access despite the quota regime. It is not therefore desirable that the private providers should have the discretion over the fee structure even in higher education in the larger interests of society. Freedom over prices means quiet acceptance of profitmaking in higher education and that would be the beginning of a decline of the entire system of higher education which will also loses its function of helping build an inclusive society. Raising fees with the excuse of easy availability of loans does not mitigate the problem as there are many shortcomings of even interest free education loans for a country like India.

9 Incompatibility between Market and Equity

This paper has sought to address the issue of applicability of m arket logic to the higher education market. This issue assumes salience because it has important policy implications at this crucial juncture in India. The higher education sector in India seems to be poised for an overhaul while the sector undergoes the process of marketisation. As the government grapples with finding the right mix of public and private participation in higher education, there is ambivalence in the policy approach as the concern for equity does not seem to mesh with the consequences of the neoliberal ideology driven quest for a market in this sector. The promotion of PPP, the announcement of the bill on Foreign E ducation Providers, the setting up of a regulatory body even while the number of private providers continues to grow, corroborate the sense that official policy has a clear inclination towards giving private providers a greater role and relying increasingly on market principles to achieve stated goals in the higher education sector. This paper examined the desirability of having a m arket like situation in higher education characterised in terms of consumer-student sovereignty and producer-institution sovereignty. This paper argued that though higher education is being recognised as a quasi-public good, it has distinct characteristics vis-a-vis a conventional commodity which have significant i mplications for society and policymaking. P olicymakers should recognise these aspects while working for an inclusive and s ensitive society and a vibrant university system. Penetration of the market, the paper apprehends, will interfere with the g overnment’s objective of attaining inclusive expansion of higher education.

In a country with widening disparities it is an imperative that higher education is viewed as an instrument for fostering social mobility and policies formulated accordingly. Technically speaking, market fails in higher education because of information asymmetry and the huge externalities that it generates. While the former needs regulation, the latter calls for public support. Since market fails to ensure equal distribution of resources, the role of government has to remain proactive in the provision of social goods like education. Further, the application of market principles questions the very basic objective of education: is it for the market or for society? Marketisation is synonymous with commodification and the more we treat education as any other consumption good like chocolate, we rob education of its vital role in building up of a democratic, humane and inclusive society. Access to higher education may suffer as privatisation raises the cost of education and merit is bypassed as a new class of consumerstudents emerge with money power, who can now choose their product and providers even across borders. Competition, in case of education market, has limited significance as the market tends to remain hierarchical. As we compromise with the true meaning of education, quality suffers and it strikes at the very foundation of our society. Virtual free entry in absence of a strong and alert regulatory authority has led to abysmally poor quality of education at all levels.

The government’s conviction in market mechanisms and commitment towards market-oriented reforms to rejuvenate the higher education sector is evident even in the latest Economic S urvey 2008-09. While there is no dispute that the demoralised public higher education system needs to be made vibrant and d ynamic, what is debatable, is whether “incentivisation” of the working conditions of the teachers along with adequate financial support would do the needful. At the present juncture, given the inevitability of the rising dominance of market in education in general, the government needs to tread the path of market - oriented reforms with utmost care and caution. Even with adequate safeguards for the underprivileged and an alert regulatory authority, embracing market-oriented reforms would deter the process of achieving a truly inclusive society and attainment of excellence in higher education. As argued above, the rationale for application of market principles in social sector reforms like higher education is rather tenuous unlike in other areas of the economy.


1 There has been virtually no improvement in I ndia’s ranking in terms of the Human Development Index (HDI). To make matters worse, even per capita food consumption has actually declined for the majority of the underprivileged p eople and nearly three-fourth of our population can be considered “poor and vulnerable”.

2 The rise in financial allocation is to be supported

by academic reforms in the university and college equal measure to all in the society. Whereas, in case
systems. of mixed good, the benefits are appropriated pri
3 Some of the steps include setting of a university in a region with GER lower than national average, high marily by the student in terms of higher salaries and externalities accrue to the rest, indirectly and need
concentration of students from SC, ST, OBC cate not be by the same amount as the ability to partake
gories and Muslim population (Thorat 2008:9). the benefits differ among the members of the society.
4 Externalities associated with public good are different from that of a mixed good. In case of a public good, benefits arising out of consumption accrue in Therefore, higher education is not a public good as there is rivalry in consumption in view of the paucity or limited number of seats in the higher education


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july 18, 2009 vol xliv no 29

institutions as opposed to non-rivalry in consumption of a public good. Benefits from higher education accrue primarily to the students and the society gains only indirectly.

5 The literature identifies a wide range of externalities (positive) associated with higher education. Externalities cause social benefits to exceed private benefits which entails that the government should intervene in the form of public provisioning or subsidisation of the cost to take the economy to a socially optimum position. However, theoretically the extent of government intervention or support depends on exact quantification of externalities which is an extremely difficult job.

6 The discussion is largely in the context of education in general without distinguishing between the levels, but the spirit of the argument has to be taken note of. If public goods are desirable publicly provided services then higher education, though not at par with school education, fits the bill to a large extent in contemporary India. However, it seems that higher education is being t reated like a quasi-public good by the Planning Commission and the MHRD as they seek to promote education loans.

7 Because of the possible differences in the objectives of the principal and the faculty, the principal-agent problem may crop up which can seriously affect the governance of the institutions (Massy 2004: 18-20).

8 The assumptions of a perfectly competitive market are homogeneous goods and services, perfect information with the participants, free entry and free exit of firms to ensure perfect mobility of resources and a large number of buyers and sellers.

9 Competition is generated by modifying the funding mechanism. At the school level, students are empowered with vouchers in case they lack resources. For higher education this requires adequate amount of scholarships to be given to the students while phasing out subsidies given directly to the institutions. Fee structure would therefore rise as the s tudents are now assumed to afford to pay.

10 A higher supply of a particular skill may drive the rate of return lower than what was considered while making the choice. (An individual decides under the assumption that all others are not doing the same. If all others are virtually doing the same, the impact on the market demand and supply would be so profound so as entirely negate each individual’s expectations.)

11 The government has been trying to promote education loans in a big way under the EFYP. However, it suffers from various types of discrimination like gender, income and region despite measures adopted by the government to curb these trends. For example, poor students feel greater v ulnerability to loans more than rich students.

12 In 1993, in J P Unnikrishnan and Others vs State of AP and others the Supreme Court held that education being a fundamental right, commercialisation of education was not permissible and it was opposed to public policy and Indian t radition and that the charging of capitation fees was illegal.

13 Times of India, Delhi edition, 4 and 5 June 2009.

14 But where information asymmetry in the higher education market assumes importance is when the education providers, mainly the private ones, suppress relevant information in their brochure or mislead the students regarding infrastructure, faculty and placement services. Only 57% of the colleges covered under the UGC grants and 24% of the total colleges have been accredited by NAAC. Only one-third of the universities have been assessed by the NAAC (Thorat 2008).

15 This is not to deny that there is no scope for reorganisation of the institution to raise efficiency and better use of resources. Corruption often leads to gross mis-utilisation of resources. Before we seek to raise cost recovery, achieving good governance is essential.

16 Since education is a concurrent subject under the Constitution, some states like Chattisgarh e nacted private university acts on their own, and this had led to a mushrooming of private universities in the state.

17 The proliferation of deemed universities has b ecome a contentious issue after the change in the leadership in the MHRD.

18 India does not yet have a legislation in place to regulate foreign collaborations. Varying jurisdictions between the central and the state governments and varying policy perspectives are the major hurdles (Altbach 2009: 44).

19 In 2002, in the case of T M A Pai Foundation vs State of Karnataka, the Court ruled, “...the government can provide regulations that will ensure excellence while forbidding capitation fees, ... there can however be reasonable revenue surplus which may be generated”. It was further clarified in another judgment in 2003 (Islamic Academy of Education vs State of Karnataka) that fee should correspond to cost, surplus to be used for investment, and no profiteering be allowed.

20 Majumdar, Tapas (1983). Inputs and outputs are not only well defined, there exists many combinations of inputs to produce output as the concept of quality remains vague and arbitrary.


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