Chapter - 8

PROFESSIONAL EDUCATION : THE COST RECOVERY

An analysis of private cost of education borne by the students (Chapter 6) and

financing pattern and practices (Chapter 7) followed by the students and institutions
of higher professional education sector in the state pointed out two significant trends:
One, the private cost of acquiring education, particularly of fees and funds paid by the
students or parents is very high in all the higher professional courses. And, in
addition, all those student who want to avail of the hostel facilities have to pay much
more in the form of the hostel fees and mess charges; Two, in the absence of state
support in the form of public grants and liberal scholarships, alternative modes of
financing and cost recovery have been followed in the state, where the full-cost
recovery from the beneficiaries (students) has become an over-riding dictum.
Actually, all those who favour the full or high-cost recovery from students
cited the World Bank prescriptions in their favour (World Bank, 1986 and 2000).
Even, the Punnayya Committee (1993) favoured that a substantial part of institutional
costs should be realized from the students. On the other hand, a large number of
studies favoured public funds to finance higher education sector (Blaug, 1965,
Eckaus, 1974, and Tilak, 2004a). They argued that the higher education sector in
developed countries was largely financed out of state funds in the past. Even, in those
countries where the education is not provided by state funded institututions, it is
largely subsidized by the state (Blaug and Woodhall, 1979; OECD, 2003; Tilak,
1993a; 1997). Another study by Tilak (1995) favours recovery of 20-25 per cent of
the recurring cost from the students and the remaining 75-80 per cent of recurring cost
should be borne by the institutions/governments.
In fact, the matter of financing of education is very debatable matter. And,

apart from the ideological settings, it is a serious economic concern of the present day

governments and has been deeply associated with the selection and adoption of the

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best practices which can generate the optimal level of skills of human resources for

the country as a whole, while fully taking care of the economic interests of the

students, service providers and the society at large. It is also held, rightly so, that the

ultimate beneficiaries of education, particularly of any skill development programme

in any country are the industrial and service sectors of the economies which enshrine

and grow on the basis of professional and technical skills of the trained manpower by

using their services. Thus, it is these sectors which are the ultimate users of the skills

and they must pay a part of users’ charges in order to finance the higher education of

the students. In fact, the personnels trained at the cost of public funds generate private

profits for the industry which employ the trained manpower. Thus, it is viewed that

the public funds ultimately translate themselves, through the skill use, into the private

profits. On the other hand, the industrial sector argued that they already pay sufficient

taxes of various types which go to the state kitty and they also create the materal

wealth.

A perusal of economic literature shows that the degree of externality declines

with the rise in the level of education. The private return goes up substantially at the

professional and technical level of education and hence makes the case of high cost

recovery from the users of service, i.e. students. It is also considered that the students

from the richer sections of society, in greater proportions, avail of the benefits of

professional education and, thus, there is no rationale for any subsidization of higher

professional education. But, public policy literature shows that the poor are priced-out

and, ultimately, the richer reach and find greater access to the higher education. The

experience of advanced countries is testimonial to the situation of exclusion and

education based stratifications. Thus, it is widely held view that the cost recovery be

selective and income linked.

These issues are very and growing day-in and day-out with the

commercialization of education by the strong clout of for-profit service suppliers.

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Keeping in view these issues, the present chapter examines, in detail, the cost

recovery of professional educational courses in the state. The extent of cost recovery

has been worked out at four levels: (a) recurring cost as proportion of receipts; (b)

non-recurring cost as proportion of receipts; (c) institutional cost as proportion of

receipts and (d) fees and funds paid by the sampled students as proportion of receipts.

8.1 Cost Recovery Scenario of Courses Affiliated to PTU

The cost recovery scenario of PTU courses has been depicted in Table 8.1. It

is clear that there has been a huge difference in the amount collected by the

institutions and their cost in supplying the education on per unit basis. On an average,

the recurring cost was equal to Rs. 22,319 per annum. But, the receipts were equal to

Rs. 68,230 per annum. Even, the institutional cost was equal to Rs. 37,519. Thus, the

receipts were found to be higher than that of costs, may be the recurring, non-

recurring and institutional. In many courses, the difference is quite noteworthy.

Table 8.1: Estimated Unit Cost, Receipts and Fees and Funds of Sampled Institutions Affiliated
to PTU, 2006-07
(Figures in Rs.)

Recurring Non- Institutional Fees and

Course Recurring Receipts
Cost Cost Funds*
Cost

Engineering 28,657 13,492 42,149 70,130 68,805

Architecture 17,653 19,595 37,248 63,340 62,422

MBA 22,909 16,768 39,677 84,900 83,483

MCA 15,258 9,727 24,985 83,220 80,667

Law 26,389 15,442 41,831 37,610 35,417

Pharmacy 23,048 16,178 39,226 70,180 67,467

Average 22,319 15,200 37,519 68,230 66,377

Note: (i) * Fees & Funds reported by the sampled students.

(ii) Receipts refer to the total collection from all sources (fees & funds, voluntary sources,
property rented-out, government’s grants, others, etc.
Source: Primary Survey.

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 An assessment of the data on cost recovery (Table 8.2) revealed that, on the
whole, per unit recurring cost as the proportion of per unit receipts was 32.71 per cent.
It was found to the highest in the Law course where recurring cost was equal to 70.16
per cent of the receipts. In the rest of the courses, the per unit recurring cost as the
proportion of the per unit receipts was in the following manner: 40.86 per cent in the
Engineering courses, 32.84 per cent in Pharmacy course, 27.87 per cent in
Architecture course, 26.98 per cent in MBA course and 18.33 per cent in MCA
course. In the case of non- recurring cost, on an average, 22.28 per cent of the receipts
were enough for the recovery of non-recurring cost. However, the non-recurring cost
as proportion of receipts was the highest in the case of Law course (41.06 per cent),
followed by the Architecture course (30.94 per cent); Pharmacy course (23.05 per
cent); MBA course (19.75 per cent); Engineering course (19.24 per cent); and the
least was in the MCA course (11.69 per cent).
By combining the recurring and non-recurring costs together, cost recovery
picture becomes clearer. On an average, 54.99 per cent of per unit receipts generated
by the colleges/institutes covered the institution cost (recurring and non-recurring
costs together). Across the various courses, per unit institutional cost as the proportion
of per unit receipts generated by these colleges/institutes during 2006-07 was the
highest in the Engineering course (60.10 per cent), followed by Architecture course
(58.81 per cent); Pharmacy course (55.89 per cent); MBA course (46.73 per cent); and
MCA course (30.02 per cent). Interestingly, there was only one course (Law course)
where per unit institutional cost was more than per unit receipts (111.22 per cent). It
means that running of Law course by any private entrepreneur was not economically
viable during 2006-07. However, the silver lining is that per unit receipts in Law
course was more than the recurring cost. In strict economic sense, any enterprise that
is able to recover average variable cost (here known as recurring cost) in the short run
is expected to be in the business. Moreover, probing the causes of low receipts in the
Law course pointed out that number of students was not up to the sanctioned strength
in these colleges.

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Table 8.2: Per Unit Cost Recovery of Sampled Institutions Affiliated to PTU, 2006-07
(Figures in Percentage)

Cost Recovery
Non-
Course Recurring Institutional Fees and Surplus/Loss
Recurring
Cost to Cost to Funds to
Cost to
Receipts Receipts Receipts
Receipts
Engineering 40.86 19.24 60.10 98.11 39.90
Architecture 27.87 30.94 58.81 98.55 41.19
MBA 26.98 19.75 46.73 98.33 53.27
MCA 18.33 11.69 30.02 96.93 69.98
Law 70.16 41.06 111.22 94.17 -11.22
Pharmacy 32.84 23.05 55.89 96.13 44.11
Average 32.71 22.28 54.99 97.28 45.01

Note: Surplus refers to the excess of receipts over institutional cost.

Source: Primary Survey.

Comparing the per unit fees and funds reported by the sampled students

studying in these courses with the per unit receipts calculated from the financial data

provided by the institutions, one can easily draw a conclusion that fees and funds

charged from the students were the most significant part of the receipts. For instance,

on an average, 97.28 per cent of per unit receipts of institutions were covered from

per unit fees and funds paid by the students. This proportion was the highest in the

Architecture course (98.55 per cent), followed by MBA course (98.33 per cent);

Engineering course (98.11 per cent); MCA course (96.93 per cent); Pharmacy course

(96.13 per cent); and Law course (94.17 per cent).

Regarding surpluses/losses generated in these education colleges/institutes

providing professional courses, the analysis stated that, on the whole, 45.01 per cent

of the receipts were collected as the surpluses. Further, there was only one course, i.e.

the Law course where the losses were reported to be to the tune of 11.22 per cent. In

all other course, surpluses were generated at a very high rate. For example, surpluses

were the highest in the MCA course (69.98 per cent), followed by MBA course (53.27

per cent); Pharmacy course (44.11 per cent); Architecture course (41.19 per cent); and

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Engineering course (39.90 per cent). Judging by the rate of surplus in these courses,

naturally, a very large number of private entrepreneurs will be expected to enter this

business of education.

8.2 Cost Recovery Scenario of Courses Affiliated to BFUHS

The cost recovery levels of the colleges/institutes affiliated to the BFUHS, as

in the case of courses of the PTU, was worked out at four levels: (a) recurring cost as

proportion of receipts; (b) non-recurring cost as proportion of receipts; (c)

institutional cost as proportion of receipts and (d) fees and funds paid by the sampled

students as proportion of receipts. The data in Table 8.3 show that the per unit receipts

were substantially higher than that of per unit cost of all categories such as recurring

cost, non-recurring cost and institutional cost. For example, in overall, the per unit

recurring cost was equal to Rs. 84,754 and the receipts Rs. 1,01,034. Similarly, the

receipts were also higher than that of the institutional cost which was equal to Rs.

93,569. The institutions collected much more funds than what they were found to be

spending.

An analysis of data (Table 8.4) states that overall per unit recurring cost as the

proportion of per unit receipts was 83.89 per cent. It was found to the highest in the

Dental course where 90.82 per cent component of the receipts consisted of the

recurring cost. In the rest of the courses, these proportions were as follows: 90.03 per

cent in Medical course; 83.81 per cent in Ayurvedic course; 77.58 per cent in Nursing

course; and 61.63 per cent in Physiotherapy course. In the case of non-recurring cost,

on an average, 8.72 per cent of the receipts were spent for the recovery of non-

recurring cost. However, the non-recurring cost as proportion of receipts was the

highest in the case of Nursing course (19.62 per cent), followed by Medical course

(9.68 per cent); Dental course (8.42 per cent); Physiotherapy course (4.68 per cent);

and Ayurvedic course (3.54 per cent).

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Table 8.3: Estimated Unit Cost, Receipts and Fees and Funds of Sampled Institutions Affiliated
to BFUHS, 2006-07
(Figures in Rs.)

Recurring Non- Institutional Fees and

Course Recurring Receipts
Cost Cost Funds*
Cost

Medical 137,031 14,730 151,761 152,210 1,50,000

Dental 126,446 11,718 138,164 139,225 1,26,000

Ayurvedic 73,190 3,094 76,284 87,325 72,538

Physiotherapy 42,357 3,216 45,573 68,728 25,000

Nursing 44,748 11,315 56,063 57,680 51,880

Average 84,754 8,815 93,569 1,01,034 85,084

Note: (i) * Fees and Funds reported by the sampled students.

(ii) Receipts refer to the total collection from all sources (fees & funds, voluntary sources,
property rented-out, government’s grants, others, etc.
Source: Primary Survey.

Table 8.4: Per Unit Cost Recovery of Sampled Institutions Affiliated to BFUHS, 2006-07
(Figures in Percentage)

Cost Recovery

Non-
Course Recurring Institutional Fees and Surplus/Loss
Recurring
Cost to Cost to Funds to
Cost to
Receipts Receipts Receipts
Receipts

Medical 90.03 9.68 99.71 98.55 0.29

Dental 90.82 8.42 99.24 90.50 0.76

Ayurvedic 83.81 3.54 87.36 83.07 12.64

Physiotherapy 61.63 4.68 66.31 36.38 33.69

Nursing 77.58 19.62 97.20 89.94 2.80

Average 83.89 8.72 92.61 84.21 7.39

Note: Surplus refers to the excess of receipts over institutional cost.

Source: Primary Survey.

Now, by taking sum of recurring and non-recurring costs together, cost

recovery picture becomes clearer in the case of courses affiliated to the BFUHS. The
perusal of data shows that, on an average, 92.61 per cent of per unit receipts generated

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by the colleges/institutes were spent on the per unit institution cost (recurring and
non-recurring costs together). Across the various courses, per unit institution cost as
the proportion of per unit receipts generated by these colleges/institutes during 2006-
07 was the highest in the Medical course (99.71 per cent), followed by Dental course
(99.24 per cent); Nursing course (97.20 per cent); Ayurvedic course (87.36 per cent);
and the Physiotherapy course (66.31 per cent).
Comparing the per unit fees and funds reported by the sampled students
studying in these courses affiliated to the BFUHS with per unit receipts calculated
from the financial data provided by the sampled institutions, one can easily draw a
conclusion that fees and funds charged from the students were the most significant
part of the receipts. For instance, on an average, 84.21 per cent of per unit receipts of
institutions were recovered from per unit fees and funds paid by the students. This
proportion was the highest in the Medical course (98.55 per cent), followed by Dental
course (90.50 per cent); Nursing course (89.94 per cent); Ayurvedic course (83.07 per
cent); and Physiotherapy course (36.38 per cent).
Regarding surpluses/losses generated in these professional education
colleges/institutes, the analysis stated that, on an average, 7.39 per cent of the receipts
went towards as surpluses. In all other course, surpluses were generated, but at a very
low rate except the Physiotherapy course. For instance, surpluses were not very high
in the case of Medical course (0.29 per cent), followed by the Dental course (0.76 per
cent); the Nursing course (2.80 per cent); and the Ayurvedic course (12.64 per cent).
In the case of Physiotherapy, it was 33.69 per cent.
However, it is indeed a significant fact that for the colleges/institutes
providing MBBS, BDS and BAMS degree courses, the establishment of an attached
hospital for teaching purposes is the mandatory requirement. These hospitals with the
help of teaching staff of these colleges were found to be generated enough funds as a
supplementary income by treating a large number of indoor patients. The
managements of these colleges/institutes were earning enough monies from the
teaching-cum-hospital complexes of these institutions.

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 To sum up, cost recovery behavior of sampled colleges/institutes providing

professional education in the state, particularly the courses affiliated to the PTU

clearly revealed that running of these courses is highly profitable business activity in

the state. In these courses, the share of per unit institutional cost out of per unit

receipts was very low, indicating a very high rate of surpluses generated in these

colleges/institutes. Further, an overwhelming proportion of receipts in the case of

colleges/institutes affiliated to the BFUHS were generated through the fees and funds

paid by the beneficiaries. However, institutional cost recovery was just possible

through the fees and funds charged from the beneficiaries studying in the BFUHS

affiliated courses, although very high fees and funds were paid by these beneficiaries

compared to the courses run by the PTU. Thus, rate of operating surpluses generated

by the courses affiliated to the BFUHS were low compared to the courses affiliated to

the PTU. Indeed, income generated by the hospitals attached with these

colleges/institutes was enough indication to surpass all records of earnings.

The analysis points out clearly that the higher professional education in the

state has become a full-fledged business activity. Moreover, the conflict between the

societal interests and personal business interests has become more pronounced and

visible in the day-to-day functioning of these institutions. The for-profit private

business concerns have started taking academic decisions in an environment full of

weak and less stern regulatory norms. The issue of reinvestment of economic

surpluses generated is also very important. From the analysis, it is clear that the

surpluses are not being used as a relief to the students, since a very less amount is

spent of scholarships, fee concessions, free-ships, etc. The surpluses may be found in

their place in the activities that are not academic in nature.

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