Markets, Higher Education, and the Creation of Human Capital in India

Article excerpt

What role do markets play in expanding market access to higher education, and does that build human capital? Does the focus on equity sometimes produce a counterproductive response? I will examine these questions in the context of market-based higher education in India.

India, like the United States, is characterized by a vibrant private nonprofit involvement in the delivery of higher education. When an organization or individual wished to develop an institution, permission was granted only if the state could provide funds to provide a "revenue" grant to finance the institution, so that there was virtually no tuition the student had to pay. This focus on affordability kept demand very high, and supply was kept low due to government finance constraints.

In the late 1970s, private institutions began to start engineering and management institutions in the four states of Andhra Pradesh (Hyderabad), Karnataka (Bangalore), Maharashtra (Mumbai), and Tamil Nadu (Chennai). This was later followed by similar initiatives in nursing, medicine, dentistry, and education.

Predictably, the result was a huge increase in the number of institutions offering instruction in these subjects. In 2004, there were 1,265 colleges of engineering in the country, and of these, 974 were private. Further, 666 of these 974 were in the four states that took the lead in allowing these colleges to start (India has a total of thirty-five states and union territories). …