BS Number Wise: Education and the ability-to-pay principle in India

In 1776, while laying down the Canons of Taxation, Adam Smith espoused the “ability to pay” principle: those who could afford it should contribute more to government coffers. This principle now shapes taxation and welfare programmes worldwide.

India’s “Give it Up” programme in 2015 urged wealthier households to surrender their LPG subsidy and pay market rates. The country’s Goods and Service Tax (GST) rates, too, follow the ability-to-pay principle: necessities are taxed lower than luxuries.

Higher education in state-funded institutes is one field where this principle isn’t applied. Business Standard found that the gap between expenditures incurred by educational institutions of the top 20 universities in the National Institutional Ranking Framework (NIRF) and academic receipts (fees and charges collected by institutes) was at least 20 times. For the top 10 universities, the gap was 30 times in 2019-20.

The fees Jawaharlal Nehru University (JNU) earned per student per annum, at Rs 7,375, was 99 times lower than the spending on academic, administrative, and other costs per student per annum in 2019-20. The gap for the Indian Institute of Science was 54.5 times and Banaras Hindu University was 18.9 times. Jamia Millia Islamia performed better with a 3.8 times gap. In contrast, privately-owned Manipal Academy of Higher Education’s receipts outstripped expenditures.

Analysis shows that expenditure of some of these institutions outpaced growth in academic receipts over the past decade. JNU’s academic receipts between 2010-11 and 2019-20 increased 1.9 times, but establishment expenses (staff salaries and benefits) increased 2.8 times. One reason for the increase in academic receipts was JNU admitting 32 per cent more students compared to 2010-11.

At Delhi University, where the academic receipt per student per year is four times higher than JNU, establishment expenses increased 3.9 times. DU’s academic receipts increased 1.8 times in this period, though its administrative costs barely increased.

Engineering and business colleges did better. The average gap between academic receipts and expenditure of the top 10 engineering institutes, according to NIRF rankings, was 7.7 times. On the other hand, academic receipts were higher than expenditures incurred by management institutes.

The gap between a university’s academic receipts and spending marks its dependence on government grants and a resource crunch that can lead to spending cuts on facilities.

The argument is not to make higher education courses market-linked or to end government subsidies.

The purpose of introducing low-cost state-funded education in India was to increase investment in human capital, but now many can afford it. A RedSeer report said that Indians will spend nearly $75-85 billion on foreign education in 2024.

There is a need to ensure that government universities manage expenditures better and academic fees are based on the ability-to-pay principle.