A decade of ups and downs in public expenditure on higher education in India

Abstract

The law of increasing state activities (Wagner, 1883; 1890) states that, as the economy grows, public expenditure increases. As the economy develops, the activities and functions of the central as well as local governments increase overtime, necessitating increase in public expenditure. Peacock and Wiseman (1961) further elaborated the Wagner’s law and stated that the public expenditure increases as the revenue of the government increases and as the state has to respond to increasing demands of the people, since in a welfare state the state assumes the responsibility of providing more and more welfare activities. In other words, as the economy grows, there is a persistent tendency towards an ‘extensive’ and an ‘intensive’ increase in the functions of the state. New functions are continuously being undertaken in the interest of society; and old functions are performed with more and more efficiency. The expansion and intensification of government functions and activities would lead to increase in public expenditures. Thus, there is a long run tendency for the public expenditure to grow on a regular basis, as the economy grows. In numerous empirical studies based on extensive time-series analyses, researchers used alterative functional forms to examine Wagner’s law, all of which lend overall strong support to Wagner’s law. Wagner also referred particularly to education and culture, public expenditures on which will increase with increase in national income. While Wagner’s law and Peacock-Wiseman hypothesis emphasise the fact that public expenditure has a tendency to increase overtime, Richard Musgrave (1969) argued that the growth of public expenditure might be related to the level and pattern of economic growth. At the early development stage, societies require huge public expenditure on education and other social development functions, in addition to theinfrastructure of the economy and other investment activities; during the phase of rapid growth, private expenditures might complement public expenditures in certain areas, and in the high-income societies with increased demand for public and private goods, public expenditures get concentrated to provision of public goods, and private expenditures complement public investments in other areas. In the high-income societies, the increasing need for skilled labour and high technology necessitates increasingly high public investments in education and research and development. This chapter examines major trends in public expenditure on higher education in India. The importance of public expenditure in the development of higher education and also national development in general has been well recognised (Tilak, 2003a; Yusuf and Nabeshima, 2007; Tilak, 2007). Countries with high levels of public expenditure on higher education have been found to have progressed in developing strong and vibrant higher education systems and in their contributing to growth and development of the economy. Except in a few countries, high(er) levels of private expenditure on higher education have not yielded similar results.