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

Field: Economics, Econometrics and Finance (Social Sciences)

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.